October 14, 2019

On 11 October, the Competition authorities in Belgium, Luxembourg and the Netherlands published a joint memorandum on the challenges faced by competition authorities in a digital world, underlining their desire to engage in the debate on the further development of European competition policy during the mandate of the next European Commission.

The authorities acknowledged that the Memorandum cannot address all the challenges faced by competition authorities and, such as issues related to joint ownership or national champions that are less specific to the digital economy. Rather, it focusses rather on issues in merger control, the need for guidance in fast moving digital markets, and the debate on an ex ante instrument providing for binding commitments without the establishment of an infringement.

The Memorandum notes that the policy on mergers in digital markets is one of the main points of discussion (and sometimes disagreement). Questions raised focus primarily on the ability to control the growth of platforms in a winner-takes-all environment and the issue of killer acquisitions, where the fear is that current jurisdictional thresholds and existing assessment criteria mean that dominant platforms can purchase small start-ups with a quickly growing user base, before competition authorities can properly review their competitive impact in a merger control assessment.

The Memorandum states that it would be useful for the European Commission’s Directorate General of Competition to commission an economic study on merger control in the digital sector to facilitate discussion of policy options designed to address an alleged under enforcement of competition rules in the digital sector, such as:

• how competition authorities should assess the competitive potential of start-up companies and whether more guidance should be given to allow for self-assessment prior to notification;
• a change in the jurisdictional thresholds, e.g. by introducing an additional threshold based on the market power of the acquirer and/or the value of the transaction;
• whether and how a balance of harms could or already can be implemented, and whether it would improve merger review;
• whether the burden of proof could be reversed, under which circumstances, and whether it would have led to a more competitive outcome;
• whether there would be options for competition authorities to revise their assessment when young targets have further developed (eventually, by imposing that acquirers keep assets and teams separate for a given period of time); and
• how information-gathering power of competition authorities could be broadened for the review of acquisitions of start-ups by digital platforms.

In terms of the need for ex ante action, the Memorandum observes that the digital economy and other fast-moving markets confront us with the challenge of having a real impact on market behaviour within a time period that meets the legitimate expectations of stakeholders. When infringement cases concern novel issues competition authorities need e.g.:

• an early identification and case allocation and fast track cooperation in related cases as envisaged in the ECN ‘early warning’ procedure;
• complemented by enhanced up-front information exchange within the European Competition Network at the earliest possible stage concerning investigations that may lead to broader media attention;
• a further optimization of accelerated procedures such as single or multiple Member State competition authority settlements and commitments;
• an optimization of interim measures procedures; and
• more generally a use of any technique that may bring forward the useful effect of such procedures, e.g. by communicating on dawn raids.

The Memorandum states that this will not be sufficient; noting that one drawback of the current enforcement toolkit is that ex-post enforcement can be too slow in digital and other fast moving markets. When such markets are characterised by winner-takes-most dynamics, strong network effects, high barriers to entry due to data collection and consumer lock-in, there is a risk that ex-post enforcement comes too late to keep markets competitive and contestable. Therefore, the Memorandum proposes an ex-ante intervention mechanism to prevent anti-competitive behaviour by dominant companies acting as gatekeeper to the relevant online ecosystem.

To read the Memorandum in full, click here.

In a similar move, the German Ministry for Economic Affairs and Energy indicated that a legislative proposal to amend Germany’s competition rules reflects the need for a modernized and proactive competition policy in the digital age.

According to an overview published by the Ministry (see here), the new rules would increase the scrutiny of dominant market players. In particular, the amendments to German competition law would increase requirements for online platforms to share data with competitors, increasing rivals’ opportunities for innovation and market and data access.  In addition, the new rules will increase existing merger thresholds; and codify the leniency programme, which has until now been governed only by an administrative guideline of the German Federal Cartel Office.

Germany updates its competition law every four years. This is the tenth amendment to the competition rules, which is due by 2021. The previous amendment included the introduction of a transaction value based threshold for mergers.

Earlier this year, an independent Digital Competition Expert Panel issued a report on unlocking digital competition, recommending changes to the UK’s competition framework in order to face the economic challenges posed by digital markets, in the UK and internationally. The Report (available here) recommends updating the rules governing merger and antitrust enforcement, as well as proposing a bold set of pro-competition measures to open up digital markets.