Does Competition Law fit the Digital Bill?

Typically, Competition law regulates anti-competitive conduct by companies within a pre-defined market. In doing so, Competition law will seek to ensure that firms and players in a market interact with one another in a way that is fair. Anti-competitive behaviours can take on two main forms in the field of Competition law: they might include anti-competitive agreements, i.e. collusion between competitors in a market, or abusive behaviour by a dominant undertaking over another undertaking. These are dealt with under Articles 101 and 102 of the Treaty on the Functioning of the European Union, or ‘TFEU’, respectively. Competition law exists not only to protect consumers, but also to maintain effective competition in any given economy; it has evidently worked well ever since its inception, at least in the so-called ‘traditional’ economies – that is until the advent of the digital economy.

When we speak of the digital economy, we are referring to all economic transactions which take place over the Internet. Put simply, it’s anything from your online sales and purchases over platforms such as Amazon, to your social media accounts such as Facebook. The digital economy is based on the concepts of globalisation, hyper connectivity and digital computing technologies, and results from the inter-connected world which we are currently living in. However, as the traditional economy transforms to a more digital one, this is impacting the way businesses are structured and how consumers obtain a product or service, i.e. the economic ecosystem as we know it.

In view of this transformation, the question being faced by competition regulators in this new digital age is whether their traditional and well developed Competition law tools and practices, which were admittedly construed for the traditional business sphere, are capable of effective application in the new digital business sphere. This has led to much debate. While some proponents argue that Competition law rules need to be modified to address the various technological developments within the digital economy, others believe that the current regulatory framework is flexible enough to adapt to the new digital environment. In addition, the challenges being posed by the digital economy, are not limited to Competition law but rather, are creeping into other areas of law. This means that trying to regulate these issues within the regulatory box of Competition law alone, may not suffice. From a purely Competition law perspective, an important question which regulators across the EU are trying to address is the following:

“Are the current Competition law rules sufficient to deal with competition concerns which involve technology companies, such as online platforms?”

Fundamentally, the framework of EU Competition law can be divided into four distinct parts: Article 101 of the TFEU, Article 102 of the TFEU, a set of merger control provisions dealt with in Regulation 139/2004 and finally, the rules on the granting of state aid. Articles 101 and 102 of the TFEU are the backbone of Competition law. Article 101 prohibits agreements that have as their object or effect the restriction, prevention, or distortion of competition within the EU and which have an effect on trade between EU member states. Therefore, in terms of Article 101, there are three conditions which are required for this provision to come into play, namely (a) collusion between undertakings, (b) market distortion, and (c) conduct which is capable of affecting trade between Member States. Article 102 of the TFEU deals with situations of abuse by an undertaking which is in a dominant position within the internal market, which would affect trade between Member States. Thus, for Article 102 to come into play, the undertaking must (a) hold a dominant position in the relevant market, (b) perform an act constituting an abuse and (c) affect trade between Member States.

As we have mentioned, today’s world has become largely influenced by the constant technological developments impacting one’s daily life and the world at large from an economic point of view, largely converting the ‘traditional’ economy into a more digital one. Evidently, this development has brought about several challenges in terms of the validity of the framework, application, and enforcement of EU Competition law rules in this regard, rules which were construed for the traditional non-digital sphere.

Specifically, the debate has centered around topics such as the impact of disruptive innovation, algorithms and collusion, two-sided markets, and enforcement tools in multi-sided markets.

One particular challenge which we are seeing in the digital economy is simply the inability to distinguish between an anticompetitive practice and a normal business strategy. Very often, digital business models can easily conceal anticompetitive practices within pro-competitive ones and thus, competition authorities must find new ways of combatting this issue. In the case of BP Kemi, a cooperation agreement between BP Kemi A/S and A/S De Danske Spritfabrikker was entered into, which limited the sales of ethanol in Denmark. The model contract clauses, or ‘MCCs’, which were included in the agreement appeared to be pro-competitive ones. However, as the Court delved deeper into this agreement, it concluded that the MCCs were in fact anti-competitive in nature since they allowed the supplier to gather information on competing offers and discouraged potential competitors from entering the market, thus having a foreclosing effect. Interestingly, despite the fact that this agreement was not signed, the Court nonetheless found that it represented a faithful expression of the joint intention of the parties, and thus constituted an anticompetitive agreement.

The way forward: legislation or status quo?

The European Commission is playing an important role in these discussions. In June 2020, the EU Commission launched an Inception Impact Assessment for its proposed initiative for a ‘New Competition Tool’, or ‘NCT’. The Commission is proposing that this initiative would take the form of a legislative instrument, which aims at tackling the gaps in the current EU Competition rules. The NCT initiative which is being proposed by the Commission aims at ensuring fair and undistorted competition in the internal market. In its Inception Impact Assessment, the Commission proposed that Articles 101 and 102 of the TFEU would continue to be enforced on a case-by-case basis, whilst also proposing four options of tools which can be introduced in this regard.

The European Commission also issued another Inception Impact Assessment in June 2020, entailing a legislative initiative to kickstart the process of having a ‘Digital Services Act package’. This would constitute a regulatory instrument for large online platforms with significant network effects, acting as gatekeepers in the EU internal market. The Platform-to-Business Regulation (‘the P2B Regulation’) which came into force on the 12th of July 2020, was the first step towards establishing a fair and transparent business environment for online platforms.

Following the feedback periods of both of the above-mentioned Inception Impact Assessments, which ended on the 30th of June 2020, the Public Consultation Questionnaire on each initiative was published. The Public Consultation feedback period of both initiatives ended on the 8th of September 2020.

The next step is for the Commission to issue a proposal for a regulation. This is planned for the fourth quarter of 2020, where the Commission will submit a legislative proposal to the European Parliament and Council. National parliaments will also receive this proposal and will be able to submit an opinion to the Commission is response to the proposal. Following this, the proposal will be reviewed and amended by the European Parliament and Council, and if the two institutions agree on the amendments, the proposed law will be adopted. Be sure to keep checking our website for updates on how you can contribute and affect the future legislation and contact us if you want to express your views to the EU Commission!

In a Webinar organised by ‘Concurrences’, an independent legal publisher focusing on competition economics, on the 1st of October 2020, certain challenges and perspectives for a European regulation of Big Tech were discussed. Of note was the suggestion that Big Tech companies are a major technological power which were not set up to destroy other companies. On the basis of this assumption, it was recommended that any future Regulation should find ways of allowing this technological power to exist and grow, but not at the expense of operators who depend on this technological power to exist in a digital economy, and certainly not at the expense of the consumer. Whether this will lead us to revisit the debate in infrastructure bottlenecks, reminiscent of the past, is yet to be seen.

This year, particularly with the onset of the global COVID-19 pandemic, our lives have become even more reliant on technology, where most workplaces were forced to close temporarily and shift to an online basis. Global statistics have also highlighted the fact that the activities which an individual performs in his/her daily life, have become predominantly online. Globalisation and digitalisation generate a large number of advantages both for customers, and also for the firms which are operating in digital markets.

Having said this, competition authorities are facing several challenges in relation to the application of Competition law, to issues which are arising between firms operating in the digital economy. At present, there are various controversial views on the direction that Competition law should take in the future. All these critics are, however, seeking to answer the following question: Can Competition law retain its validity in the digital era, or do we need new regulation to deal with the challenges which are arising from digital platforms and markets? What do you think? Share your views with us on competition@gvzh.mt.

Should you require any further information about how GVZH Advocates can help you with your competition or antitrust regulations requirements, feel free to contact us on competition@gvzh.mt.