Competition agencies’ increased focus on digital markets
The emergence of the digital economy in general and e-commerce in particular has been a powerful force bringing about increased competition across a wide range of products and services. As noted in the European Commission’s E-commerce Sector Inquiry Report, price transparency has greatly improved with online trade. The ability to compare prices with ease across online retailers has not only promoted competition online but has fundamentally affected the level of competition faced by businesses offline. The French competition agency has concluded that ‘e-commerce often offers consumers lower prices and more choice than the traditional retail sectors’. A 2017 market study by the Canadian Competition Bureau found that innovations in fintech created opportunities to increase choice and convenience for consumers and lower costs for businesses.
As with any cycle of disruption and innovation, this digital revolution also presents some challenges for competition law enforcement. The contributions to the third edition of this Guide show that competition agencies are increasingly turning their attention to, or intensifying their scrutiny of, the digital economy and are trying to get to grips with both the opportunities and challenges.
It is clear from the contributions to this Guide that many agencies are well aware that regulatory overreach could have negative effects on the development of digital markets and that they should take a cautious, evidence-based approach to competition enforcement in this area. As a first step, a number of agencies (or their governments) have commissioned market studies or appointed experts in the digital field to prepare industry reports. Jurisdictions such as the European Union, the United Kingdom, Germany, France and Canada led the way in this respect and others have since followed (including the United States and India).
It is notable that a first wave of studies and reports on selected topics, such as e-commerce and data, has been followed by a second wave of studies and reports tackling broader topics, such as ‘digital competition’ and ‘digital platforms’. Examples of such recently published reports include:
- the UK Expert Panel Report – Unlocking Digital Competition (the Furman Review) (March 2019), followed by the CMA’s ‘Online platforms and digital advertising market study’ (July 2020);
- the EU Commission Special Advisers Report on Competition Policy for the Digital Era (April 2019);
- report of US Committee for the Study of Digital Platforms, Market Structure and Antitrust Subcommittee, George J Stigler Center (May 2019). The United States Federal Trade Commission (FTC) also organised a series of hearings on 21st century competition and consumer protection law, which concluded in June 2019; and
- the Australian Competition and Consumer Commission (ACCC) Digital Platforms Inquiry Report (July 2019).
Many competition agencies are also establishing or appointing specialist digital markets units or officers with the aim of developing expertise and regulation to deal with fast-paced digital markets. For example:
- in the United Kingdom, the competition agency appointed a Chief Data and Digital Insights Officer to head up its new data unit in May 2018; the Furman Review has since recommended setting up a new digital regulator, as has the CMA, and the UK government has confirmed it will be following the Furman Review recommendations – setting up a Digital Markets Taskforce within the CMA in April 2020;
- in the United States, the FTC announced the creation of a Technology Task Force to focus on investigation and enforcement in high-technology markets, in February 2019;
- in Canada, the Competition Bureau hired its first ever Chief Digital Enforcement Officer, in July 2019;
- in Australia, the Digital Platforms Inquiry report, published in July 2019, recommended the establishment of a specialist digital platforms branch within the ACCC, a recommendation that the Australian government has followed; and
- in Korea, a special ‘ICT Task Force’ within the Korean Fair Trade Commission (KFTC) was established in November 2019.
While many reports and studies have found that existing competition rules generally continue to provide a solid basis for protecting competition in the digital age, the calls for greater changes to regulation are growing. The reports have generally noted that the traditional tools for competition analysis may require some adaptation or refinement to address better the specificities of online markets, such as the multisided nature of platforms, network effects, zero-price markets, so-called ‘big data’ and the increased use of algorithms. In some jurisdictions, changes to the existing competition law framework have been suggested – for example, in India and Korea changes to the jurisdictional thresholds in merger control have been proposed to capture more digital mergers (see below), and similar changes have already been implemented in Germany. In others – in particular the EU, Germany and the UK – there are proposals for new ex ante regulation to govern gatekeeper digital platforms, with a general move to more prescriptive regulation of such platforms.
Some trends in e-commerce competition enforcement so far
Trends in antitrust
In some jurisdictions, competition agencies have moved on from market studies and expert panel reports, and instigated investigations into specific conduct. In some instances, these investigations have resulted in enforcement action. Overall, this action confirms that competition agencies across the globe have found that the current competition rules are sufficiently flexible to deal with a range of potentially anticompetitive restrictions in an e-commerce environment, including third-party platform bans, online sales restrictions (including ‘geo-blocking’), dual pricing, most favoured nation (MFN) clauses and algorithmic collusion.
For example, based on its E-commerce Sector Inquiry findings (May 2017), the European Commission opened a number of antitrust investigations in relation to online vertical restrictions. These investigations resulted in (1) four decisions relating to online resale price maintenance (RPM) (against four manufacturers of consumer electronics products) in July 2018; and (2) a decision in relation to an online cross-border sales restriction (against Guess) in December 2018. In these cases, the European Commission applied the traditional analytical framework for vertical restrictions while noting that the findings in the RPM cases ‘shed light on the increased use of automatic software applied by retailers for price monitoring and price setting’ and that the use of algorithms may have had an exacerbating impact.
From a procedural perspective, regulators have also shown that they can use the existing frameworks to resolve e-commerce cases via commitments or settlements. For example:
- several European national competition authorities accepted commitments from online travel agents (OTAs) to replace wide with narrow MFNs (originally in April 2015), which were subsequently voluntarily extended throughout the European Union;
- in October 2019, the Japanese competition agency (the JFTC) accepted commitments from an OTA resolving concerns with certain parity clauses the OTA had introduced;
- a regional regulator in China – the Shanghai Administration for Market Regulation – recently accepted commitments that resolved concerns it had over retail price maintenance imposed on online retailers by contact lens manufacturers;
- in the European Commission’s RPM and online cross-border sales restrictions cases described above, the companies cooperated with the Commission ‘beyond their legal obligation to do so’ and the Commission therefore granted fine reductions ranging from 40 per cent to 50 per cent. Using the settlement procedure for non-cartel cases in this way helped the Commission speed up its investigations; and
- in August 2020, the Competition Commission of Singapore concluded an investigation into the online food delivery and virtual kitchen markets without action following changes in behaviour by the parties under investigation.
There has also been an increase in the use of interim measures in relation to digital and technology markets (e.g., in France and the EU). In particular, in October 2019 the European Commission imposed interim measures on Broadcom (a designer, developer and provider of integrated circuits for wired communication devices) in the TV and modem chipsets markets. At the time, Competition Commissioner (now Executive Vice-President) Margrethe Vestager said that in the absence of intervention ‘Broadcom’s behaviour is likely . . . to create serious and irreversible harm to competition . . . We therefore ordered Broadcom to immediately stop its conduct.’ This was the first time in 18 years that the Commission imposed interim measures.
Trends in merger control
A few of the expert panel reports and some enforcers have raised questions about the prevalence and potential impact of low-turnover, high-value transactions in digital markets. However, so far, legislative changes have remained limited to refinements to the jurisdictional tests in certain countries to address the perceived concern that such transactions may otherwise escape review.
Some reports have recommended the introduction of a new substantive test or a burden of proof reversal for the review of such deals. So far, however, authorities have tended to apply traditional analytical frameworks when reviewing mergers involving digital markets, including assessing the nature and quality of actual competition, understanding the impact of multi-sided markets, considering the value of data aggregation and evaluating acquisitions of potential competitors.
Updated guidance from agencies and courts
Another trend that is noticeable in the jurisdictions covered by this Guide is that a number of competition agencies have reviewed and updated, or intend to review and update, their published guidance as they gain more experience in relation to digital markets. For example:
- in early 2019, the Korea Fair Trade Commission amended its M&A Review Guidelines to reflect the fact that the agency reviews not only anticompetitive effects on transaction terms (e.g., price increases) but also its effects of restraining competition on innovation;
- in mid-September 2019, the French competition agency opened a consultation on new M&A guidelines, which will, inter alia, clarify the methodology for reviewing deals in the retail sector, including how the agency will take the competitive pressure of e-commerce into account;
- in September 2019, the JFTC released new guidance on abuse of dominance by online platforms, and in December 2019 the JFTC amended its ‘Guidelines and Policies regarding Merger Review’ to clarify the JFTC’s approach to vertical and conglomerate issues, as well as to introduce a mechanism for voluntary notification of transactions that do not meet the JFTC merger review thresholds;
- in China, the 2019 E-Commerce Law lists out factors that indicate when an e-commerce platform is dominant, and new competition guidelines on abuse of dominance provide further details on when an internet company might be found to be dominant; and
- in September 2020, the European Commission published its staff working document evaluating the Vertical Block Exemption Regulation, in which the European Commission concludes that amendments to the Regulation may be required to better reflect practices in digital markets.
The courts are also increasingly providing guidance on how the competition rules should be applied to digital markets. For example, in June 2019, the Higher Regional Court of Düsseldorf overturned the German competition agency’s earlier decision in respect of narrow MFNs, finding them to be compatible with competition law. Another landmark ruling in the area of vertical restrictions in online markets is the European Court of Justice’s ruling in Coty. This ruling shed more light on the extent to which selective distribution systems can be used by manufacturers to restrict distributors in their use of online marketplaces. It confirmed the European Commission’s view that platform bans in selective distribution agreements benefit from the Commission’s Vertical Block Exemption Regulation.
Enforcer guidelines and court rulings that provide further guidance on how the competition rules will or should apply to online markets (including how and when the traditional tools require adaptation or refinement) should be welcomed. It is clear from the contributions to this Guide, however, that an area that still suffers from unclear or inconsistent approaches by enforcers, and that could therefore benefit from further guidance, is the area of abuse of dominance; in particular, the question of how significant foreclosure of rivals should be to give rise to an antitrust concern.
Continue to keep calm and carry on . . . in a global way
Our conclusion in the first and second editions of this Guide still stands; technological innovation is largely pro-competitive and the existing competition rules are, and will continue to be, flexible and robust enough to deal with the challenges of the online world. Careful, evidence- and precedent-based enforcement in individual cases continues to be the best approach to address competition concerns in digital markets, although this will in future likely operate alongside ex ante regulation of gatekeeper platforms in some jurisdictions.
A globally coordinated approach to the challenges raised in competition law by the digital age remains important wherever possible. Not only are the substantive issues similar across jurisdictions, but remedies should be coordinated where possible to avoid undermining the very cross-border competition that the online world has facilitated. We hope this Guide continues to encourage competition enforcers and practitioners to think and act globally when it comes to the enforcement and practice of competition law in the online world.
1 Claire Jeffs is a partner, Nele Dhondt is a professional support lawyer and Jack Dickie is an associate at Slaughter and May.
2 Final report on the E-commerce Sector Inquiry, European Commission (10 May 2017), p. 4.
3 Findings of the E-commerce Sector Inquiry, Autorité de la concurrence (18 September 2012).
4 Competition Bureau, ‘Technology-led innovation in the Canadian financial services sector’ (14 December 2017).
5 For example, Ye Sun Han and Hyunah Kim (Chapter 12) note that in a recent merger the Korean Fair Trade Commission initially ‘took a prudent stance that a balanced approach would be necessary, saying that a decision of the competition authority may create innovation but at the same time deter innovation’. Similarly, Nisha Kaur Uberoi, Akshay Nanda and Tanveer Verma (Chapter 10) refer to the Competition Commission of India (CCI) noting that ‘any intervention in technology markets must be carefully crafted so that it does not stifle innovation or deny consumers the benefits that innovation can offer’.
6 These are listed in our introduction to the first edition of this Guide, and include the e-commerce sector inquiry reports of the European Commission (in 2017) and the French competition agency (in 2012). Other jurisdictions have since published further reports – see, for example, the reports into online travel agencies and regional ‘Super Apps’ in Singapore, considered by Lee Pei Rong Rachel and Leow Rui Ping in Chapter 13
7 The Expert Panel report is available here: www.gov.uk/government/publications/unlocking-digital-competition-report-of-the-digital-competition-expert-panel and the CMA market study is available here: https://www.gov.uk/cma-cases/online-platforms-and-digital-advertising-market-study.
8 The report is available here: https://ec.europa.eu/competition/publications/reports/kd0419345enn.pdf. For an analysis of, and commentary on, some of the recommendations in this report, see Derek Holt and Felix Hammeke, Chapter 6.
9 These hearings covered a variety of e-commerce-related topics, including: (1) the identification and analysis of collusive, exclusionary and predatory conduct by digital and technology-based platform businesses; (2) the antitrust framework for evaluating acquisitions of potential or nascent competitors in digital marketplaces; (3) privacy, big data and competition; and (4) algorithms, artificial intelligence and predictive analytics.
10 The report is available here: www.accc.gov.au/focus-areas/inquiries/digital-platforms-inquiry.
11 Competition and Markets Authority (CMA) press release on the appointment of Chief Data and Digital Insights Officer is available here: www.gov.uk/government/news/cma-appoints-stefan-hunt-to-top-digital-role. The new Officer’s vision is to ensure that the CMA stays ahead, using the latest approaches in data engineering, machine learning and artificial intelligence (see his blog post at: https://competitionandmarkets.blog.gov.uk/2019/05/28/the-cma-data-unit-were-growing/).
12 See the CMA’s market study, available here: https://www.gov.uk/cma-cases/online-platforms-and-digital-advertising-market-study.
13 See HM Treasury Budget 2020, available here: https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/871799/Budget_2020_Web_Accessible_Complete.pdf.
14 See Daniel Bitton and Leslie Overton, Chapter 7.
15 See Ye Sun Han, Hyunah Kim Chapter 12.
16 For example, the EU Commission Special Advisers Report notes that, ‘Over the last 60 years, EU competition rules have provided a solid basis for protecting competition in a broad variety of market settings. Competition law doctrine has evolved and reacted to various challenges and changing circumstances case by case, based on solid empirical evidence. At the same time, the stable core principles of EU competition rules have ensured consistent enforcement. We are convinced that the basic framework of competition law, (. . .), continues to provide a sound and sufficiently flexible basis for protecting competition in the digital era. However, the specific characteristics of platforms, digital ecosystems, and the data economy require established concepts, doctrines and methodologies, (. . .), to be adapted and refined.’ See Ingrid Vandenborre and Michael J Frese (Chapter 3), who address these potential enforcement gaps in relation to pricing algorithms.
17 See Nisha Kaur Uberoi, Akshay Nanda and Tanveer Verma (Chapter 10) and Ye Sun Han, Hyunah Kim (Chapter 12).
18 See Ingrid Vandenborre and Michael J Frese (Chapter 3) and Derek Holt and Felix Hammeke (Chapter 6).
19 Pioneer also engaged in territorial sales restrictions. The decision is discussed by Ingrid Vandenborre and Michael J Frese in Chapter 3.
20 The EC investigation found that Guess’ distribution agreements restricted authorised retailers from, among other things: (1) using the Guess brand names and trademarks for the purposes of online search advertising (an infringement of the EU competition rules not yet known to the Commission); and (2) selling online without a prior specific authorisation from Guess (which was not based on any specified quality criteria). The related press release is available here: https://europa.eu/rapid/press-release_IP-18-6844_en.htm.
21 The European Commission’s related press release is available here: https://europa.eu/rapid/press-release_IP-18-4601_en.htm. The press release also noted that its E-commerce Sector Inquiry had shown that ‘resale-price related restrictions [were] by far the most widespread restrictions of competition in e-commerce markets, which [made] effective competition enforcement in this area important’. This appears to be a broader trend as similar RPM cases have been brought in the UK (Casio decision).
22 Philippe Chappatte and Kerry O’Connell, Chapter 2. In August 2020, the OTAs voluntarily extended the commitments after expiry in the UK – see the CMA’s note on this at: https://www.gov.uk/cma-cases/online-travel-agents-monitoring-of-pricing-practices.
23 See further https://www.jftc.go.jp/en/pressreleases/yearly-2019/October/191025.html - considered in detail by Hideki Utsunomiya and Yusuke Takamiya, Chapter 11.
24 See further Janet Yung Yung Hui, Xuefei Bai, Zhe Dong and Huting Li (Chapter 9)
25 The companies provided evidence with ‘significant added value’ and expressly acknowledged the facts and the infringements of EU antitrust rules.
26 For an analysis of this case, see Lee Pei Rong Rachel and Leow Rui Ping (Chapter 13).
27 For France, see Isabelle de Silva, President of the Autorité de la concurrence, keynote speech at Fordham Conference, 12 September 2019, p. 6.
28 European Commission press release, 16 October 2019, available here: https://ec.europa.eu/commission/presscorner/detail/en/IP_19_6109. Broadcom offered commitments in April 2020 – see further https://ec.europa.eu/commission/presscorner/detail/en/ip_20_755.
29 In Chapter 7, Daniel Bitton and Leslie Overton note that ‘The current administration, at least at the FTC, has devoted more investigative resources to mergers in these areas of the new economy, especially acquisitions of start-up companies in the technology sector, but it remains to be seen whether that will lead to much more enforcement.’
30 In particular, Germany amended its merger control thresholds in 2017 to include a size-of-transaction test to address concerns that the existing thresholds, which were based on turnover, did not always catch deals of competitive significance. However, these (alleged) concerns are not specific to the digital economy but are or could also be relevant in relation to other research-intensive sectors (e.g., the pharmaceuticals and technology sectors). See also Nisha Kaur Uberoi, Akshay Nanda and Tanveer Verma (Chapter 10), Hideki Utsunomiya and Yusuke Takamiya (Chapter 11) and Ye Sun Han, Hyunah Kim (Chapter 12).
31 For example, the Furman Review recommended a change to legislation to allow the UK competition agency to use a ‘balance of harms’ test, ‘which would take into account the scale as well as the likelihood of harm in merger cases involving potential competition and harm to innovation’ (Furman Review, p. 100). The EC Expert Panel report suggests a reversal of the burden of proof.
32 See, for example, the consideration of recent digital mergers in Japan by Hideki Utsunomiya and Yusuke Takamiya (Chapter 11).
33 Autorité de la concurrence, press release, 16 September 2019, available here: www.autoritedelaconcurrence.fr/user/standard.php?id_rub=696&id_article=3516&lang=fr.
34 See Hideki Utsunomiya and Yusuke Takamiya, Chapter 11.
35 See further Janet Yung Yung Hui, Xuefei Bai, Zhe Dong and Huting Li (Chapter 9)
36 Commission Staff Working Documents Evaluation of the Vertical Block Exemption Regulation (Final), 8 September 2020, available here: https://ec.europa.eu/competition/consultations/2018_vber/staff_working_document.pdf. The review of the Regulation is considered by Philippe Chappatte and Kerry O’Connell (Chapter 2).
37 See Philippe Chappatte and Kerry O’Connell, Chapter 2. The authors explain that the Court approached its analysis through the lens of the ancillary restraints doctrine as opposed to Article 101(3) TFEU.
38 Judgment of 6 December 2017, Coty Germany GmbH v. Parfümerie Akzente GmbH, C-230/16. For an analysis see Thomas Graf and Henry Mostyn, Chapter 5.
39 See, for example, Thomas Graf and Henry Mostyn, Chapter 5