Johannes Laitenberger (Director-General for Competition, European Commission) spoke last week on an increasingly prominent topic in competition authority discourse, namely the role of fairness in competition law.
Taking his cue from Commissioner Vestager’s recent speech on the same topic (see here), Laitenberger’s speech looked at the concept through the lens of recent developments in relation to innovation and digital markets. According to Laitenberger, “fairness is important to maintain confidence in the system”. Citing a topical example, he noted the recent Amazon state aid case.
That case related to a tax ruling granted by Luxembourg to Amazon that allowed Amazon to shift ¾ of their EU profits to an untaxed entity, in the form of an IP royalty payment. The decision has strong similarities to the 2016 Apple/Ireland ruling, in which the Commission found that equivalent royalty payments bore no relation to economic reality and thus constituted illegal state aid. The Apple ruling is set to be considered by the CJEU, but the Commission remains of the view that the use of unwarranted IP royalty payments to reduce tax burdens, are ‘unfair’ and will receive short shrift.
Laitenberger emphasised that the role of competition law is not limited to consideration of price competition. Other parameters of competition, including quality, choice and innovation are also key in digital markets.
He illustrated this through a discussion of merger cases where the impact on innovation was a major concern (see our previous commentary here). Perhaps the most controversial of these has been the Dow/Dupont decision, where the Commission used techniques such as patent citation analysis to assess the impact of a reduction of the number of players in the agrichemical business. It ultimately ordered the divestiture of Dupont’s R&D organisation in order to ensure future innovation was protected. Laitenberger highlighted the Commission’s main concerns in this case: a small number of major agrichemical business with R&D capabilities; very high barriers to entry; evidence of likely lessening of R&D efforts post-merger; and existing overlaps between current R&D efforts. This is not the only merger case in which such concerns have been key, and it is likely that this trend will continue.
EU Competition Law is “fit for purpose”
Indeed, Laitenberger also referred to the Microsoft-LinkedIn merger (about which we wrote earlier this year) as an example of the Commission being alert to the potential anti-competitive effects of big data.
Going forward, it remains to be seen whether the Commission will live up to Laitenberger’s ambition “to ensure that markets deliver for the many, not the few” by accounting “for new phenomena and new technologies while maintaining the level of enforcement that is needed for the Single Market to serve society as a whole”. While this aspiration is probably uncontroversial, it also remains to be seen whether the Commission will continue to be able to meet it while remaining true to the fundamentals of competition law as it has developed over the past 50+ years. Indeed, if it is true that divestment remedies ordered against merging parties on grounds of innovation are controversial, the same is all the more true in behavioural cases where innovative conduct is in play. The concept of predatory innovation remains a novel one in competition law, and one where the risks of over-enforcement are legion.