Have your say | How should competition law apply to the digital economy?

Written on 2 Oct 2018

Three separate recent developments confirm the focus of competition authorities across Europe on the digital sector, but also highlight the wider question of whether competition law is fit for purpose in the digital revolution era.

The UK kicks off a wide-ranging, speedy review of key issues

In the UK, the terms of reference for the Furman review (which we reported on previously) were published on 19 September 2018, on the day of the panel’s first meeting.  The review was initially announced by the UK Treasury but is now presented as a joint endeavour with the Department for Business, Energy & Industrial Strategy (BEIS) and the Department for Digital, Culture, Media and Sport (DCMS).  This is a logical shift given that BEIS is already engaged in considering these issues as part of the review around its Green Paper on Modernising Consumer Markets.

The terms of reference confirm that the inquiry is independent but will report to the Treasury and BEIS, and also inform the work of DCMS.  In addition to the Chairman, Professor Jason Furman, the panel comprises four further professors, three of whom have previously held senior positions in UK competition enforcement.

The review is tightly focused on the impact on competition and consumers, considering whether any further economic tools and frameworks are required to understand digital markets, whether the competition authorities need any changes to their powers, functions or resources, and what approach the UK should take to international initiatives in relation to the challenges of the digital economy.  Issues around the impact of the digital economy on privacy, democracy, independence or accountability of the media are expressly excluded from the scope of the inquiry.  The terms of reference make clear that the panel “will engage widely with experts and stakeholders” while the press release about the panel’s first meeting confirms that a call for evidence “will be launched shortly“.

The specific questions which the panel is asked to address are here. It is notable that some questions concern new applications of old problems, such as:

  • having concentrated markets with a few big players;
  • having those few big players present across a number of neighbouring markets; and
  • the phenomenon of two-sided markets, where a customer base receives the product for free, subsidised by sales to advertisers wanting to access that customer base.

Meanwhile, other questions look at challenges which are specific to digital markets or new technology, such as:

  • the impact on competition of ownership of big data by a small number of big firms;
  • the impact on competition and cartel enforcement of artificial intelligence and machine learning; and
  • how to deal with mergers and takeovers in digital markets.

Many of these concerns are fairly well rehearsed but they have not previously been tackled in such a comprehensive way with a view to informing cross-departmental competition policy and enforcement strategy.

Germany also considers competition law reform

The enforcement of competition law in the digital age is also at the top of the agenda for the German Federal Cartel Office (FCO) – another of the most active authorities in Europe in that field. Despite recent changes to the German Act Against Restraints of Competition addressing a number of issues in relation to digital business, as well as many FCO cases applying the existing tools of competition law to the digital economy, Germany is also undertaking policy discussions around the need for further reform of its competition regime.

Following a report by the Monopolies Commission, which found that the legal framework in Germany needs adapting to digital change in the economy, the Federal Ministry for Economic Affairs and Energy has created a competition law committee, known as “Kommission Wettbewerbsrecht 4.0” which will make recommendations on whether reforms to EU and national competition law are needed, particularly given the growth of the digital economy and the need to keep such businesses competitive at the global level.  The committee commenced its work on 20 September 2018 and is expected to report by autumn 2019. The specific questions which the panel is asked to address are repeated in full, followed by our (unofficial) translation, here.

The European Commission has its own spotlight on the issue

The Commission is also considering the challenge of digitisation for competition policy.  It has appointed three independent experts (professors of law, economics and data science, respectively) to consider these issues, with a report due by 31 March 2019.  An open conference to gather contributions is planned for 17 January 2019.

Osborne Clarke comment

The fact that the competition rules in most jurisdictions are based on overarching principles, not specific situations, makes them flexible and adaptable – a point highlighted by Commissioner Vestager in a speech on 25 September 2018.  The digital revolution certainly poses new challenges but digital businesses are not so different that they cannot be scrutinised using the existing tools of competition law, as the Commission’s various investigations into businesses in the digital sector demonstrate.

However, digital business models do raise some difficult and some novel questions and it is to be welcomed that these issues are being looked at in an overarching policy-focused way.  Adopting a clear policy approach should help to ensure consistency in the future in the assessment of competition in digital markets.  Consistency of approach is desirable because it facilitates understanding and anticipation of the likely approach of competition authorities to a particular situation, which in turn is essential for evaluating commercial risk.

If you would like to submit comments to the UK, German or EU reviews or to the EU investigation, please do not hesitate to get in touch with your usual Osborne Clarke contact, or one of the authors.