Showing 9 of 24 Publications

A Competition Law & Economics Analysis of Sherlocking

ICLE White Paper Abstract Sherlocking refers to an online platform’s use of nonpublic third-party business data to improve its own business decisions—for instance, by mimicking the successful products . . .

Abstract

Sherlocking refers to an online platform’s use of nonpublic third-party business data to improve its own business decisions—for instance, by mimicking the successful products and services of edge providers. Such a strategy emerges as a form of self-preferencing and, as with other theories about preferential access to data, it has been targeted by some policymakers and competition authorities due to the perceived competitive risks originating from the dual role played by hybrid platforms (acting as both referees governing their platforms, and players competing with the business they host). This paper investigates the competitive implications of sherlocking, maintaining that an outright ban is unjustified. First, the paper shows that, by aiming to ensure platform neutrality, such a prohibition would cover scenarios (i.e., the use of nonpublic third-party business data to calibrate business decisions in general, rather than to adopt a pure copycat strategy) that should be analyzed separately. Indeed, in these scenarios, sherlocking may affect different forms of competition (inter-platform v. intra-platform competition). Second, the paper argues that, in either case, the practice’s anticompetitive effects are questionable and that the ban is fundamentally driven by a bias against hybrid and vertically integrated players.

I. Introduction

The dual role some large digital platforms play (as both intermediary and trader) has gained prominence among the economic arguments used to justify the recent wave of regulation hitting digital markets around the world. Many policymakers have expressed concern about potential conflicts of interest among companies that have adopted this hybrid model and that also control important gateways for business users. In other words, the argument goes, some online firms act not only as regulators who set their platforms’ rules and as referees who enforce those rules, but also as market players who compete with their business users. This raises the fear that large platforms could reserve preferential treatment for their own services and products, to the detriment of downstream rivals and consumers. That, in turn, has led to calls for platform-neutrality rules.

Toward this aim, essentially all of the legislative initiatives undertaken around the world in recent years to enhance competition in digital markets have included anti-discrimination provisions that target various forms of self-preferencing. Self-preferencing, it has been said, serves as the symbol of the current competition-policy zeitgeist in digital markets.[1] Indeed, this conduct is considered functional to leveraging strategies that would grant gatekeepers the chance to entrench their power in core markets and extend it into associated markets.[2]

Against this background, so-called “sherlocking” has emerged as one form of self-preferencing. The term was coined roughly 20 years ago, after Apple updated its own app Sherlock (a search tool on its desktop-operating system) to mimic a third-party application called Watson, which was created by Karelia Software to complement the Apple tool’s earlier version.[3] According to critics of self-preferencing generally and sherlocking in particular, biased intermediation and related conflicts of interest allow gatekeepers to exploit their preferential access to business users’ data to compete against them by replicating successful products and services. The implied assumption is that this strategy is relevant to competition policy, even where no potential intellectual-property rights (IPRs) are infringed and no slavish imitation sanctionable under unfair-competition laws is detected. Indeed, under such theories, sherlocking would already be prevented by the enforcement of these rules.

To tackle perceived misuse of gatekeepers’ market position, the European Union’s Digital Markets Act (DMA) introduced a ban on sherlocking.[4] Similar concerns have also motivated requests for intervention in the United States,[5] Australia,[6] and Japan.[7] In seeking to address at least two different theories of gatekeepers’ alleged conflicts of interest, these proposed bans on exploiting access to business users’ data are not necessarily limited to the risk of product imitation, but may include any business decision whatsoever that a platform may make while relying on that data.

In parallel with the regulatory initiatives, the conduct at-issue has also been investigated in some antitrust proceedings, which appear to seek the very same twofold goal. In particular, in November 2020, the European Commission sent a statement of objections to Amazon that argued the company had infringed antitrust rules through the systematic use of nonpublic business data from independent retailers who sell on the Amazon online marketplace in order to benefit Amazon’s own retail business, which directly competes with those retailers.[8] A similar investigation was opened by the UK Competition and Markets Authority (CMA) in July 2022.[9]

Further, as part of the investigation opened into Apple’s App Store rule requiring developers to use Apple’s in-app purchase mechanism to distribute paid apps and/or paid digital content, the European Commission also showed interest in evaluating whether Apple’s conduct might disintermediate competing developers from relevant customer data, while Apple obtained valuable data about those activities and its competitors’ offers.[10] The European Commission and UK CMA likewise launched an investigation into Facebook Marketplace, with accusations that Meta used data gathered from advertisers in order to compete with them in markets where the company is active, such as classified ads.[11]

There are two primary reasons these antitrust proceedings are relevant. First, many of the prohibitions envisaged in regulatory interventions (e.g., DMA) clearly took inspiration from the antitrust investigations, thus making it important to explore the insights that competition authorities may provide to support an outright ban. Second, given that regulatory intervention will be implemented alongside competition rules (especially in Europe) rather than displace them,[12] sherlocking can be assessed at both the EU and national level against dominant players that are not eligible for “gatekeeper” designation under the DMA. For those non-gatekeeper firms, the practice may still be investigated by antitrust authorities and assessed before courts, aside from the DMA’s per se prohibition. And, of course, investigations and assessments of sherlocking could also be made even in those jurisdictions where there isn’t an outright ban.

The former sis well-illustrated by the German legislature’s decision to empower its national competition authority with a new tool to tackle abusive practices that are similar and functionally equivalent to the DMA.[13] Indeed, as of January 2021, the Bundeskartellamt may identify positions of particular market relevance (undertakings of “paramount significance for competition across markets”) and assess their possible anticompetitive effects on competition in those areas of digital ecosystems in which individual companies may have a gatekeeper function. Both the initiative’s aims and its list of practices are similar to the DMA. They are distinguished primarily by the fact that the German list is exhaustive, and the practices at-issue are not prohibited per se, but are subject to a reversal of the burden of proof, allowing firms to provide objective justifications. For the sake of this analysis, within the German list, one provision prohibits designated undertakings from “demanding terms and conditions that permit … processing data relevant for competition received from other undertakings for purposes other than those necessary for the provision of its own services to these undertakings without giving these undertakings sufficient choice as to whether, how and for what purpose such data are processed.”[14]

Unfortunately, none of the above-mentioned EU antitrust proceedings have concluded with a final decision that addresses the merits of sherlocking. This precludes evaluating whether the practice would have survived before the courts. Regarding the Apple investigation, the European Commission dropped the case over App Store rules and issued a new statement of objections that no longer mentions sherlocking.[15] Further, the European Commission and the UK CMA accepted the commitments offered by Amazon to close those investigations.[16] The CMA likewise accepted the commitments offered by Meta.[17]

Those outcomes can be explained by the DMA’s recent entry into force. Indeed, because of the need to comply with the new regulation, players designated as gatekeepers likely have lost interest in challenging antitrust investigations that target the very same conduct prohibited by the DMA.[18] After all, given that the DMA does not allow any efficiency defense against the listed prohibitions, even a successful appeal against an antitrust decision would be a pyrrhic victory. From the opposite perspective, the same applies to the European Commission, which may decide to save time, costs, and risks by dropping an ongoing case against a company designated as a gatekeeper under the DMA, knowing that the conduct under investigation will be prohibited in any case.

Nonetheless, despite the lack of any final decision on sherlocking, these antitrust assessments remain relevant. As already mentioned, the DMA does not displace competition law and, in any case, dominant platforms not designated as gatekeepers under the DMA still may face antitrust investigations over sherlocking. This applies even more for jurisdictions, such as the United States, that are evaluating DMA-like legislative initiatives (e.g., the American Innovation and Choice Online Act, or “AICOA”).

Against this background, drawing on recent EU cases, this paper questions the alleged anticompetitive implications of sherlocking, as well as claims that the practice fails to comply with existing antitrust rules.

First, the paper illustrates that prohibitions on the use of nonpublic third-party business data would cover two different theories that should be analyzed separately. Whereas a broader case involves all the business decisions adopted by a dominant platform because of such preferential access (e.g., the launch of new products or services, the development or cessation of existing products or services, the calibration of pricing and management systems), a more specific case deals solely with the adoption of a copycat strategy. By conflating these theories in support of a blanket ban that condemns any use of nonpublic third-party business data, EU antitrust authorities are fundamentally motivated by the same policy goal pursued by the DMA—i.e., to impose a neutrality regime on large online platforms. The competitive implications differ significantly, however, as adopting copycat strategies may only affect intra-brand competition, while using said data to improve other business decisions could also affect inter-platform competition.

Second, the paper shows that, in both of these scenarios, the welfare effects of sherlocking are unclear. Notably, exploiting certain data to better understand the market could help a platform to develop new products and services, to improve existing products and services, or more generally to be more competitive with respect to both business users and other platforms. As such outcomes would benefit consumers in terms of price and quality, any competitive advantage achieved by the hybrid platform could be considered unlawful only if it is not achieved on the merits. In a similar vein, if sherlocking is used by a hybrid platform to deliver replicas of its business users’ products and services, that would likely provide short-term procompetitive effects benefitting consumers with more choice and lower prices. In this case, the only competitive harm that would justify an antitrust intervention resides in (uncertain) negative long-term effects on innovation.

As a result, in any case, an outright ban of sherlocking, such as is enshrined in the DMA, is economically unsound since it would clearly harm consumers.

The paper is structured as follows. Section II describes the recent antitrust investigations of sherlocking, illustrating the various scenarios that might include the use of third-party business data. Section III investigates whether sherlocking may be considered outside the scope of competition on the merits for bringing competitive advantages to platforms solely because of their hybrid business model. Section IV analyzes sherlocking as a copycat strategy by investigating the ambiguous welfare effects of copying in digital markets and providing an antitrust assessment of the practice at issue. Section V concludes.

II. Antitrust Proceedings on Sherlocking: Platform Neutrality and Copycat Competition

Policymakers’ interest in sherlocking is part of a larger debate over potentially unfair strategies that large online platforms may deploy because of their dual role as an unavoidable trading partner for business users and a rival in complementary markets.

In this scenario, as summarized in Table 1, the DMA outlaws sherlocking, establishing that to “prevent gatekeepers from unfairly benefitting from their dual role,”[19] they are restrained from using, in competition with business users, “any data that is not publicly available that is generated or provided by those business users in the context of their use of the relevant core platform services or of the services provided together with, or in support of, the relevant core platform services, including data generated or provided by the customers of those business users.”[20] Recital 46 further clarifies that the “obligation should apply to the gatekeeper as a whole, including but not limited to its business unit that competes with the business users of a core platform service.”

A similar provision was included in the American Innovation and Choice Online Act (AICOA), which was considered, but not ultimately adopted, in the 117th U.S. Congress. AICOA, however, would limit the scope of the ban to the offer of products or services that would compete with those offered by business users.[21] Concerns about copycat strategies were also reported in the U.S. House of Representatives’ investigation of the state of competition in digital markets as supporting the request for structural-separation remedies and line-of-business restrictions to eliminate conflicts of interest where a dominant intermediary enters markets that place it in competition with dependent businesses.[22] Interestingly, however, in the recent complaint filed by the U.S. Federal Trade Commission (FTC) and 17 state attorneys general against Amazon that accuses the company of having deployed an interconnected strategy to block off every major avenue of competition (including price, product selection, quality, and innovation), there is no mention of sherlocking among the numerous unfair practices under investigation.[23]

Evaluating regulatory-reform proposals for digital markets, the Australian Competition and Consumer Commission (ACCC) also highlighted the risk of sherlocking, arguing that it could have an adverse effect on competition, notably on rivals’ ability to compete, when digital platforms exercise their strong market position to utilize nonpublic data to free ride on the innovation efforts of their rivals.[24] Therefore, the ACCC suggested adopting service-specific codes to address self-preferencing by, for instance, imposing data-separation requirements to restrain dominant app-store providers from using commercially sensitive data collected from the app-review process to develop their own apps.[25]

Finally, on a comparative note, it is also useful to mention the proposals advanced by the Japanese Fair Trade Commission (JFTC) in its recent market-study report on mobile ecosystems.[26] In order to ensure equal footing among competitors, the JFTC specified that its suggestion to prevent Google and Apple from using nonpublic data generated by other developers’ apps aims at pursuing two purposes. Such a ban would, indeed, concern not only use of the data for the purpose of developing competing apps, products, and services, but also its use for developing their own apps, products, and services.

TABLE 1: Legislative Initiatives and Proposals to Ban Sherlocking

As previously anticipated, sherlocking recently emerged as an antitrust offense in three investigations launched by the European Commission and the UK CMA.

In the first case, Amazon’s alleged reliance on marketplace sellers’ nonpublic business data has been claimed to distort fair competition on its platform and prevent effective competition. In its preliminary findings, the Commission argued that Amazon takes advantage of its hybrid business model, leveraging its access to nonpublic third-party sellers’ data (e.g., the number of ordered and shipped units of products; sellers’ revenues on the marketplace; the number of visits to sellers’ offers; data relating to shipping, to sellers’ past performance, and to other consumer claims on products, including the activated guarantees) to adjust its retail offers and strategic business decisions to the detriment of third-party sellers, which are direct competitors on the marketplace.[27] In particular, the Commission was concerned that Amazon uses such data for its decision to start and end sales of a product, for its pricing system, for its inventory-planning and management system, and to identify third-party sellers that Amazon’s vendor-recruitment teams should approach to invite them to become direct suppliers to Amazon Retail. To address the data-use concern, Amazon committed not to use nonpublic data relating to, or derived from, independent sellers’ activities on its marketplace for its retail business and not to use such data for the purposes of selling branded goods, as well as its private-label products.[28]

A parallel investigation ended with similar commitments in the UK.[29] According to the UK CMA, Amazon’s access to and use of nonpublic seller data could result in a competitive advantage for Amazon Retail arising from its operation of the marketplace, rather than from competition on the merits, and may lead to relevant adverse effects on competition. Notably, it was alleged this could result in a reduction in the scale and competitiveness of third-party sellers on the Amazon Marketplace; a reduction in the number and range of product offers from third-party sellers on the Amazon Marketplace; and/or less choice for consumers, due to them being offered lower quality goods and/or paying higher prices than would otherwise be the case.

It is also worth mentioning that, by determining that Amazon is an undertaking of paramount significance for competition across markets, the Bundeskartellamt emphasized the competitive advantage deriving from Amazon’s access to nonpublic data, such as Glance Views, sales figures, sale quantities, cost components of products, and reorder status.[30] Among other things, with particular regard to Amazon’s hybrid role, the Bundeskartellamt noted that the preferential access to competitively sensitive data “opens up the possibility for Amazon to optimize its own-brand assortment.”[31]

A second investigation involved Apple and its App Store rule.[32] According to the European Commission, the mandatory use of Apple’s own proprietary in-app purchase system (IAP) would, among other things, grant Apple full control over the relationship its competitors have with customers, thus disintermediating those competitors from customer data and allowing Apple to obtain valuable data about the activities and offers of its competitors.

Finally, Meta faced antitrust proceedings in both the EU and the UK.[33] The focus was on Facebook Marketplace—i.e., an online classified-ads service that allows users to advertise goods for sale. According to the European Commission and the CMA, Meta unilaterally imposes unfair trading conditions on competing online-classified ads services that advertise on Facebook or Instagram. These terms and conditions, which authorize Meta to use ads-related data derived from competitors for the benefit of Facebook Marketplace, are considered unjustified, as they impose an unnecessary burden on competitors and only benefit Facebook Marketplace. The suspicion is that Meta has used advertising data from Facebook Marketplace competitors for the strategic planning, product development, and launch of Facebook Marketplace, as well as for Marketplace’s operation and improvement.

Overall, these investigations share many features. The concerns about third-party business-data use, as well as about other forms of self-preferencing, revolve around the competitive advantages that accrue to a dominant platform because of its dual role. Such advantages are considered unfair, as they are not the result of the merits of a player, but derived purely and simply from its role as an important gateway to reach end users. Moreover, this access to valuable business data is not reciprocal. The feared risk is the marginalization of business users competing with gatekeepers on the gatekeepers’ platforms and, hence, the alleged harm to competition is the foreclosure of rivals in complementary markets (horizontal foreclosure).

The focus of these investigations was well-illustrated by the European Commission’s decision on Amazon’s practice.[34] The Commission’s concern was about the “data delta” that Amazon may exploit, namely the additional data related to third-party sellers’ listings and transactions that are not available to, and cannot be replicated by, the third-party sellers themselves, but are available to and used by Amazon Retail for its own retail operations.[35] Contrary to Amazon Retail—which, according to Commission’s allegations, would have full access to and would use such individual, real-time data of all its third-party sellers to calibrate its own retail decisions—sellers would have access only to their own individual listings and sales data. As a result, the Commission came to the (preliminary) conclusion that real-time access to and use of such volume, variety, and granularity of non-publicly available data from its retail competitors generates a significant competitive advantage for Amazon Retail in each of the different decisional processes that drive its retail operations.[36]

On a closer look, however, while antitrust authorities seem to target the use of nonpublic third-party business data as a single theory of harm, their allegations cover two different scenarios along the lines of what has already been examined with reference to the international legislative initiatives and proposals. Indeed, the Facebook Marketplace case does not involve an allegation of copying, as Meta is accused of gathering data from its business users to launch and improve its ads service, instead of reselling goods and services.

FIGURE 1: Sherlocking in Digital Markets

As illustrated above in Figure 1, while the claim in the latter scenario is that the preferential data use would help dominant players calibrate business decisions in general, the former scenario instead involves the use of such data for a pure copycat strategy of an entire product or service, or some of its specific features.

In both scenarios the aim of the investigations is to ensure platform neutrality. Accordingly, as shown by the accepted commitments, the envisaged solution for antitrust authorities is to impose  data-separation requirements to restrain dominant platforms from using third-party commercially sensitive data. Putting aside that these investigations concluded with commitments from the firms, however, their chances of success before a court differ significantly depending on whether they challenge a product-imitation strategy, or any business decision adopted because of the “data delta.”

A. Sherlocking and Unconventional Theories of Harm for Digital Markets

Before analyzing how existing competition-law rules could be applied to the various scenarios involving the use of third-party business data, it is worth providing a brief overview of the framework in which the assessment of sherlocking is conducted. As competition in the digital economy is increasingly a competition among ecosystems,[37] a lively debate has emerged on the capacity of traditional antitrust analysis to adequately capture the peculiar features of digital markets. Indeed, the combination of strong economies of scale and scope; indirect network effects; data advantages and synergies across markets; and portfolio effects all facilitate ecosystem development all contribute to making digital markets highly concentrated, prone to tipping, and not easily contestable.[38] As a consequence, it’s been suggested that addressing these distinctive features of digital markets requires an overhaul of the antitrust regime.

Such discussions require the antitrust toolkit and theories of harm to illustrate whether and how a particular practice, agreement, or merger is anticompetitive. Notably, at issue is whether traditional antitrust theories of harm are fit for purpose or whether novel theories of harm should be developed in response to the emerging digital ecosystems. The latter requires looking at the competitive impact of expanding, protecting, or strengthening an ecosystem’s position, and particularly whether such expansion serves to exploit a network of capabilities and to control access to key inputs and components.[39]

A significant portion of recent discussions around developing novel theories of harm to better address the characteristics of digital-business models and markets has been devoted to the topic of merger control—in part a result of the impressive number of acquisitions observed in recent years.[40] In particular, the focus has been on analyzing conglomerate mergers that involve acquiring a complementary or unrelated asset, which have traditionally been assumed to raise less-significant competition concerns.

In this regard, an ecosystem-based theory seems to have guided the Bundeskartellamt in its assessment of Meta’s acquisition of Kustomer[41] and by the CMA in Microsoft/Activision.[42] A more recent example is the European Commission’s decision to prohibit the proposed Booking/eTraveli merger, where the Commission explicitly noted that the transaction would have allowed Booking to expand its travel-services ecosystem.[43] The Commission’s concerns were related primarily to the so-called “envelopment” strategy, in which a prominent platform within a specific market broadens its range of services into other markets where there is a significant overlap of customer groups already served by the platform.[44]

Against this background, putative self-preferencing harms represent one of the European Commission’s primary (albeit contentious)[45] attempts to develop new theories of harm built on conglomerate platforms’ ability to bundle services or use data from one market segment to inform product development in another.[46] Originally formulated in the Google Shopping decision,[47] the theory of harm of (leveraging through) self-preferencing has subsequently inspired the DMA, which targets different forms of preferential treatment, including sherlocking.

In particular, it is asserting that platform may use self-preferencing to adopt a leveraging strategy with a twofold anticompetitive effect—that is, excluding or impeding rivals from competing with the platform (defensive leveraging) and extending the platform’s market power into associated markets (offensive leveraging). These goals can be pursued because of the unique role that some large digital platforms play. That is, they not only enjoy strategic market status by controlling ecosystems of integrated complementary products and services, which are crucial gateways for business users to reach end users, but they also perform a dual role as both a critical intermediary and a player active in complementors’ markets. Therefore, conflicts of interests may provide incentives for large vertically integrated platforms to favor their own products and services over those of their competitors.[48]

The Google Shopping theory of harm, while not yet validated by the Court of Justice of the European Union (CJEU),[49] has also found its way into merger analysis, as demonstrated by the European Commission’s recent assessment of iRobot/Amazon.[50] In its statement of objections, the Commission argued that the proposed acquisition of iRobot may give Amazon the ability and incentive to foreclose iRobot’s rivals by engaging in several foreclosing strategies to prevent them from selling robot vacuum cleaners (RVCs) on Amazon’s online marketplace and/or at degrading such rivals’ access to that marketplace. In particular, the Commission found that Amazon could deploy such self-preferencing strategies as delisting rival RVCs; reducing rival RVCs’ visibility in both organic and paid results displayed in Amazon’s marketplace; limiting access to certain widgets or commercially attractive labels; and/or raising the costs of iRobot’s rivals to advertise and sell their RVCs on Amazon’s marketplace.[51]

Sherlocking belongs to this framework of analysis and can be considered a form of self-preferencing, specifically because of the lack of reciprocity in accessing sensitive data.[52] Indeed, while gatekeeper platforms have access to relevant nonpublic third-party business data as a result of their role as unavoidable trading partners, they leverage this information exclusively, without sharing it with third-party sellers, thus further exacerbating an already uneven playing field.[53]

III. Sherlocking for Competitive Advantage: Hybrid Business Model, Neutrality Regimes, and Competition on the Merits

Insofar as prohibitions of sherlocking center on the competitive advantages that platforms enjoy because of their dual role—thereby allowing some players to better calibrate their business decisions due to their preferential access to business users’ data—it should be noted that competition law does not impose a general duty to ensure a level playing field.[54] Further, a competitive advantage does not, in itself, amount to anticompetitive foreclosure under antitrust rules. Rather, foreclosure must not only be proved (in terms of actual or potential effects) but also assessed against potential benefits for consumers in terms of price, quality, and choice of new goods and services.[55]

Indeed, not every exclusionary effect is necessarily detrimental to competition.[56] Competition on the merits may, by definition, lead to the departure from the market or the marginalization of competitors that are less efficient and therefore less attractive to consumers from the point of view of, among other things, price, choice, quality or innovation.[57] Automatically classifying any conduct with exclusionary effects were as anticompetitive could well become a means to protect less-capable, less-efficient undertakings and would in no way protect more meritorious undertakings—thereby potentially hindering a market’s competitiveness.[58]

As recently clarified by the CJEU regarding the meaning of “competition on the merits,” any practice that, in its implementation, holds no economic interest for a dominant undertaking except that of eliminating competitors must be regarded as outside the scope of competition on the merits.[59] Referring to the cases of margin squeezes and essential facilities, the CJEU added that the same applies to practices that a hypothetical equally efficient competitor is unable to adopt because that practice relies on using resources or means inherent to the holding of such a dominant position.[60]

Therefore, while antitrust cases on sherlocking set out to ensure a level playing field and platform neutrality, and therefore center on the competitive advantages that a platform enjoys because of its dual role, mere implementing a hybrid business model does not automatically put such practices outside the scope of competition on the merits. The only exception, according to the interpretation provided in Bronner, is the presence of an essential facility—i.e., an input whose access should be considered indispensable, as there are no technical, legal, or economic obstacles capable of making it impossible, or even unreasonably difficult, to duplicate it.[61]

As a result, unless it is proved that the hybrid platform is an essential facility, sherlocking and other forms of self-preferencing cannot be considered prima facie outside the scope of competition on the merits, or otherwise unlawful. Rather, any assessment of sherlocking demands the demonstration of anticompetitive effects, which in turn requires finding an impact on efficient firms’ ability and incentive to compete. In the scenario at-issue, for instance, the access to certain data may allow a platform to deliver new products or services; to improve existing products or services; or more generally to compete more efficiently not only with respect to the platform’s business users, but also against other platforms. Such an increase in both intra-platform and inter-platform competition would benefit consumers in terms of lower prices, better quality, and a wider choice of new or improved goods and services—i.e., competition on the merits.[62]

In Facebook Marketplace, the European Commission and UK CMA challenged the terms and conditions governing the provision of display-advertising and business-tool services to which Meta required its business customers to sign up.[63] In their view, Meta abused its dominant position by imposing unfair trading conditions on its advertising customers, which authorized Meta to use ads-related data derived from the latter in a way that could afford Meta a competitive advantage on Facebook Marketplace that would not have arisen from competition on the merits. Notably, antitrust authorities argued that Meta’s terms and conditions were unjustified, disproportionate, and unnecessary to provide online display-advertising services on Meta’s platforms.

Therefore, rather than directly questioning the platform’s dual role or hybrid business model, the European Commission and UK CMA decided to rely on traditional case law which considers unfair those clauses that are unjustifiably unrelated to the purpose of the contract, unnecessarily limit the parties’ freedom, are disproportionate, or are unilaterally imposed or seriously opaque.[64] This demonstrates that, outside the harm theory of the unfairness of terms and conditions, a hybrid platform’s use of nonpublic third-party business data to improve its own business decisions is generally consistent with antitrust provisions. Hence, an outright ban would be unjustified.

IV. Sherlocking to Mimic Business Users’ Products or Services

The second, and more intriguing, sherlocking scenario is illustrated by the Amazon Marketplace investigations and regards the original meaning of sherlocking—i.e., where a data advantage is used by a hybrid platform to mimic its business users’ products or services.

Where sherlocking charges assert that the practice allows some platforms to use business users’ data to compete against them by replicating their products or services, it should not be overlooked that the welfare effects of such a copying strategy are ambiguous. While the practice could benefit consumers in the short term by lowering prices and increasing choice, it may discourage innovation over the longer term if third parties anticipate being copied whenever they deliver successful products or services. Therefore, the success of an antitrust investigation essentially relies on demonstrating a harm to innovation that would induce business users to leave the market or stop developing their products and services. In other words, antitrust authorities should be able to demonstrate that, by allowing dominant platforms to free ride on their business guests’ innovation efforts, sherlocking would negatively affect rivals’ ability to compete.

A. The Welfare Effects of Copying

The tradeoff between the short- and long-term welfare effects of copying has traditionally been analyzed in the context of the benefits and costs generated by intellectual-property protection.[65] In particular, the economic literature investigating the optimal life of patents[66] and copyrights[67] focuses on the efficient balance between dynamic benefits associated with innovation and the static costs of monopoly power granted by IPRs.

More recently, product imitation has instead been investigated in the different scenario of digital markets, where dominant platforms adopting a hybrid business model may use third-party sellers’ market data to design and promote their own products over their rivals’ offerings. Indeed, some studies report that large online platforms may attempt to protect their market position by creating “kill zones” around themselves—i.e., by acquiring, copying, or eliminating their rivals.[68] In such a novel setting, the welfare effects of copying are assessed regardless of the presence and the potential enforcement of IPRs, but within a strategy aimed at excluding rivals by exploiting the dual role of both umpire and player to get preferential access to sensitive data and free ride on their innovative efforts.[69]

Even in this context, however, a challenging tradeoff should be considered. Indeed, while in the short term, consumers may benefit from the platform’s imitation strategy in terms of lower prices and higher quality, they may be harmed in the longer term if third parties are discouraged from delivering new products and services. As a result, while there is empirical evidence on hybrid platforms successfully entering into third parties’ adjacent market segments, [70] the extant academic literature finds the welfare implications of such moves to be ambiguous.

A first strand of literature attempts to estimate the welfare impact of the hybrid business model. Notably, Andre Hagiu, Tat-How Teh, and Julian Wright elaborated a model to address the potential implications of an outright ban on platforms’ dual mode, finding that such a structural remedy may harm consumer surplus and welfare even where the platform would otherwise engage in product imitation and self-preferencing.[71] According to the authors, banning the dual mode does not restore the third-party seller’s innovation incentives or the effective price competition between products, which are the putative harms caused by imitation and self-preferencing. Therefore, the authors’ evaluation was that interventions specifically targeting product imitation and self-preferencing were preferable.

Germa?n Gutie?rrez suggested that banning the dual model would generate hardly any benefits for consumers, showing that, in the Amazon case, interventions that eliminate either the Prime program or product variety are likely to decrease welfare.[72]

Further, analyzing Amazon’s business model, Federico Etro found that the platform and consumers’ incentives are correctly aligned, and that Amazon’s business model of hosting sellers and charging commissions prevents the company from gaining through systematic self?preferencing for its private-label and first-party products.[73] In the same vein, on looking at its business model and monetization strategy, Patrick Andreoli-Versbach and Joshua Gans argued that Amazon does not have an obvious incentive to self-preference.[74] Indeed, Amazon’s profitability data show that, on average, the company’s operating margin is higher on third-party sales than on first-party retail sales.

Looking at how modeling details may yield different results with regard to the benefits and harms of the hybrid business model, Simon Anderson and O?zlem Bedre-Defoile maintain that the platform’s choice to sell its own products benefits consumers by lowering prices when a monopoly platform hosts competitive fringe sellers, regardless of the platform’s position as a gatekeeper, whether sellers have an alternate channel to reach consumers, or whether alternate channels are perfect or imperfect substitutes for the platform channel.[75] On the other hand, the authors argued that platform product entry might harm consumers when a big seller with market power sells on its own channel and also on the platform. Indeed, in that case, the platform setting a seller fee before the big seller prices its differentiated products introduces double markups on the big seller’s platform-channel price and leaves some revenue to the big seller.

Studying whether Amazon engages in self-preferencing on its marketplace by favoring its own brands in search results, Chiara Farronato, Andrey Fradkin, and Alexander MacKay demonstrate empirically that Amazon brands remain about 30% cheaper and have 68% more reviews than other similar products.[76] The authors acknowledge, however, that their findings do not imply that consumers are hurt by Amazon brands’ position in search results.

Another strand of literature specifically tackles the welfare effects of sherlocking. In particular, Erik Madsen and Nikhil Vellodi developed a theoretical framework to demonstrate that a ban on insider imitation can either stifle or stimulate innovation, depending on the nature of innovation.[77] Specifically, the ban could stimulate innovation for experimental product categories, while reducing innovation in incremental product markets, since the former feature products with a large chance of superstar demand and the latter generate mostly products with middling demand.

Federico Etro maintains that the tradeoffs at-issue are too complex to be solved with simple interventions, such as bans on dual mode, self-preferencing, or copycatting.[78] Indeed, it is difficult to conclude that Amazon entry is biased to expropriate third-party sellers or that bans on dual mode, self-preferencing, or copycatting would benefit consumers, because they either degrade services and product variety or induce higher prices or commissions.

Similar results are provided by Jay Pil Choi, Kyungmin Kim, and Arijit Mukherjee, who developed a tractable model of a platform-run marketplace where the platform charges a referral fee to the sellers for access to the marketplace, and may also subsequently launch its own private-label product by copying a seller.[79] The authors found that a policy to either ban hybrid mode or only prohibit information use for the launch of private-label products may produce negative welfare implications.

Further, Radostina Shopova argues that, when introducing a private label, the marketplace operator does not have incentive to distort competition and foreclose the outside seller, but does have an incentive to lower fees charged to the outside seller and to vertically differentiate its own product in order to protect the seller’s channel.[80] Even when the intermediary is able to perfectly mimic the quality of the outside seller and monopolize its product space, the intermediary prefers to differentiate its offer and chooses a lower quality for the private-label product. Accordingly, as the purpose of private labels is to offer a lower-quality version of products aimed at consumers with a lower willingness to pay, a marketplace operator does not have an incentive to distort competition in favor of its own product and foreclose the seller of the original higher-quality product.

In addition, according to Jean-Pierre Dubé, curbing development of private-label programs would harm consumers and Amazon’s practices amount to textbook retailing, as they follow an off-the-shelf approach to managing private-label products that is standard for many retail chains in the West.[81] As a result, singling out Amazon’s practices would set a double standard.

Interestingly, such findings about predictors and effects of Amazon’s entry in competition with third-party merchants on its own marketplace are confirmed by the only empirical study developed so far. In particular, analyzing the Home & Kitchen department of Germany’s version of Amazon Marketplace between 2016 and 2021, Gregory S. Crawford, Matteo Courthoud, Regina Seibel, and Simon Zuzek’s results suggest that Amazon’s entry strategy was more consistent with making Marketplace more attractive to consumers than expropriating third-party merchants.[82] Notably, the study showed that, comparing Amazon’s entry decisions with those of the largest third-party merchants, Amazon tends to enter low-growth and low-quality products, which is consistent with a strategy that seeks to make Marketplace more attractive by expanding variety, lessening third-party market power, and/or enhancing product availability. The authors therefore found that Amazon’s entry on Amazon Marketplace demonstrated no systematic adverse effects and caused a mild market expansion.

Massimo Motta and Sandro Shelegia explored interactions between copying and acquisitions, finding that the former (or the threat of copying) can modify the outcome of an acquisition negotiation.[83] According to their model, there could be both static and dynamic incentives for an incumbent to introduce a copycat version of a complementary product. The static rationale consists of lowering the price of the complementary product in order to capture more rents from it, while the dynamic incentive consists of harming a potential rival’s prospects of developing a substitute. The latter may, in turn, affect the direction the entrant takes toward innovation. Anticipating the incumbent’s copying strategy, the entrant may shift resources from improvements to compete with the incumbent’s primary product to developing complementary products.

Jingcun Cao, Avery Haviv, and Nan Li analyzed the opposite scenario—i.e., copycats that seek to mimic the design and user experience of incumbents’ successful products.[84] The authors find empirically that, on average, copycat apps do not have a significant effect on the demand for incumbent apps and that, as with traditional counterfeit products, they may generate a positive demand spillover toward authentic apps.

Massimo Motta also investigated the potential foreclosure effects of platforms adopting a copycat strategy committed to non-discriminatory terms of access for third parties (e.g., Apple App Store, Google Play, and Amazon Marketplace).[85] Notably, according to Motta, when a third-party seller is particularly successful and the platform is unable to raise fees and commissions paid by that seller, the platform may prefer to copy its product or service to extract more profits from users, rather than rely solely on third-party sales. The author acknowledged, however, that even though this practice may create an incentive for self-preferencing, it does not necessarily have anticompetitive effects. Indeed, the welfare effects of the copying strategy are a priori ambiguous.[86] While, on the one hand, the platform’s copying of a third-party product benefits consumers by increasing variety and competition among products, on the other hand, copying might be wasteful for society, in that it entails a fixed cost and may discourage innovation if rivals anticipate that they will be systematically copied whenever they have a successful product.[87] Therefore, introducing a copycat version of a product offered by a firm in an adjacent market might be procompetitive.

B. Antitrust Assessment: Competition, Innovation, and Double Standards

The economic literature has demonstrated that the rationale and welfare effects of sherlocking by hybrid platforms are definitively ambiguous. Against concerns about rivals’ foreclosure, some studies provide a different narrative, illustrating that such a strategy is more consistent with making the platform more attractive to consumers (by differentiating the quality and pricing of the offer) than expropriating business users.[88] Furthermore, copies, imitations, and replicas undoubtedly benefit consumers with more choice and lower prices.

Therefore, the only way to consider sherlocking anticompetitive is by demonstrating long-term deterrent effects on innovation (i.e., reducing rivals’ incentives to invest in new products and services) outweigh consumers’ short-term advantages.[89] Moreover, deterrent effects must not be merely hypothetical, as a finding of abuse cannot be based on a mere possibility of harm.[90] In any case, such complex tradeoffs are at odds with a blanket ban.[91]

Moreover, assessments of the potential impact of sherlocking on innovation cannot disregard the role of IPRs—which are, by definition, the main primary to promote innovation. From this perspective, intellectual-property protection is best characterized as another form of tradeoff. Indeed, the economic rationale of IPRs (in particular, of patents and copyrights) involves, among other things, a tradeoff between access and incentives—i.e., between short-term competitive restrictions and long-term innovative benefits.[92]

According to the traditional incentive-based theory of intellectual property, free riding would represent a dangerous threat that justifies the exclusive rights granted by intellectual-property protection. As a consequence, so long as copycat expropriation does not infringe IPRs, it should be presumed legitimate and procompetitive. Indeed, such free riding is more of an intellectual-property issue than a competitive concern.

In addition, to strike a fair balance between restricting competition and providing incentives to innovation, the exclusive rights granted by IPRs are not unlimited in terms of duration, nor in terms of lawful (although not authorized) uses of the protected subject matter. Under the doctrine of fair use, for instance, reverse engineering represents a legitimate way to obtain information about a firm’s product, even if the intended result is to produce a directly competing product that may steer customers away from the initial product and the patented invention.

Outside of reverse engineering, copying is legitimately exercised once IPRs expire, when copycat competitors can reproduce previously protected elements. As a result of the competitive pressure exerted by new rivals, holders of expired IPRs may react by seeking solutions designed to block or at least limit the circulation of rival products. They could, for example, request other IPRs to cover aspects or functionalities different from those previously protected. They could also bring (sometimes specious) legal action for infringement of the new IPR or for unfair competition by slavish imitation. For these reasons, there have been occasions where copycat competitors have received protection from antitrust authorities against sham litigation brought by IPR holders concerned about losing margins due to pricing pressure from copycats.[93]

Finally, within the longstanding debate on the intersection of intellectual-property protection and competition, EU antitrust authorities have traditionally been unsympathetic toward restrictions imposed by IPRs. The success of the essential-facility doctrine (EFD) is the most telling example of this attitude, as its application in the EU has been extended to IPRs. As a matter of fact, the EFD represents the main antitrust tool for overseeing intellectual property in the EU.[94]

After Microsoft, EU courts have substantially dismantled one of the “exceptional circumstances” previously elaborated in Magill and specifically introduced for cases involving IPRs, with the aim of safeguarding a balance between restrictions to access and incentives to innovate. Whereas the CJEU established in Magill that refusal to grant an IP license should be considered anticompetitive if it prevents the emergence of a new product for which there is potential consumer demand, in Microsoft, the General Court considered such a requirement met even when access to an IPR is necessary for rivals to merely develop improved products with added value.

Given this background, recent competition-policy concerns about sherlocking are surprising. To briefly recap, the practice at-issue increases competition in the short term, but may affect incentives to innovate in the long-term. With regard to the latter, however, the practice neither involves products protected by IPRs nor constitutes a slavish imitation that may be caught under unfair-competition laws.

The case of Amazon, which has received considerable media coverage, is illustrative of the relevance of IP protection. Amazon has been accused of cloning batteries, power strips, wool runner shoes, everyday sling bags, camera tripods, and furniture.[95] One may wonder what kind of innovation should be safeguarded in these cases against potential copies. Admittedly, such examples appear consistent with the findings of the already-illustrated empirical study conducted by Crawford et al. indicating that Amazon tends to enter low-quality products in order to expand variety on the Marketplace and to make it more attractive to consumers.

Nonetheless, if an IPR is involved, right holders are provided with proper means to protect their products against infringement. Indeed, one of the alleged targeted companies (Williams-Sonoma) did file a complaint for design and trademark infringement, claiming that Amazon had copied a chair (Orb Dining Chair) sold by its West Elm brand. According to Williams-Sonoma, the Upholstered Orb Office Chair—which Amazon began selling under its Rivet brand in 2018—was so similar that the ordinary observer would be confused by the imitation.[96] If, instead, the copycat strategy does not infringe any IPR, the potential impact on innovation might not be considered particularly worrisome—at least at first glance.

Further, neither the degree to which third-party business data is unavailable nor the degree to which they are relevant in facilitating copying are clear cut. For instance, in the case of Amazon, public product reviews supply a great deal of information[97] and, regardless of the fact that a third party is selling a product on the Marketplace, anyone can obtain an item for the purposes of reverse engineering.[98]

In addition, antitrust authorities are used to intervening against opportunistic behavior by IPR holders. European competition authorities, in particular, have never before seemed particularly responsive to the motives of inventors and creators versus the need to encourage maximum market openness.

It should also be noted that cloning is a common strategy in traditional markets (e.g., food products)[99] and has been the subject of longstanding controversies between high-end fashion brands and fast-fashion brands (e.g., Zara, H&M).[100] Furthermore, brick-and-mortar retailers also introduce private labels and use other brands’ sales records in deciding what to produce.[101]

So, what makes sherlocking so different and dangerous when deployed in digital markets as to push competition authorities to contradict themselves?[102]

The double standard against sherlocking reflects the same concern and pursues the same goal of the various other attempts to forbid any form of self-preferencing in digital markets. Namely, antitrust investigations of sherlocking are fundamentally driven by the bias against hybrid and vertically integrated players. The investigations rely on the assumption that conflicts of interest have anticompetitive implications and that, therefore, platform neutrality should be promoted to ensure the neutrality of the competitive process.[103] Accordingly, hostility toward sherlocking may involve both of the illustrated scenarios—i.e., the use of nonpublic third-party business data either in adopting any business decision, or just copycat strategies, in particular.

As a result, however, competition authorities end up challenging a specific business model, rather than the specific practice at-issue, which brings undisputed competitive benefits in terms of lower prices and wider consumer choice, and which should therefore be balanced against potential exclusionary risks. As the CJEU has pointed out, the concept of competition on the merits:

…covers, in principle, a competitive situation in which consumers benefit from lower prices, better quality and a wider choice of new or improved goods and services. Thus, … conduct which has the effect of broadening consumer choice by putting new goods on the market or by increasing the quantity or quality of the goods already on offer must, inter alia, be considered to come within the scope of competition on the merits.[104]

Further, in light of the “as-efficient competitor” principle, competition on the merits may lead to “the departure from the market, or the marginalization of, competitors that are less efficient and so less attractive to consumers from the point of view of, among other things, price, choice, quality or innovation.”[105]

It has been correctly noted that the “as-efficient competitor” principle is a reminder of what competition law is about and how it differs from regulation.[106] Competition law aims to protect a process, rather than engineering market structures to fulfill a particular vision of how an industry is to operate.[107] In other words, competition law does not target firms on the basis of size or status and does not infer harm from (market or bargaining) power or business model. Therefore, neither the dual role played by some large online platforms nor their preferential access to sensitive business data or their vertical integration, by themselves, create a competition problem. Competitive advantages deriving from size, status, power, or business model cannot be considered per se outside the scope of competition on the merits.

Some policymakers have sought to resolve these tensions in how competition law regards sherlocking by introducing or envisaging an outright ban. These initiatives and proposals have clearly been inspired by antitrust investigations, but they did so for the wrong reasons. Instead of taking stock of the challenging tradeoffs between short-term benefits and long-term risks that an antitrust assessment of sherlocking requires, they blamed competition law for not providing effective tools to achieve the policy goal of platform neutrality.[108] Therefore, the regulatory solution is merely functional to bypass the traditional burden of proof of antitrust analysis and achieve what competition-law enforcement cannot provide.

V. Conclusion

The bias against self-preferencing strikes again. Concerns about hybrid platforms’ potential conflicts of interest have led policymakers to seek prohibitions to curb different forms of self-preferencing, making the latter the symbol of the competition-policy zeitgeist in digital markets. Sherlocking shares this fate. Indeed, the DMA outlaws any use of business users’ nonpublic data and similar proposals have been advanced in the United States, Australia, and Japan. Further, like other forms of self-preferencing, such regulatory initiatives against sherlocking have been inspired by previous antitrust proceedings.

Drawing on these antitrust investigations, the present research shows the extent to which an outright ban on sherlocking is unjustified. Notably, the practice at-issue includes two different scenarios: the broad case in which a gatekeeper exploits its preferential access to business users’ data to better calibrate all of its business decisions and the narrow case in which such data is used to adopt a copycat strategy. In either scenario, the welfare effects and competitive implications of sherlocking are unclear.

Indeed, the use of certain data by a hybrid platform to improve business decisions generally should be classified as competition on the merits, and may yield an increase in both intra-platform (with respect to business users) and inter-platform (with respect to other platforms) competition. This would benefit consumers in terms of lower prices, better quality, and a wider choice of new or improved goods and services. In a similar vein, if sherlocking is used to deliver replicas of business users’ products or services, the anti-competitiveness of such a strategy may only result from a cumbersome tradeoff between short-term benefits (i.e., lower prices and wider choice) and negative long-term effects on innovation.

An implicit confirmation of the difficulties encountered in demonstrating the anti-competitiveness of sherlocking comes from the recent complaint issued by the FTC against Amazon.[109] Current FTC Chairwoman Lina Khan devoted a significant portion of her previous academic career to questioning Amazon’s practices (including the decision to introduce its own private labels inspired by third-party products)[110] and to supporting the adoption of structural-separation remedies to tackle platforms’ conflicts of interest that induce them to exploit their “systemic informational advantage (gleaned from competitors)” to thwart rivals and strengthen their own position by introducing replica products.[111] Despite these premises and although the FTC’s complaint targets numerous practices belonging to what has been described as an interconnected strategy to block off every major avenue of competition, however, sherlocking is surprisingly off the radar.

Regulatory initiatives to ban sherlocking in order to ensure platform neutrality with respect to business users and a level playing field among rivals would sacrifice undisputed procompetitive benefits on the altar of policy goals that competition rules are not meant to pursue. Sherlocking therefore appears to be a perfect case study of the side effects of unwarranted interventions in digital markets.

[1] Giuseppe Colangelo, Antitrust Unchained: The EU’s Case Against Self-Preferencing, 72 GRUR International 538 (2023).

[2] Jacques Cre?mer, Yves-Alexandre de Montjoye, & Heike Schweitzer, Competition Policy for the Digital Era (2019), 7, https://op.europa.eu/en/publication-detail/-/publication/21dc175c-7b76-11e9-9f05-01aa75ed71a1/language-en (all links last accessed 3 Jan. 2024); UK Digital Competition Expert Panel, Unlocking Digital Competition, (2019) 58, available at https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/785547/unlocking_digital_competition_furman_review_web.pdf.

[3] You’ve Been Sherlocked, The Economist (2012), https://www.economist.com/babbage/2012/07/13/youve-been-sherlocked.

[4] Regulation (EU) 2022/1925 on contestable and fair markets in the digital sector and amending Directives (EU) 2019/1937 and (EU) 2020/1828 (Digital Markets Act) (2022), OJ L 265/1, Article 6(2).

[5] U.S. S. 2992, American Innovation and Choice Online Act (AICOA) (2022), Section 3(a)(6), available at https://www.klobuchar.senate.gov/public/_cache/files/b/9/b90b9806-cecf-4796-89fb-561e5322531c/B1F51354E81BEFF3EB96956A7A5E1D6A.sil22713.pdf. See also U.S. House of Representatives, Subcommittee on Antitrust, Commercial, and Administrative Law, Investigation of Competition in Digital Markets, Majority Staff Reports and Recommendations (2020), 164, 362-364, 378, available at https://democrats-judiciary.house.gov/uploadedfiles/competition_in_digital_markets.pdf.

[6] Australian Competition and Consumer Commission, Digital Platform Services Inquiry Report on Regulatory Reform (2022), 125, https://www.accc.gov.au/about-us/publications/serial-publications/digital-platform-services-inquiry-2020-2025/digital-platform-services-inquiry-september-2022-interim-report-regulatory-reform.

[7] Japan Fair Trade Commission, Market Study Report on Mobile OS and Mobile App Distribution (2023), https://www.jftc.go.jp/en/pressreleases/yearly-2023/February/230209.html.

[8] European Commission, 10 Nov. 2020, Case AT.40462, Amazon Marketplace; see Press Release, Commission Sends Statement of Objections to Amazon for the Use of Non-Public Independent Seller Data and Opens Second Investigation into Its E-Commerce Business Practices, European Commission (2020), https://ec.europa.eu/commission/presscorner/detail/en/ip_20_2077.

[9] Press Release, CMA Investigates Amazon Over Suspected Anti-Competitive Practices, UK Competition and Markets Authority (2022), https://www.gov.uk/government/news/cma-investigates-amazon-over-suspected-anti-competitive-practices.

[10] European Commission, 16 Jun. 2020, Case AT.40716, Apple – App Store Practices.

[11] Press Release, Commission Sends Statement of Objections to Meta over Abusive Practices Benefiting Facebook Marketplace, European Commission (2022), https://ec.europa.eu/commission/presscorner/detail/en/ip_22_7728; Press Release, CMA Investigates Facebook’s Use of Ad Data, UK Competition and Markets Authority (2021), https://www.gov.uk/government/news/cma-investigates-facebook-s-use-of-ad-data.

[12] DMA, supra note 4, Recital 10 and Article 1(6).

[13] GWB Digitalization Act, 18 Jan. 2021, Section 19a. On risks of overlaps between the DMA and the competition law enforcement, see Giuseppe Colangelo, The European Digital Markets Act and Antitrust Enforcement: A Liaison Dangereuse, 47 European Law Review 597.

[14] GWB, supra note 13, Section 19a (2)(4)(b).

[15] Press Release, Commission Sends Statement of Objections to Apple Clarifying Concerns over App Store Rules for Music Streaming Providers, European Commission (2023), https://ec.europa.eu/commission/presscorner/detail/en/ip_23_1217.

[16] European Commission, 20 Dec. 2022, Case AT.40462; Press Release, Commission Accepts Commitments by Amazon Barring It from Using Marketplace Seller Data, and Ensuring Equal Access to Buy Box and Prime, European Commission (2022), https://ec.europa.eu/commission/presscorner/detail/en/ip_22_7777; UK Competition and Markets Authority, 3 Nov. 2023, Case No. 51184, https://www.gov.uk/cma-cases/investigation-into-amazons-marketplace.

[17] UK Competition and Markets Authority, 3 Nov. 2023, Case AT.51013, https://www.gov.uk/cma-cases/investigation-into-facebooks-use-of-data.

[18] See, e.g., Gil Tono & Lewis Crofts (2022), Amazon Data Commitments Match DMA Obligations, EU’s Vestager Say, mLex (2022), https://mlexmarketinsight.com/news/insight/amazon-data-commitments-match-dma-obligation-eu-s-vestager-says (reporting that Commissioner Vestager stated that Amazon’s data commitments definitively appear to match what would be asked within the DMA).

[19] DMA, supra note 4, Recital 46.

[20] Id., Article 6(2) (also stating that, for the purposes of the prohibition, non-publicly available data shall include any aggregated and non-aggregated data generated by business users that can be inferred from, or collected through, the commercial activities of business users or their customers, including click, search, view, and voice data, on the relevant core platform services or on services provided together with, or in support of, the relevant core platform services of the gatekeeper).

[21] AICOA, supra note 5.

[22] U.S. House of Representatives, supra note 5; see also Lina M. Khan, The Separation of Platforms and Commerce, 119 Columbia Law Review 973 (2019).

[23] U.S. Federal Trade Commission, et al. v. Amazon.com, Inc., Case No. 2:23-cv-01495 (W.D. Wash., 2023).

[24] Australian Competition and Consumer Commission, supra note 6, 125.

[25] Id., 124.

[26] Japan Fair Trade Commission, supra note 7, 144.

[27] European Commission, supra note 8. But see also Amazon, Supporting Sellers with Tools, Insights, and Data (2021), https://www.aboutamazon.eu/news/policy/supporting-sellers-with-tools-insights-and-data (claiming that the company is just using aggregate (rather than individual) data: “Just like our third-party sellers and other retailers across the world, Amazon also uses data to run our business. We use aggregated data about customers’ experience across the store to continuously improve it for everyone, such as by ensuring that the store has popular items in stock, customers are finding the products they want to purchase, or connecting customers to great new products through automated merchandising.”)

[28] European Commission, supra note 16.

[29] UK Competition and Markets Authority, supra notes 9 and 16.

[30] Bundeskartellamt, 5 Jul. 2022, Case B2-55/21, paras. 493, 504, and 518.

[31] Id., para. 536.

[32] European Commission, supra note 10.

[33] European Commission, supra note 11; UK Competition and Markets Authority, supra note 11.

[34] European Commission, supra note 16. In a similar vein, see also UK Competition and Markets Authority, supra note 16, paras. 4.2-4.7.

[35] European Commission, supra note 16, para. 111.

[36] Id., para. 123.

[37] Cre?mer, de Montjoye, & Schweitzer, supra note 2, 33-34.

[38] See, e.g., Marc Bourreau, Some Economics of Digital Ecosystems, OECD Hearing on Competition Economics of Digital Ecosystems (2020), https://www.oecd.org/daf/competition/competition-economics-of-digital-ecosystems.htm; Amelia Fletcher, Digital Competition Policy: Are Ecosystems Different?, OECD Hearing on Competition Economics of Digital Ecosystems (2020).

[39] See, e.g., Cristina Caffarra, Matthew Elliott, & Andrea Galeotti, ‘Ecosystem’ Theories of Harm in Digital Mergers: New Insights from Network Economics, VoxEU (2023), https://cepr.org/voxeu/columns/ecosystem-theories-harm-digital-mergers-new-insights-network-economics-part-1 (arguing that, in merger control, the implementation of an ecosystem theory of harm would require assessing how a conglomerate acquisition can change the network of capabilities (e.g., proprietary software, brand, customer-base, data) in order to evaluate how easily competitors can obtain alternative assets to those being acquired); for a different view, see Geoffrey A. Manne & Dirk Auer, Antitrust Dystopia and Antitrust Nostalgia: Alarmist Theories of Harm in Digital Markets and Their Origins, 28 George Mason Law Review 1281(2021).

[40] See, e.g., Viktoria H.S.E. Robertson, Digital merger control: adapting theories of harm, (forthcoming) European Competition Journal; Caffarra, Elliott, & Galeotti, supra note 39; OECD, Theories of Harm for Digital Mergers (2023), available at www.oecd.org/daf/competition/theories-of-harm-for-digital-mergers-2023.pdf; Bundeskartellamt, Merger Control in the Digital Age – Challenges and Development Perspectives (2022), available at https://www.bundeskartellamt.de/SharedDocs/Publikation/EN/Diskussions_Hintergrundpapiere/2022/Working_Group_on_Competition_Law_2022.pdf?__blob=publicationFile&v=2; Elena Argentesi, Paolo Buccirossi, Emilio Calvano, Tomaso Duso, Alessia Marrazzo, & Salvatore Nava, Merger Policy in Digital Markets: An Ex Post Assessment, 17 Journal of Competition Law & Economics 95 (2021); Marc Bourreau & Alexandre de Streel, Digital Conglomerates and EU Competition Policy (2019), https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3350512.

[41] Bundeskartellamt, 11 Feb. 2022, Case B6-21/22, https://www.bundeskartellamt.de/SharedDocs/Entscheidung/EN/Fallberichte/Fusionskontrolle/2022/B6-21-22.html;jsessionid=C0837BD430A8C9C8E04D133B0441EB95.1_cid362?nn=4136442.

[42] UK Competition and Markets Authority, Microsoft / Activision Blizzard Merger Inquiry (2023), https://www.gov.uk/cma-cases/microsoft-slash-activision-blizzard-merger-inquiry.

[43] See European Commission, Commission Prohibits Proposed Acquisition of eTraveli by Booking (2023), https://ec.europa.eu/commission/presscorner/detail/en/ip_23_4573 (finding that a flight product is a crucial growth avenue in Booking’s ecosystem, which revolves around its hotel online-travel-agency (OTA) business, as it would generate significant additional traffic to the platform, thus allowing Booking to benefit from existing customer inertia and making it more difficult for competitors to contest Booking’s position in the hotel OTA market).

[44] Thomas Eisenmann, Geoffrey Parker, & Marshall Van Alstyne, Platform Envelopment, 32 Strategic Management Journal 1270 (2011).

[45] See, e.g., Colangelo, supra note 1, and Pablo Iba?n?ez Colomo, Self-Preferencing: Yet Another Epithet in Need of Limiting Principles, 43 World Competition 417 (2020) (investigating whether and to what extent self-preferencing could be considered a new standalone offense in EU competition law); see also European Commission, Digital Markets Act – Impact Assessment Support Study (2020), 294, https://op.europa.eu/en/publication-detail/-/publication/0a9a636a-3e83-11eb-b27b-01aa75ed71a1/language-en (raising doubts about the novelty of this new theory of harm, which seems similar to the well-established leveraging theories of harm of tying and bundling, and margin squeeze).

[46] European Commission, supra note 45, 16.

[47] European Commission, 27 Jun. 2017, Case AT.39740, Google Search (Shopping).

[48] See General Court, 10 Nov. 2021, Case T-612/17, Google LLC and Alphabet Inc. v. European Commission, ECLI:EU:T:2021:763, para. 155 (stating that the general principle of equal treatment obligates vertically integrated platforms to refrain from favoring their own services as opposed to rival ones; nonetheless, the ruling framed self-preferencing as discriminatory abuse).

[49] In the meantime, however, see Opinion of the Advocate General Kokott, 11 Jan. 2024, Case C-48/22 P, Google v. European Commission, ECLI:EU:C:2024:14, paras. 90 and 95 (arguing that the self-preferencing of which Google is accused constitutes an independent form of abuse, albeit one that exhibits some proximity to cases involving margin squeezing).

[50] European Commission, Commission Sends Amazon Statement of Objections over Proposed Acquisition of iRobot (2023), https://ec.europa.eu/commission/presscorner/detail/en/IP_23_5990.

[51] The same concerns and approach have been shared by the CMA, although it reached a different conclusion, finding that the new merged entity would not have incentive to self-preference its own branded RVCs: see UK Competition and Markets Authority, Amazon / iRobot Merger Inquiry – Clearance Decision (2023), paras. 160, 188, and 231, https://www.gov.uk/cma-cases/amazon-slash-irobot-merger-inquiry.

[52] See European Commission, supra note 45, 304.

[53] Id., 313-314 (envisaging, among potential remedies, the imposition of a duty to make all data used by the platform for strategic decisions available to third parties); see also Désirée Klinger, Jonathan Bokemeyer, Benjamin Della Rocca, & Rafael Bezerra Nunes, Amazon’s Theory of Harm, Yale University Thurman Arnold Project (2020), 19, available at https://som.yale.edu/sites/default/files/2022-01/DTH-Amazon.pdf.

[54] Colangelo, supra note 1; see also Oscar Borgogno & Giuseppe Colangelo, Platform and Device Neutrality Regime: The New Competition Rulebook for App Stores?, 67 Antitrust Bulletin 451 (2022).

[55] See Court of Justice of the European Union (CJEU), 12 May 2022, Case C-377/20, Servizio Elettrico Nazionale SpA v. Autorità Garante della Concorrenza e del Mercato, ECLI:EU:C:2022:379; 19 Apr. 2018, Case C-525/16, MEO v. Autoridade da Concorrência, ECLI:EU:C:2018:270; 6 Sep. 2017, Case C-413/14 P, Intel v. Commission, ECLI:EU:C:2017:632; 6 Oct. 2015, Case C-23/14, Post Danmark A/S v. Konkurrencerådet (Post Danmark II), ECLI:EU:C:2015:651; 27 Mar. 2012, Case C-209/10, Post Danmark A/S v Konkurrencera?det (Post Danmark I), ECLI: EU:C:2012:172; for a recent overview of the EU case law, see also Pablo Iba?n?ez Colomo, The (Second) Modernisation of Article 102 TFEU: Reconciling Effective Enforcement, Legal Certainty and Meaningful Judicial Review, SSRN (2023), https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4598161.

[56] CJEU, Intel, supra note 55, paras. 133-134.

[57] CJEU, Servizio Elettrico Nazionale, supra note 55, para. 73.

[58] Opinion of Advocate General Rantos, 9 Dec. 2021, Case C?377/20, Servizio Elettrico Nazionale SpA v. Autorità Garante della Concorrenza e del Mercato, ECLI:EU:C:2021:998, para. 45.

[59] CJEU, Servizio Elettrico Nazionale, supra note 55, para. 77.

[60] Id., paras. 77, 80, and 83.

[61] CJEU, 26 Nov.1998, Case C-7/97, Oscar Bronner GmbH & Co. KG v. Mediaprint Zeitungs- und Zeitschriftenverlag GmbH & Co. KG, Mediaprint Zeitungsvertriebsgesellschaft mbH & Co. KG and Mediaprint Anzeigengesellschaft mbH & Co. KG, ECLI:EU:C:1998:569.

[62] CJEU, Servizio Elettrico Nazionale, supra note 55, para. 85.

[63] European Commission, supra note 11; UK Competition and Markets Authority, supra note 17, paras. 2.6, 4.3, and 4.7.

[64] See, e.g., European Commission, Case COMP D3/34493, DSD, para. 112 (2001) OJ L166/1; affirmed in GC, 24 May 2007, Case T-151/01, DerGru?nePunkt – Duales System DeutschlandGmbH v. European Commission, ECLI:EU:T:2007:154 and CJEU, 16 Jul. 2009, Case C-385/07 P, ECLI:EU:C:2009:456; European Commission, Case IV/31.043, Tetra Pak II, paras. 105–08, (1992) OJ L72/1; European Commission, Case IV/29.971, GEMA III, (1982) OJ L94/12; CJUE, 27 Mar. 1974, Case 127/73, Belgische Radio en Televisie e socie?te? belge des auteurs, compositeurs et e?diteurs v. SV SABAM and NV Fonior, ECLI:EU:C:1974:25, para. 15; European Commission, Case IV/26.760, GEMA II, (1972) OJ L166/22; European Commission, Case IV/26.760, GEMA I, (1971) OJ L134/15.

[65] See, e.g., Richard A. Posner, Intellectual Property: The Law and Economics Approach, 19 The Journal of Economic Perspectives 57 (2005).

[66] See, e.g., Richard Gilbert & Carl Shapiro, Optimal Patent Length and Breadth, 21 The RAND Journal of Economics 106 (1990); Pankaj Tandon, Optimal Patents with Compulsory Licensing, 90 Journal of Political Economy 470 (1982); Frederic M. Scherer, Nordhaus’ Theory of Optimal Patent Life: A Geometric Reinterpretation, 62 American Economic Review 422 (1972); William D. Nordhaus, Invention, Growth, and Welfare: A Theoretical Treatment of Technological Change, Cambridge, MIT Press (1969).

[67] See, e.g., Hal R. Varian, Copying and Copyright, 19 The Journal of Economic Perspectives 121 (2005); William R. Johnson, The Economics of Copying, 93 Journal of Political Economy 158 (1985); Stephen Breyer, The Uneasy Case for Copyright: A Study of Copyright in Books, Photocopies, and Computer Programs, 84 Harvard Law Review 281 (1970).

[68] Sai Krishna Kamepalli, Raghuram Rajan, & Luigi Zingales, Kill Zone, NBER Working Paper No. 27146 (2022), http://www.nber.org/papers/w27146; Massimo Motta & Sandro Shelegia, The “Kill Zone”: Copying, Acquisition and Start-Ups’ Direction of Innovation, Barcelona GSE Working Paper Series Working Paper No. 1253 (2021), https://bse.eu/research/working-papers/kill-zone-copying-acquisition-and-start-ups-direction-innovation; U.S. House of Representatives, Subcommittee on Antitrust, Commercial, and Administrative Law, supra note 8, 164; Stigler Committee for the Study of Digital Platforms, Market Structure and Antitrust Subcommittee (2019) 54, https://research.chicagobooth.edu/stigler/events/single-events/antitrust-competition-conference/digital-platforms-committee; contra, see Geoffrey A. Manne, Samuel Bowman, & Dirk Auer, Technology Mergers and the Market for Corporate Control, 86 Missouri Law Review 1047 (2022).

[69] See also Howard A. Shelanski, Information, Innovation, and Competition Policy for the Internet, 161 University of Pennsylvania Law Review 1663 (2013), 1999 (describing as “forced free riding” the situation occurring when a platform appropriates innovation by other firms that depend on the platform for access to consumers).

[70] See Feng Zhu & Qihong Liu, Competing with Complementors: An Empirical Look at Amazon.com, 39 Strategic Management Journal 2618 (2018).

[71] Andrei Hagiu, Tat-How Teh, and Julian Wright, Should Platforms Be Allowed to Sell on Their Own Marketplaces?, 53 RAND Journal of Economics 297 (2022), (the model assumes that there is a platform that can function as a seller and/or a marketplace, a fringe of small third-party sellers that all sell an identical product, and an innovative seller that has a better product in the same category as the fringe sellers and can invest more in making its product even better; further, the model allows the different channels (on-platform or direct) and the different sellers to offer different values to consumers; therefore, third-party sellers (including the innovative seller) can choose whether to participate on the platform’s marketplace, and whenever they do, can price discriminate between consumers that come to it through the marketplace and consumers that come to it through the direct channel).

[72] See Germa?n Gutie?rrez, The Welfare Consequences of Regulating Amazon (2022), available at http://germangutierrezg.com/Gutierrez2021_AMZ_welfare.pdf (building an equilibrium model where consumers choose products on the Amazon platform, while third-party sellers and Amazon endogenously set prices of products and platform fees).

[73] See Federico Etro, Product Selection in Online Marketplaces, 30 Journal of Economics & Management Strategy 614 (2021), (relying on a model where a marketplace such as Amazon provides a variety of products and can decide, for each product, whether to monetize sales by third-party sellers through a commission or become a seller on its platform, either by commercializing a private label version or by purchasing from a vendor and resell as a first party retailer; as acknowledged by the author, a limitation of the model is that it assumes that the marketplace can set the profit?maximizing commission on each product; if this is not the case, third-party sales would be imperfectly monetized, which would increase the relative profitability of entry).

[74] Patrick Andreoli-Versbach & Joshua Gans, Interplay Between Amazon Store and Logistics, SSRN (2023) https://ssrn.com/abstract=4568024.

[75] Simon Anderson & O?zlem Bedre-Defolie, Online Trade Platforms: Hosting, Selling, or Both?, 84 International Journal of Industrial Organization 102861 (2022).

[76] Chiara Farronato, Andrey Fradkin, & Alexander MacKay, Self-Preferencing at Amazon: Evidence From Search Rankings, NBER Working Paper No. 30894 (2023), http://www.nber.org/papers/w30894.

[77] See Erik Madsen & Nikhil Vellodi, Insider Imitation, SSRN (2023) https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3832712 (introducing a two-stage model where the platform publicly commits to an imitation policy and the entrepreneur observes this policy and chooses whether to innovate: if she chooses not to, the game ends and both players earn profits normalized to zero; otherwise, the entrepreneur pays a fixed innovation cost to develop the product, which she then sells on a marketplace owned by the platform).

[78] Federico Etro, The Economics of Amazon, SSRN (2022), https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4307213.

[79] Jay Pil Choi, Kyungmin Kim, & Arijit Mukherjee, “Sherlocking” and Information Design by Hybrid Platforms, SSRN (2023), https://ssrn.com/abstract=4332558 (the model assumes that the platform chooses its referral fee at the beginning of the game and that the cost of entry is the same for both the seller and the platform).

[80] Radostina Shopova, Private Labels in Marketplaces, 89 International Journal of Industrial Organization 102949 (2023), (the model assumes that the market structure is given exogenously and that the quality of the seller’s product is also exogenous; therefore, the paper does not investigate how entry by a platform affects the innovation incentives of third-party sellers).

[81] Jean-Pierre Dube?, Amazon Private Brands: Self-Preferencing vs Traditional Retailing, SSRN (2022) https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4205988.

[82] Gregory S. Crawford, Matteo Courthoud, Regina Seibel, & Simon Zuzek, Amazon Entry on Amazon Marketplace, CEPR Discussion Paper No. 17531 (2022), https://cepr.org/publications/dp17531.

[83] Motta & Shelegia, supra note 68.

[84] Jingcun Cao, Avery Haviv, & Nan Li, The Spillover Effects of Copycat Apps and App Platform Governance, SSRN (2023), https://ssrn.com/abstract=4250292.

[85] Massimo Motta, Self-Preferencing and Foreclosure in Digital Markets: Theories of Harm for Abuse Cases, 90 International Journal of Industrial Organization 102974 (2023).

[86] Id.

[87] Id.

[88] See, e.g., Crawford, Courthoud, Seibel, & Zuzek, supra note 82; Etro, supra note 78; Shopova, supra note 80.

[89] Motta, supra note 85.

[90] Servizio Elettrico Nazionale, supra note 55, paras. 53-54; Post Danmark II, supra note 55, para. 65.

[91] Etro, supra note 78; see also Herbert Hovenkamp, The Looming Crisis in Antitrust Economics, 101 Boston University Law Review 489 (2021), 543, (arguing that: “Amazon’s practice of selling both its own products and those of rivals in close juxtaposition almost certainly benefits consumers by permitting close price comparisons. When Amazon introduces a product such as AmazonBasics AAA batteries in competition with Duracell, prices will go down. There is no evidence to suggest that the practice is so prone to abuse or so likely to harm consumers in other ways that it should be categorically condemned. Rather, it is an act of partial vertical integration similar to other practices that the antitrust laws have confronted and allowed in the past.”)

[92] On the more complex economic rationale of intellectual property, see, e.g., William M. Landes & Richard A. Posner, The Economic Structure of Intellectual Property Law, Cambridge, Harvard University Press (2003).

[93] See, e.g., Italian Competition Authority, 18 Jul. 2023 No. 30737, Case A538 – Sistemi di sigillatura multidiametro per cavi e tubi, (2023) Bulletin No. 31.

[94] See CJEU, 6 Apr. 1995, Joined Cases C-241/91 P and 242/91 P, RTE and ITP v. Commission, ECLI:EU:C:1995:98; 29 Apr. 2004, Case C-418/01, IMS Health GmbH & Co. OHG v. NDC Health GmbH & Co. GH, ECLI:EU:C:2004:257; General Court, 17 Sep. 2007, Case T-201/04, Microsoft v. Commission, ECLI:EU:T:2007:289; CJEU, 16 Jul. 2015, Case C-170/13, Huawei Technologies Co. Ltd v. ZTE Corp., ECLI:EU:C:2015:477.

[95] See, e.g., Dana Mattioli, How Amazon Wins: By Steamrolling Rivals and Partners, Wall Street Journal (2022), https://www.wsj.com/articles/amazon-competition-shopify-wayfair-allbirds-antitrust-11608235127; Aditya Kalra & Steve Stecklow, Amazon Copied Products and Rigged Search Results to Promote Its Own Brands, Documents Show, Reuters (2021), https://www.reuters.com/investigates/special-report/amazon-india-rigging.

[96] Williams-Sonoma, Inc. v. Amazon.Com, Inc., Case No. 18-cv-07548 (N.D. Cal., 2018). The suit was eventually dismissed, as the parties entered into a settlement agreement: Williams-Sonoma, Inc. v. Amazon.Com, Inc., Case No. 18-cv-07548-AGT (N.D. Cal., 2020).

[97] Amazon Best Sellers, https://www.amazon.com/Best-Sellers/zgbs.

[98] Hovenkamp, supra note 91, 2015-2016.

[99] Nicolas Petit, Big Tech and the Digital Economy, Oxford, Oxford University Press (2020), 224-225.

[100] For a recent analysis, see Zijun (June) Shi, Xiao Liu, Dokyun Lee, & Kannan Srinivasan, How Do Fast-Fashion Copycats Affect the Popularity of Premium Brands? Evidence from Social Media, 60 Journal of Marketing Research 1027 (2023).

[101] Lina M. Khan, Amazon’s Antitrust Paradox, 126 Yale Law Journal 710 (2017), 782.

[102] See Massimo Motta &Martin Peitz, Intervention Triggers and Underlying Theories of Harm, in Market Investigations. A New Competition Tool for Europe? (M. Motta, M. Peitz, & H. Schweitzer, eds.), Cambridge, Cambridge University Press (2022), 16, 59 (arguing that, while it is unclear to what extent products or ideas are worth protecting and/or can be protected from sherlocking and whether such cloning is really harmful to consumers, this is clearly an area where an antitrust investigation for abuse of dominant position would not help).

[103] Khan, supra note 101, 780 and 783 (arguing that Amazon’s conflicts of interest tarnish the neutrality of the competitive process and that the competitive implications are clear, as Amazon is exploiting the fact that some of its customers are also its rivals).

[104] Servizio Elettrico Nazionale, supra note 55, para. 85.

[105] Post Danmark I, supra note 55, para. 22.

[106] Iba?n?ez Colomo, supra note 55, 21-22.

[107] Id.

[108] See, e.g., DMA, supra note 4, Recital 5 (complaining that the scope of antitrust provisions is “limited to certain instances of market power, for example dominance on specific markets and of anti-competitive behaviour, and enforcement occurs ex post and requires an extensive investigation of often very complex facts on a case by case basis.”).

[109] U.S. Federal Trade Commission, et al. v. Amazon.com, Inc., supra note 23.

[110] Khan, supra note 101.

[111] Khan, supra note 22, 1003, referring to Amazon, Google, and Meta.

Continue reading
Antitrust & Consumer Protection

The Boomerang Effects of the Proposed EU Regulation on SEPs

Popular Media As the European Parliament is on the verge of expressing its view on the Commission’s proposal for a regulation on standard essential patents (SEPs), it . . .

As the European Parliament is on the verge of expressing its view on the Commission’s proposal for a regulation on standard essential patents (SEPs), it seems appropriate to draw the attention to potential disruptive effects of this legislative initiative. Although some commentators have portrayed the proposed regulation as a balanced, innocuous and ‘common-sense’ solution, the reality is very different, as the regulation will likely have adverse effects on European innovation, tech sovereignty and the competitiveness of the European Union in the global arena.

Read the full piece here.

Continue reading
Intellectual Property & Licensing

Giuseppe Colangelo on Korea’s Platform Competition Promotion Act

Presentations & Interviews ICLE Academic Affiliate Giuseppe Colangelo participated in a webinar hosted by the South Korean law firm Bae, Kim, & Lee exploring the proposed Platform Competition . . .

ICLE Academic Affiliate Giuseppe Colangelo participated in a webinar hosted by the South Korean law firm Bae, Kim, & Lee exploring the proposed Platform Competition Promotion Act. Video of the full webinar is embedded below.

Continue reading
Antitrust & Consumer Protection

FRAND Determinations Under the EU SEP Proposal: Discarding the Huawei Framework

ICLE Issue Brief Abstract The European Commission’s recently unveiled proposal to overhaul the EU’s licensing system for standard-essential patents (SEPs) would see conciliators issue mandatory, albeit nonbinding, pre-trial . . .

Abstract

The European Commission’s recently unveiled proposal to overhaul the EU’s licensing system for standard-essential patents (SEPs) would see conciliators issue mandatory, albeit nonbinding, pre-trial determinations of fair, reasonable, and non-discriminatory (FRAND) terms. This issue brief investigates the relationship between the proposal’s FRAND-determination process and the test developed by the Court of Justice of the European Union (CJEU) in Huawei v. ZTE, which currently represents the guiding framework for SEP-licensing negotiations in the EU. It aims to demonstrate that, even if the SEP proposal were not intended to displace Huawei, the anti-injunction approach it endorses is inherently inconsistent with the CJEU’s stance, and is essentially a direct response to German case law. Therefore, to the extent that the proposal’s FRAND determinations will coexist with the Huawei bargaining framework, the proposed regulation appears likely to add significant confusion and uncertainty, and to induce licensing disputes, rather than supporting balanced and successful SEP-licensing negotiations.

I.       Introduction

In April 2023, the European Commission unveiled a proposed regulation to overhaul the EU’s licensing system for standard essential patents (SEPs).[1] The initiative aims to address the causes of allegedly inefficient licensing, such as a lack of transparency with regard to SEPs; fair, reasonable, and non-discriminatory (FRAND) terms and conditions; licensing in the value chain; and limited use of dispute-resolution procedures.[2]

A perceived need to enhance transparency, predictability, and efficiency of SEP licensing is not new to the EU policy agenda.[3] The status quo is perceived as particularly unsatisfactory in the context of the Internet of Things (IoT), where newer players with few resources and little licensing experience (i.e., startups and small and medium-sized enterprises) have entered the market for connectivity.[4] As the number of declared SEPs continues to proliferate and a growing number of industrial, business, and consumer applications make use of standards that include SEPs, the European Commission has increasingly seen the need for a smoother and more balanced SEP-licensing system.[5]

Against this background, the Commission’s SEP proposal would alter the current framework by introducing mandatory registration for enforcement purposes; a system for essentiality checks; and a process to determine both aggregate royalties and FRAND terms and conditions. Unsurprisingly, the proposal has drawn criticism for nearly all its provisions, with some questioning its very rationale. Critics charge that such an intrusive and extensive intervention is unnecessary and dangerous, and that there is no economic justification for the initiative.[6] Indeed, proponents of the proposed regulation justify it by citing limited circumstances and situate their case within a market-failure framework. There is, however, no discernible evidence of a market failure to address. Notably, the concerns reported in the Impact Assessment[7] do not match the results of the primary study that informed it.[8]

The Commission’s Impact Assessment raised concerns that SEP-related disputes will increase because of the growing demand for connectivity (particularly for the IoT) and that, because of high transaction costs and licensing uncertainties, both SEP owners and implementers may be discouraged from participating in standards development and the creation of products that use technology standards potentially subject to SEPs, respectively.[9] The empirical evidence that the Impact Assessment used as its primary input, however, does not support these findings and illustrates a significantly different landscape.

In short, the prevalence of SEP litigation is low relative to non-SEP disputes, and it has not increased over time;[10] the caseload of SEP litigation is relatively stable in Europe (while falling in the United States and increasing in China) and, in more recent years, the share of declared SEPs subject to litigation has fallen;[11] and empirically observable data do not indicate that SEP-licensing conditions have led to pervasive opt-outs from standards-related innovation.[12] Therefore, there is no evidence that FRAND-licensing frictions have caused either SEP owners to contribute less to standards development or SEP implementers to opt for alternative (i.e., without FRAND licensing) standards. There is also nothing to indicate that current SEP-licensing conditions systematically suppress or delay standards implementation.[13]

A further criticism directed at the Commission’s SEP proposal regards its decision to delegate the primary duties related to the licensing and litigation of SEPs to the European Union Intellectual Property Office (EUIPO).[14] The EUIPO has no meaningful experience with patents, but would be placed in charge of one of the most complex areas of patent policy.[15] Moreover, the tasks undertaken by EUIPO (more precisely, by the competence center established under the purview of EUIPO) would undermine the authority in SEP enforcement of national courts and the newly established Unified Patent Court (UPC).

This issue brief will focus on provisions of the Commission’s proposal that would introduce mandatory (albeit nonbinding) pre-trial FRAND determinations by conciliators.[16] Under the SEP proposal, such dispute resolution must be initiated by the SEP holder or implementer prior to the initiation either of a patent-infringement claim or a request to determine or assess FRAND terms and conditions before a competent court of an EU member state.

The brief investigates the relationship between the proposed FRAND-determination process and the test developed by the Court of Justice of the European Union (CJEU) in the landmark ruling Huawei v. ZTE, which represents the current guiding framework for good-faith SEP-licensing negotiations.[17] Indeed, mandatory conciliation is expected to benefit SEP holders and implementers in reaching license agreements more quickly and without costly court proceedings, and it is proposed as a complement to—rather than replacement for—the Huawei process,[18] it is equally evident that the proposed regulation underscores the Commission’s dissatisfaction with the Huawei framework and its implementation by national courts.

Furthermore, the proposed approach marks a consequential departure from the one adopted by the CJEU. While the latter elaborated the so-called “willing licensee” test in order to strike a fair balance among the relevant interests, compulsory pre-trial conciliation would reduce the scope of injunctions for SEP holders beyond Huawei, tilting the balance in favor of implementers. Indeed, implementers would be free to challenge SEPs, but patent owners could not initiate infringement proceedings without first going through the mandatory FRAND-determination process. This issue brief aims to demonstrate that, even if the SEP proposal does not displace Huawei, the proposed conciliation process represents an attempt to discard the CJEU’s framework, rather than complement it.

Furthermore, the proposed restraints on the availability of injunctive relief would appear to reinstate the conflict between the Commission and the German courts that apparent prior to the Huawei decision, when opposing approaches emerged in the Motorola and Samsung cases[19] and the Orange Book Standard ruling, respectively.[20] It was the national courts’ differing interpretations of FRAND determination that provided the original impetus for harmonization at the EU level under Article 114 TFEU.[21] The largest number of SEP disputes are, however, litigated in Germany,[22] and the Commission has appeared sensitive to stakeholder complaints that German court practice is overly friendly to patent owners, and that it contradicts Huawei by expanding the availability of injunctions and amounts to a de facto reinstatement of Orange Book Standard.[23] As a result, the SEP proposal’s no-injunction approach, as well as the length of its proposed FRAND-determination procedure, may alter the bargaining process by imposing costs on patent owners and unduly favoring opportunistic behavior and delay tactics by implementers. The effect would be to make hold-out more attractive.

Finally, this brief questions the expected added value of the SEP proposal’s conciliation process. While distrust of the role of courts in FRAND disputes finds no support in the empirical evidence—which instead demonstrates the absence of an SEP-litigation problem in the EU—the new provisions risk generating confusion and uncertainty, which could fuel further litigation. Such risk is further exacerbated by the proposal’s extraterritorial effects. Indeed, while the regulation would apply only to patents in-force in the EU, the FRAND determination may refer to global rates.[24]

The remainder of this issue brief is structured as follows. Sections II and III compare FRAND determinations under the SEP proposal and the Huawei bargaining framework, respectively. Section IV addresses the relationship between the Huawei code of conduct and the solution advanced by the European Commission. Section V investigates the implications and potential side effects of the SEP proposal. Section VI concludes.

II.     FRAND Determinations Under the SEP Proposal

Disagreements regarding the meaning and implementation of FRAND (i.e., about what constitute FRAND terms and conditions, as well as the nature, scope, and implications of FRAND obligations) are among the primary drivers of complexity in SEP licensing.[25] To reduce costs and simplify and speed negotiation of FRAND terms,[26] Title VI of the Commission’s SEP proposal introduces mandatory dispute resolution, which would serve as a precondition to access to the competent court of an EU member state. Indeed, a FRAND determination by a conciliator, selected among candidates proposed by the competence center,[27] would be a mandatory step before an SEP holder could initiate patent-infringement proceedings, or an implementer could request a determination or assessment of FRAND terms and conditions before a competent court.[28] National court enforcement would also be precluded when a determination of FRAND terms and conditions is raised in abuse-of-dominance cases, namely in the national application of the Huawei framework.[29]

The obligation to initiate FRAND determination before the relevant court proceedings is, however, not required for SEPs covering use cases of standards for which the Commission establishes (by means of a delegated act) that there is sufficient evidence that SEP-licensing negotiations on FRAND terms do not give rise to significant difficulties or inefficiencies.[30] Furthermore, the obligation to initiate FRAND determination does not preclude either party’s right to request (pending the FRAND determination) that the competent court of a member state issue a provisional injunction of a financial nature against the alleged infringer.[31] In any case, the provisional injunction would exclude seizure of the alleged infringer’s property, as well as the seizure or delivery of the products suspected of infringing an SEP.

While it would be obligatory to commence the conciliation before initiating a court action, the parties would be free to decide on their level of engagement and would not be prevented from leaving the process at any time.[32] It is even possible to proceed with the FRAND determination with the participation of just one party. Where a party does not reply to the FRAND determination request, or does not commit to comply with the outcome of the FRAND determination, the other party should be able to request either the termination or unilateral continuation of the FRAND determination.[33] The same applies if a party fails to engage in the FRAND determination after the conciliator has been appointed.[34] Where a parallel proceeding is initiated in a third country (i.e., a jurisdiction outside the EU) that results in a legally binding and enforceable decision, the conciliator (or the competence center) shall terminate the FRAND determination upon the request of any other party.[35]

The FRAND determination should be concluded within nine months.[36] At the conclusion of the procedure, the conciliator would make a proposal recommending a FRAND rate.[37] Either party would have the option to accept or reject the proposal. If the parties do not settle and/or do not accept the conciliator’s proposal, the conciliator would be asked to draft a report of the FRAND determination, including both a confidential and a non-confidential version. The latter should contain the proposal for FRAND terms and conditions and the methodology used, and should be provided to the competence center for publication in order to inform any subsequent FRAND determination between the parties and other stakeholders involved in similar negotiations. The Commission’s SEP proposal, however, offers no guidance on how conciliators should set a FRAND royalty or what factors they should consider.

III.   FRAND Determinations Under Huawei

Under existing European law, the evaluation of FRAND commitments in the standard development context is guided by the CJEU’s ruling in Huawei v. ZTE,[38] whose pivotal role was recently confirmed by the Commission’s guidelines on the application of antitrust law to horizontal cooperation agreements.[39]

Huawei represents the most significant attempt to provide a framework for good-faith SEP-licensing negotiations to guide licensors and licensees toward a mutually agreeable FRAND royalty. Toward this aim and in order to strike a fair balance among the relevant interests,[40] the CJEU identified the steps that patent holders and implementers must follow in negotiating a FRAND royalty. Indeed, a balance should be pursued between maintaining free competition and the requirement to safeguard a proprietor’s intellectual-property rights and its right to effective judicial protection.[41]

The exercise of an exclusive right linked to an intellectual-property right may in “exceptional circumstances” involve abusive conduct for the purposes of competition law.[42] In this regard, the CJEU has shown a preference for FRAND determination in the context of negotiations between the parties, using the threat of antitrust liability and patent enforcement as levers to steer both parties toward a mutually agreeable FRAND royalty level. Compliance with the Huawei code of conduct would shield SEP holders from the gaze of competition law and, at the same time, protect implementers from the threat of an injunction and the resulting disruptive effects on sales and production.

More specifically, transposing the essential-facility doctrine’s “exceptional circumstances” test to the standard development scenario,[43] the CJEU finds that the exceptional circumstances in this context are that the patent be essential to standards established by a development organization, and that those patents obtain essentiality status only in return for the holder’s irrevocable commitment to license on FRAND terms.[44]

These premises yield a willing-licensee test. While the alleged infringer must demonstrate more than just a mere willingness to negotiate, the SEP holder is burdened with making the first move and respecting the corresponding behavioral requirements. It is up to the SEP holder to alert the infringer of an alleged violation by naming the patent and specifying how it has been infringed. It is also up to the SEP holder to present a specific and written license offer on FRAND terms, specifying the amount of the royalty and how it is to be calculated.

By contrast, it is up to the alleged infringer to respond diligently to that offer, in accordance with well-established commercial practices, and in good faith, implying that the alleged infringer must not employ delay tactics. If the alleged infringer does not accept the offer, it must make a concrete counteroffer under FRAND conditions within a short period of time. From the point that this counteroffer is rejected by the patent holder, the license seeker already using the patent must provide adequate security, namely by providing a bank guarantee or by depositing the required amounts. In addition, the license seeker must present a precise accounting of past acts of use. If the patent infringer’s conduct does not meet these requirements, or if it employs delay tactics, an allegation of abuse of dominant position against the patent holder would not apply.

As a result, there is no FRAND determination under Huawei. The CJEU did not attempt to specify the content of FRAND, but instead crafted a negotiation framework with mutual obligations for the SEP holder and potential licensees. The goal was to bring parties back to the negotiation table, using the threats of antitrust liability and intellectual-property enforcement as levers to reach a mutually agreeable FRAND royalty level and, ultimately, to avoid a third-party determination. Further, recognizing the existence of different FRAND conditions is implicit in the back-and-forth dialectic of Huawei etiquette. By allowing parties to make diverging FRAND offers and counteroffers, the CJEU acknowledged that there is no unambiguous FRAND point and that several distributional FRAND prices may exist. Therefore, FRAND comprises a range of terms. After all, it is unclear how a rule establishing there could be just one “true” FRAND rate would help parties to negotiate successfully, while identifying a range of legitimate FRAND terms confers on the parties significant and desirable flexibility.[45]

In summary, instead of the methodological approach deployed in the United States, which is concerned with developing tools that allow courts to define royalty rates, the European approach relies on a set of conditions that assess the licensing parties’ FRAND compliance during the negotiations, in order ultimately to leave the actual determination of FRAND rates to the parties themselves.[46] The goal of such an approach is to yield economically efficient royalty rates,[47] and that goal is shared by the European Commission. Indeed, in the 2017 communication on “Setting out the EU approach to Standard Essential Patents,” the Commission stated that the parties are “best placed to arrive at a common understanding of what are fair licensing conditions and fair rates, through good faith negotiations,” and that “there is no one-size-fits-all solution to what FRAND is,” since what can be considered fair and reasonable differs from sector to sector and over time.[48]

  1. The Commission’s Assessment of Huawei

In its SEP proposal, the European Commission appears to agree with the Huawei decision’s premise that the relevant parties are best-positioned to determine the terms most appropriate for their specific situation.[49] According to the Commission, however, Huawei has proven inadequate to handle the complexities of SEP-licensing negotiations. as both licensing and enforcement remain inefficient.[50]

Notably, the Commission observes that national courts have adopted differing approaches to FRAND determinations and the process for negotiating FRAND terms and conditions—in particular, with regard to certain specific aspects of the Huawei test.[51] As affirmed in the study that informed the Commission’s Impact Assessment, despite the Huawei procedural framework’s added value of legal certainty, the Commission believes many uncertainties remain and that the framework fails to resolve several contentious debates regarding the scope and content of FRAND obligations, which has, in turn, led national courts to divergent interpretations of the various steps.[52] The Commission therefore justifies its intervention at the EU level by arguing that approaches taken by member states could diverge “partly depending on whether businesses in those Member States are predominantly SEP holders or implementers.”[53]

Few would dispute that the CJEU left a number of issues unresolved in Huawei (e.g., the existence of dominant position with respect to SEPs, the possibility of applying the framework to non-practicing entities, the definition of FRAND terms) and national courts, especially in Germany, have been busy filling those gaps.[54] Diverging approaches have sometimes been adopted, in particular with regard to implementation of the parties’ duties. Among these are determining the proper order to follow in scrutinizing the FRAND nature of offers and counteroffers; the timing and basis for counteroffers; and the ways in which implementers are expected to behave to demonstrate their willingness to strike a deal. But over the years that Huawei has been implemented, national courts have performed their roles effectively, tackling the risks of both hold-up and hold-out, and untangling various contentious questions about SEPs.[55]

Moreover, empirical evidence does not support the Commission’s findings. Indeed, as already noted, inputs provided to the Impact Assessment found that the volume of SEP-litigation cases has been stable in Europe and represent only a very small proportion of patent disputes overall. There is also no evidence that SEP-licensing conditions systematically suppress or delay standards implementation, thus inducing parties to opt out from standards-related innovation.[56]

Other data further contradict the Commission’s narrative. Discrepancies among national interpretations do not appear particularly significant, as the bulk of SEP disputes are litigated in just one member state (i.e., Germany).[57] The same applies to the suspicion that diverging interpretations may reflect the geographical concentration of SEP holders, since around 80% of all SEPs held by EU companies are owned by just two companies (i.e., Nokia and Ericsson), which are established in Finland and Sweden respectively.[58]

IV.   Co-Living Dangerously

The SEP proposal’s FRAND determinations are supposed to coexist with the Huawei bargaining framework. The Commission has been keen to point out that the initiative will “neither interpret the CJEU case law nor adopt methodologies for FRAND determination per se,”[59] and that the conciliation procedure “will complement and not replace the Huawei v ZTE process.”[60] Moreover, according to the Commission, as the proposal “will establish mechanisms that promote the necessary transparency, increase certainty and reduce the potential for inconsistent rulings,” this will be “a significant improvement in the courts’ abilities to handle SEP disputes.”[61] These statements are hard to believe, however, as the rationale for the conciliation process is to replace national courts in implementing Huawei, and the approach the proposal takes is at odds with Huawei.

The Commission seeks to justify the new procedure on grounds that it is needed to address purported uncertainties stemming from diverging national applications of the Huawei procedural framework that, the Commission contends, make it unfit to ensure an efficient SEP-licensing and enforcement ecosystem. Therefore, to prevent or at least limit divergent interpretations, the conciliator would act as a more informed and presumably wiser judge. Indeed, the SEP proposal’s implicit assumption is that conciliators would have greater expertise than courts and would succeed where they have failed. As a consequence, the conciliator will examine the parties’ offers and counteroffers, and consider the Huawei negotiation steps.[62] Further, its final report will contain a summary of the process and include that information needed to assess whether the SEP holder engaged in the Huawei process with an implementer.[63] Moreover, the conciliator’s suggested FRAND royalty could also be used by both SEP holders and implementers to determine the appropriate amount of security the implementer needs to provide under Huawei.[64]

But ultimately, the SEP proposal endorses an anti-injunction approach inconsistent with the CJEU’s stance. In Huawei, the CJEU attempted to strike a fair balance among the relevant interests. Toward this aim, as the SEP proposal notes, the CJEU recognized SEP holders’ right to seek to enforce its patents in national courts.[65] The CJEU acknowledged that the exercise of remedies to protect intellectual-property rights may be considered unlawful for the purposes of competition law only in exceptional circumstances, and subordinated any limitation of injunctions to the demonstration of the licensee’s willingness to sign a FRAND deal.

In contrast, under the SEP proposal, injunctive relief would become unavailable by default and patent holders would be restricted from filing an infringement suit prior to initiating a FRAND determination, regardless of implementers’ willingness. Implementers, meanwhile, would remain free to request determinations of invalidity, as well as declarations of noninfringement and non-essentiality. Indeed, the FRAND determination would also be carried out even if the implementer failed to provide appropriate security, as required under Huawei.

As a result, in contrast to the CJEU’s approach, the SEP proposal would create an imbalance and an uneven bargaining position between licensors and license seekers. Rather than tackling both hold-up and hold-out opportunistic behavior, the Commission appears concerned only about the former—holding that the ability to negotiate a FRAND rate “without the threat of an injunction is important for any implementer.”[66] The only measure proposed to balance the obligations on both sides would be the issuance of provisional injunctions of a financial nature against the alleged infringer, which would ostensibly provide SEP holders who have agreed to license their SEPs on FRAND terms with the necessary judicial protection.[67] This right to an “injunction” would, however, preclude seizing the alleged infringer’s property, including the seizure or delivery of products suspected of infringing a SEP. Moreover, in determining whether a provisional injunction of a financial nature is adequate, the proposal suggests considering, among other things, the applicant’s economic capacity—in particular for small and medium-sized enterprises (SMEs)—in order to prevent abusive use of such a measure.[68]

While it is highly doubtful that the proposed provisional injunctions would discourage hold-out, the conciliation mechanism does not provide any measure that would offer implementers incentives to reach an agreement and accept the results. In addition to being nonbinding, the SEP proposal establishes that the FRAND determination procedure may take as long as nine months, thus potentially granting implementers the ability to benefit from a delay of patent holders’ requests for injunctive relief against infringement.

As reported by the Impact Assessment, SEP holders who responded during the public consultation identified their main problem as being the various reasons used by implementers to delay taking up a license.[69] In this regard, the conciliation process’ nine-month timeframe should be added to the long negotiations that SEP holders already face, as well as the time spent on potential litigation.[70] While the mandatory conciliation procedure would greater expose SEP holders to opportunistic conduct by implementers, the latter would be able to take advantage of further delays without losing any leverage. Indeed, given that the FRAND determination is nonbinding, implementers that pursue hold-out tactics might simply wait until SEP owners complete the process and, if dissatisfied with the outcome, challenge the results.[71]

  1. New Between the Commission and German Courts

Reconciling the different approaches taken by the SEP proposal and the Huawei framework will prove particularly interesting in Germany. Since the majority of SEP disputes in the EU are litigated there, the Huawei framework has primarily implemented by German courts.[72] Hence, it is evident that any reference to divergent interpretations at the national level mainly points in the direction of Germany. Indeed, the Commission mentions German case law several times with regard to disagreements and controversies over FRAND terms and conditions.[73]

Further, and more importantly, the Commission’s concern regarding the impact of injunctions on implementers (i.e., the risk that the mere threat of an injunction may place undue pressure on negotiations and force the potential licensee to accept non-FRAND rates) is in striking contrast with the German courts’ traditional stance. Indeed, as a result of the public consultation, the Impact Assessment reported the claims of some respondents according to which: “the national court practice increasingly favours SEP holders” and this “particularly applies in Germany after the Sisvel v. Haier decisions of Germany’s Federal Court of Justice”; “some courts have (mis)interpreted Huawei v. ZTE to impose unrealistic requirements on implementers to prove their willingness”; “injunctions for SEPs under FRAND commitment have become more readily available … in particular [because of] the decision of the Germany’s Federal Court of Justice Sisvel v. Haier.”[74] More explicitly, it is argued that the German Federal Court “effectively contradicted the CJEU’s judgement Huawei v. ZTE and brought back the Orange Book Standard … re-shift[ing] the main burden of negotiations on licensees and increase[ing] the availability of injunctions.”[75]

This background conflict between the European Commission and German courts, which predates Huawei, resurfaces in the Commission’s SEP proposal. After all, the Huawei test itself was developed in response to a request for a preliminary ruling advanced by a German court, the District Court (Landgericht) of Dusseldorf.

The CJEU ruling is usually interpreted as being opposed to the framework previously crafted by the German Federal Court of Justice (BGH) in Orange Book Standard.[76] According to the Orange Book framework, a defendant seeking to rely on a competition-law defense against an SEP holder’s claim for injunction would have to advance an unconditional license offer (i.e., the signing of a FRAND license cannot be made conditional on a court’s findings regarding infringement or the validity of the patent in question) and would be required to behave from the point of offer as if the plaintiff had accepted it. Hence, the defendant must have already paid the offered royalties, albeit in escrow.

In contrast to this approach, which allowed the competition-law defense in a very few cases, the Commission took a different stance in Motorola and Samsung. Those rulings established that infringers could avoid an injunction by stating a (rather unspecific) willingness to license and by accepting the binding determination of a third party.[77] Faced with these differing evaluation criteria endorsed by the BGH and the European Commission—which appeared one-sided in favor of patent holders and infringers, respectively—the CJEU set its own framework to pursue a novel and more balanced approach.

In the aftermath of Huawei, the Sisvel v. Haier decisions aligned German case law with the new European framework, setting the general principles according to which implementers are required to show an unequivocal and unconditional willingness to sign a FRAND license and to engage in constructive negotiations to pursue this aim. This does not, however, preclude the infringer from reserving the right to challenge the use of the license.

Because of the difficulties inherent in applying the willingness criteria in concrete example, Huawei’s case-by-case detection remains challenging, as proven by the German lower courts’ jurisprudence.[78] But despite the perception that German case law is overly friendly to patent owners, however, the attention devoted to the conduct of implementers is consistent with the principles set out by the CJEU, as Huawei revolves around the willingness of license seekers.[79]

V.     The SEP Proposal’s Uncertain Added Value

The apparent incongruity between the Commission’s SEP proposal and the existing Huawei framework raises a more general question about whether the initiative could possibly be effective, which is further underscored by the inference that the proposed FRAND-determination process is essentially a response to the German courts’ approach.

Given the differing perspectives embraced by the European Commission and German courts, it is not unreasonable to wonder to what extent the conciliator’s advisory opinion will exert any influence on courts, as the conciliation procedure is mandatory but nonbinding. Indeed, courts may simply disregard the FRAND rate proposed by the conciliator. Further, it is unclear whether courts would consider the degree of the licensee’s engagement in the conciliation procedure as a factor for the willingness assessment under Huawei.

Furthermore, the core of the SEP proposal (including the FRAND determination) would not apply to identified use cases of certain standards, or parts thereof, for which there is “sufficient evidence” that SEP-licensing negotiations on FRAND terms do not give rise to “significant difficulties or inefficiencies.”[80] Therefore, certain standards or implementations can be deemed exempt by means of a delegated act, in particular those for which there are “well established commercial relationships and licensing practices,” “such as the standards for wireless communications.”[81] The Commission offers no guidance or specifications, however, on the meaning of the terms that would justify such an important exemption.

Moreover, the newly envisaged FRAND-determination procedure closely resembles the already established alternative-dispute-resolution methods, such as the mediation of FRAND disputes offered by such organizations as the World Intellectual Property Organization (WIPO). As there is no indication that a mediation process overseen by the EUIPO would hold greater appeal to the relevant parties, a further question is raised regarding how the new process would provide additional benefits compared to the solutions already in place.

Finally, although the new regulation would apply to SEPs in-force in one or more member states, FRAND determinations will nevertheless also concern global SEP licenses, unless otherwise specified by the parties in case both parties agree to the FRAND determination or by the party that requested the continuation of the FRAND determination.[82] The EU has been concerned recently by the forum-shopping strategies some companies have undertaken, which have led to increasing requests of antisuit injunctions (ASIs)—that is, orders restraining a party from pursuing foreign proceedings or enforcing a judgment obtained in foreign proceedings.[83] This surge of ASIs and the risks related to their opportunistic use in the SEP landscape is linked to the role that certain national courts (particularly in the United States, United Kingdom, and China) have come to play in establishing themselves as de facto global licensing tribunals. In such a scenario, ASIs may represent a new and dangerous unfair practice adopted, in particular, by Chinese companies, with the support of Chinese courts and authorities. The presumed goal is to promote domestic economic interests and undervalue foreign patents by setting significantly lower FRAND rates. For these reasons, the EU has filed a case against China at the World Trade Organization (WTO) for preventing EU companies from going to foreign courts to protect their SEPs.[84]

If it is true, however, that national courts’ willingness to establish themselves as global licensing tribunals has spurred a race to the courthouse, thereby offering incentives for forum shopping and the adoption of countermeasures such as ASIs, the extraterritorial effects of the SEP proposal may contribute to such a race to the bottom among jurisdictions. Indeed, from a geopolitical perspective, the provision simply appears to be a retaliation against “certain emerging economies” that are taking a “much more aggressive approach in promoting home-grown standards and providing their industries with a competitive edge in terms of market access and technology roll-out.”[85]

All these elements call into question the added value provided by the European initiative and its effective capacity to pursue the identified objectives—namely, to achieve more transparency, predictability, and efficiency in SEPs licensing. Because of these illustrated uncertainties, the SEP proposal appears likely to add confusion and to induce licensing disputes, rather than supporting balanced and successful SEP-licensing negotiations.

VI.   Conclusion

The Huawei bargaining framework represents the EU’s distinctive approach in SEP-licensing negotiations. It revolves around the principles that the relevant parties are best-positioned to determine the terms most appropriate to their specific situation, and that the exercise of remedies to protect intellectual-property rights may be considered abusive only in exceptional circumstances. Against this background, the willing-licensee test aims to ensure a balance among the differing interests of licensors and license seekers.

Despite some points of criticism and unresolved issues, the economic literature supports the European way. By promoting cooperative solutions and thus moving the parties away from the courtroom and toward the negotiating table, the Huawei framework is more likely to result in economically efficient royalty rates than alternative approaches.

The European Commission apparently does not share this view. By imposing a mandatory conciliation procedure that would impede SEP holders from seeking injunctive reliefs and would allow implementers to further delay the attainment of a license, the SEP proposal seeks to discard Huawei. The intervention seems essentially motivated by dissatisfaction with the German courts’ interpretation and implementation of Huawei, namely with their supposed patent-owner-friendly and pro-injunction approach.

The proposed FRAND-determination procedure, however, represents a solution to a problem that does not exist. The empirical evidence informing the Commission’s initiative shows that there isn’t an SEP-litigation problem in Europe. Moreover, the proposal would just add confusion and uncertainties to the current landscape, both because of its troublesome relationship with Huawei and because some provisions—such as those granting extraterritorial effects to FRAND determinations—would favor litigation and a race to the courthouse.

If the expected added value of the SEP proposal is questionable, at best, it appears far from the Commission’s purported goal of providing “a uniform, open and predictable information and outcome on SEPs for the benefit of SEP holders, implementers and end users, at Union level.”[86]

[1] European Commission, Proposal for a Regulation of the European Parliament and of the Council on Standard Essential Patents and Amending Regulation (EU) 2017/1001, COM(2023)232.

[2] Id., Recital 2.

[3] See Group of Experts on Licensing and Valuation of Standard Essential Patents, Contribution to the Debate on SEPs, (2021) https://ec.europa.eu/docsroom/documents/45217 (all websites last visited 28 Sep. 2023); European Commission, Making the Most of the EU’s Innovative Potential. An Intellectual Property Action Plan to Support the EU’s Recovery and Resilience, COM(2020) 760 final; European Commission, Setting Out the EU approach to Standard Essential Patents, COM(2017) 712 final; European Commission, ICT Standardisation Priorities for the Digital Single Market, COM(2016) 176 final.

[4] European Commission, Intellectual Property – New Framework For Standard-Essential Patents, Call for Evidence for an Impact Assessment (2022). https://ec.europa.eu/info/law/better-regulation/have-your-say/initiatives/13109-Intellectual-property-new-framework-for-standard-essential-patents_en.

[5] Id.

[6] See, e.g., Centre for a Digital Society of the European University Institute, Feedback to EU Commission’s Public Consultation (2023), https://ec.europa.eu/info/law/better-regulation/have-your-say/initiatives/13109-Intellectual-property-new-framework-for-standard-essential-patents/F3432699_en; Christine A. Varney, Makan Delrahim, David J. Kappos, Andrei Iancu, Walter G. Copan, & Noah Joshua Phillips, Comments on European Commission’s Draft “Proposal for Regulation of the European Parliament and of the Council Establishing a Framework for Transparent Licensing of Standard Essential Patents,” (2023), available at https://ipwatchdog.com/wp-content/uploads/2023/04/Comments-on-European-Commission-Draft-SEP-Regulation-by-Former-US-Officials-1.pdf; Robin Jacob & Igor Nikolic, ICLE Feedback to EU Commission’s Public Consultation, International Center for Law & Economics (2023). https://ec.europa.eu/info/law/better-regulation/have-your-say/initiatives/13109-Intellectual-property-new-framework-for-standard-essential-patents/F3433917_en.

[7] European Commission, Impact Assessment Report Accompanying the Document Proposal for a Regulation of the European Parliament and of the Council on Standard Essential Patents and Amending Regulation (EU) 2017/1001, SWD(2023) 124 final.

[8] Justus Baron, Pere Arque-Castells, Amandine Leonard, Tim Pohlmann, & Eric Sergheraert, Empirical Assessment of Potential Challenges in SEP Licensing, Study for the European Commission (2023), available at https://www.iplytics.com/wp-content/uploads/2023/04/Empirical-Assessment-of-Potential-Challenges-in-SEP-Licensing.pdf.

[9] Impact Assessment, supra note 7, 11-17 and 25.

[10] Baron, Arque-Castells, Leonard, Pohlmann, & Sergheraert, supra note 8, 108.

[11] Id., 109-110.

[12] Id., 185.

[13] Id., 164.

[14] SEP Proposal, supra note 1, Article 3.

[15] Varney, Delrahim, Kappos, Iancu, Copan, & Phillips, supra note 6.

[16] SEP Proposal, supra note 1, Title VI.

[17] CJEU, 16 July 2015, Case C-170/13, Huawei Technologies Co Ltd v. ZTE Corp, ECLI:EU:C:2015:477.

[18] Impact Assessment, supra note 7, 43 and 58.

[19] European Commission, 29 April 2014, Cases AT.39985 and AT.39939.

[20] Bundesgerichtshof (BGH), 6 May 2009, Case KZR 39/06.

[21] SEP Proposal, Explanatory Memorandum, supra note 1, 4; European Commission, supra note 4, 3.

[22] Baron, Arque-Castells, Leonard, Pohlmann, & Sergheraert, supra note 8, 71-73.

[23] Impact Assessment, supra note 7, 154 and 158. See also BMW Group, Feedback to EU Commission’s Public Consultation (2023), https://ec.europa.eu/info/law/better-regulation/have-your-say/initiatives/13109-Intellectual-property-new-framework-for-standard-essential-patents/F3434362_en; Mercedes-Benz Group, Feedback to EU Commission’s Public Consultation (2023), https://ec.europa.eu/info/law/better-regulation/have-your-say/initiatives/13109-Intellectual-property-new-framework-for-standard-essential-patents/F3430251_en; and Volkswagen, Feedback to EU Commission’s Public Consultation (2023), https://ec.europa.eu/info/law/better-regulation/have-your-say/initiatives/13109-Intellectual-property-new-framework-for-standard-essential-patents/F3430555_en (welcoming the SEP Proposal for ensuring that, parallel to FRAND determination, any filed proceedings are suspended and that no injunction request may be brought before national courts, “particularly in Germany”); Baron, Arque-Castells, Leonard, Pohlmann, & Sergheraert, supra note 8, 96 (arguing that German courts are relatively strict on the interpretation of the Huawei step regarding the assessment of whether the response has been expressed diligently and without engaging in delaying tactics).

[24] SEP Proposal, supra note 1, Recital 8 and Article 38(6).

[25] Impact Assessment, supra note 7, 15 and 51-52.

[26] SEP Proposal, supra note 1, Recital 32; See Impact Assessment, supra note 7, 43-44 (estimating that the total cost of a conciliation will be eight times lower than the average SEP court cost and that up to 24 court cases could be avoided).

[27] SEP Proposal, supra note 1, Article 39.

[28] Id., Article 34.

[29] Id., Article 56(4).

[30] Id., Article 1(3-4).

[31] Id., Article 34(4).

[32] Id., Recital 34.

[33] Id., Article 38.

[34] Id., Article 46.

[35] Id., Article 47.

[36] Id., Article 37.

[37] Id., Articles 50-58.

[38] Huawei, supra note 17.

[39] European Commission, Guidelines on the Applicability of Article 101 of the Treaty on the Functioning of the European Union to Horizontal Cooperation Agreements, C/2023/4752, (2023) OJ C 259/1, Chapter 7.

[40] Huawei, supra note 17, para. 55

[41] Id., para. 42.

[42] Id., para. 47.

[43] CJEU, 6 April 1995, Joined Cases C-241/91 P and 242/91 P, RTE and ITP v. Commission, ECLI:EU:C:1995:98; CJEU, 26 November 1998, Case C-7/97, Oscar Bronner GmbH & Co. KG v. Mediaprint Zeitungs- und Zeitschriftenverlag GmbH & Co. KG, Mediaprint Zeitungsvertriebsgesellschaft mbH & Co. KG and Mediaprint Anzeigengesellschaft mbH & Co. KG, ECLI:EU:C:1998:569; CJEU, 29 April 2004, Case C-418/01, IMS Health v. NDC Health, ECLI:EU:C:2004:257; General Court, 17 September 2007, Case T-201/04, Microsoft v. Commission ECLI:EU:T:2007:289.

[44] Huawei, supra note 17, paras. 49 and 51.

[45] See, e.g., UK Court of Appeal, Unwired Planet [2018] EWCA Civ 2344 (overturning the single FRAND rate definition endorsed by Justice Colin Birss in Unwired Planet [2017] EWHC 1304 (Pat) and stating that the economic evidence does not support such an inflexible approach and that it is unrealistic to suggest that two parties, acting fairly and reasonably, will necessarily arrive at precisely the same set of license terms as two other parties, also acting fairly and reasonably and faced with the same set of circumstances).

[46] See Chryssoula Pentheroudakis & Justus A. Baron, Licensing Terms of Standard Essential Patents: A Comprehensive Analysis of Cases, JRC Science for Policy Report (2017), 123-124, https://publications.jrc.ec.europa.eu/repository/handle/JRC104068 (arguing that, in order to determine a single royalty rate within a hypothetical negotiation framework, U.S. courts are methodologically sophisticated when they approach FRAND, while European courts are more reluctant to define a single royalty rate and instead focus on the conduct of the parties during the bilateral negotiations to assess whether they complied with the specific FRAND commitments made prior to awarding injunctions).

[47] Id., 13 and 165 (arguing that the theoretical concepts behind FRAND and the empirical data available to determine FRAND rates for specific patents and products merely allow for the determination of a potentially broad FRAND range, rather than a unique FRAND rate, thus suggesting that implementation of the FRAND range should not seek to calculate a single royalty).

[48] European Commission, supra note 3, 6.

[49] See SEP Proposal, supra note 1, Recital 31 (stating that the regulation’s primary objective is to facilitate negotiations and out-of-court dispute resolution).

[50] European Commission, supra note 4, 3.

[51] SEP Proposal, Explanatory Memorandum, supra note 1, 4-5; European Commission, supra note 4, 3.

[52] Baron, Arque-Castells, Leonard, Pohlmann, & Sergheraert, supra note 8, 58-59 and 96.

[53] European Commission, supra note 4, 3.

[54] For analysis of the German case law, see Andrea Aguggia & Giuseppe Colangelo, SEPs Infringement and Competition Law Defence in German Case Law, Queen Mary Journal of Intellectual Property (forthcoming); Giuseppe Colangelo & Valerio Torti, Filling Huawei’s Gaps: The Recent German Case Law on Standard Essential Patents, 38 European Competition Law Review 538 (2017).

[55] See Jacob & Nikolic, supra note 6 (referring, e.g., to the guidance provided regarding what the FRAND rate between the parties ought to be, the scope of a FRAND license, the meaning of a FRAND commitment’s non-discrimination requirements, and whether FRAND commitments require SEP owners to offer licenses at different levels of the production chain); see also Adam Mossoff, Feedback to EU Commission’s Public Consultation (2023), https://ec.europa.eu/info/law/better-regulation/have-your-say/initiatives/13109-Intellectual-property-new-framework-for-standard-essential-patents/F3434471_en.

[56] Baron, Arque-Castells, Leonard, Pohlmann, & Sergheraert, supra note 8, 108 and 164.

[57] Id., 71-73.

[58] Impact Assessment, supra note 7, 8.

[59] SEP Proposal, Explanatory Memorandum, supra note 1, 5.

[60] Impact Assessment, supra note 7, 58.

[61] SEP Proposal, Explanatory Memorandum, supra note 1, 5.

[62] Impact Assessment, supra note 7, 32.

[63] Id., 42.

[64] Id.

[65] SEP Proposal, Explanatory Memorandum, supra note 1, 3.

[66] Impact Assessment, supra note 7, 42; see also Apple, Feedback to EU Commission’s Public Consultation, (2023) 3, https://ec.europa.eu/info/law/better-regulation/have-your-say/initiatives/13109-Proprieta-intellettuale-nuovo-quadro-per-i-brevetti-essenziali/F3434446_it (arguing that, if properly developed and implemented, the conciliation would limit SEP holders’ ability to use injunction threats to hold up licensees and coerce above-FRAND royalties).

[67] SEP Proposal, supra note 1, Recital 35 and Article 34(4).

[68] Id., Recital 35.

[69] Impact Assessment, supra note 7, 12.

[70] Id. (reporting the findings of the study conducted by Baron, Arque-Castells, Leonard, Pohlmann, & Sergheraert, supra note 8, 145, according to which negotiations amount, on average, to three years and that litigation may add another 2.5 years).

[71] Igor Nikolic, Some Practical and Competition Concerns with the Proposed Regulation on Standard Essential Patents, 4iP Council EU AISBL (2023) 5, https://www.4ipcouncil.com/research/some-practical-and-competition-concerns-proposed-regulation-standard-essential-patents.

[72] Impact Assessment, supra note 7, 58.

[73] See, e.g., European Commission, supra note 4, 3; Impact Assessment, supra note 7, 154 and 158; SEP Proposal, Explanatory Memorandum, supra note 1, 4. See also Baron, Arque-Castells, Leonard, Pohlmann, & Sergheraert, supra note 8, 59 (arguing that, in many member states, there currently are only a limited number of decisions under Huawei and that, in light of the controversies and diverging court approaches observed in Germany, it may be difficult for parties to SEP-licensing negotiations to predict how the courts of these EU member states would decide).

[74] Impact Assessment, supra note 7, 154, 155, and 158. The reference is to BGH, 5 May 2020, Case KZR 36/17, Sisvel v. Haier (Einwand I) and BGH, 24 November 2020, Case KZR 35/17, Sisvel v. Haier (Einwand II).

[75] Impact Assessment, supra note 7, 158.

[76] Supra note 20.

[77] Supra note 19.

[78] See Aguggia & Colangelo, supra note 54.

[79] Id.

[80] SEP Proposal, supra note 1, Article 1(4).

[81] Id., Recital 4.

[82] Id., Article 38(6).

[83] For a comparative analysis, see Giuseppe Colangelo & Valerio Torti, Anti-suit Injunctions and Geopolitics in Transnational SEPs Litigation, 14 European Journal of Legal Studies 45 (2022).

[84] European Commission, EU Challenges China at the WTO to Defend its High-Tech Sector, (2022) https://ec.europa.eu/commission/presscorner/detail/en/ip_22_1103.

[85] SEP Proposal, Explanatory Memorandum, supra note 1, 2.

[86] Id., 10.

Continue reading
Intellectual Property & Licensing

The Privacy-Antitrust Curse: Insights from GDPR Application in EU Competition Law

Scholarship Abstract The integrated approach that many competition and privacy regulators have endorsed for oversight of the major online platforms, whose business models rely on collecting . . .

Abstract

The integrated approach that many competition and privacy regulators have endorsed for oversight of the major online platforms, whose business models rely on collecting and processing large troves of personal data, has often been justified on grounds that competition and data protection are complementary ends. In this respect, Europe represents a testing ground for evaluating how privacy breaches may inform antitrust investigations. Indeed, the European Union’s General Data Protection Regulation (GDPR) and the recent German antitrust decision concerning Facebook may be considered polestars for this emerging regulatory approach that links market power and data power. This paper tests the degree to which such an approach is viable in concrete terms by analyzing how the European Commission and national competition authorities have applied data-protection rules and principles in antitrust proceedings. Notably, the paper aims to demonstrate the fallacy of characterizing the relationship between privacy and antitrust in terms of synergy and complementarity. Further, the paper maintains that the principles the European Court of Justice recently affirmed in its Meta decision do not appear to address the issue conclusively. The tension between these areas of law is illustrated by allegations raised in the numerous Apple ATT investigations concerning the strategic use of privacy as a business justification to pursue anticompetitive advantages. Rather than strengthening antitrust enforcement against gatekeepers and their data strategies, the inclusion of privacy harms in antitrust proceedings may turn out to be a potential curse for competition authorities, as it allows firms opportunities for regulatory gaming that can serve to undermine antitrust enforcement.

I.       Introduction

A significant share of the past decade’s academic literature on the role of data in digital markets has focused on the intersection of what had been previously thought of as the separate domains of privacy and antitrust. Given that data serves as a significant input for many of the major online platforms’ services and products, digital firms are eager to collect and process as much of it as possible. Such firms also use data-sharing agreements to obtain further data (i.e., information collected and provided by external suppliers) in order to improve their products and services. This is particularly true for those platforms whose business models rely on monetizing consumer information by selling targeted advertising and personalized sponsored content. In a market where platforms’ data-acquisition strategies are driven by the objective of granting sellers preferential access to consumer attention, personal data can represent an especially valuable portion of platforms’ information assets.[1] Moreover, given the social dimension of personal data, one user’s choice to share personal information with an online platform may generate externalities on other non-disclosing users (or non-users) by revealing information about them. Recent advances in machine learning may magnify the extent of these externalities, and raise questions about the effectiveness of data-protection regulations more generally.[2]

These dynamics have moved policymakers to take a greater interest in the degree to which data-accumulation strategies undermine individual privacy and entrench platforms’ market power. Some contend that the peculiar features of digital markets and the potential adverse uses of data in the digital economy require a regulatory approach that integrates privacy into antitrust enforcement and ensures close cooperation between antitrust authorities and data-protection regulators.[3]

According to this account, as network effects strengthen online firms’ market power, it becomes progressively more difficult to structure incentives for firms to compete on offering privacy-friendly products and services.[4] Conversely, these advocates claim, more competition in digital markets would lead to more privacy.[5]

Particular scrutiny is directed toward advertising-funded platforms that offer free services to attract users and thereby feed users’ data to the other side of the platform (i.e., advertisers), whose willingness to pay is strictly dependent on being able to deliver effective marketing through granular targeting or personalization. For their part, however, end users may not be aware of the value of their own data or may be induced to disclose private information. This could happen because users are attracted by zero-price services’ offers or, given the lack of available and comparable alternatives, in order to remain connected to their social, family, or work networks, users may feel compelled to accept take-it-or-leave-it terms that include the unwanted collection and use of their data.[6]

Some suggest that privacy should be included in antitrust assessments because suboptimal privacy offerings may be the result of anti-competitive behavior leading to decreased quality of products and services.[7] In this sense, privacy would represent a particularly significant factor to be taken into account in the merger-review process, as market concentration among companies that hold big data could further expand the merging firms’ tools to profile consumers and potentially invade their privacy.[8]

Finally, some advocates propose commingling antitrust and privacy regulation as part of a broader agenda to realign competition policy away from pure efficiency-oriented antitrust enforcement and instead toward a holistic approach that combines competition law with other fields of law, in order to take account of a broader swath of social interests.[9] In essence, privacy and antitrust would each help to cover the other’s purported Achilles heel.[10] While end users’ privacy interests would become relevant in investigating data-accumulation strategies that antitrust might otherwise fail to tackle, antitrust authorities would be more effective in ensuring data protection.[11]

Against the integrationist perspective, however, some scholars warn of risks that would attend transforming privacy infringements into per se antitrust violations.[12] Indeed, competition law and privacy regulation pursue different aims and deploy different tools. While privacy is not irrelevant to competition law and may constitute an important component of nonprice competition, the goals of competition and privacy are often at odds. Pushing these regulatory regimes to converge threatens to confuse, rather than strengthen, the enforcement of either.[13]

Further, the widely recognized “privacy paradox” illustrates that assessments of privacy are extremely subjective. Different consumers in differing contexts often express starkly different sensitivities about the protection of their personal data, rendering it challenging to provide accurate quality-driven assessments or even to set broadly acceptable baseline rules and policies.[14] More generally, an expansive approach that would treat privacy violations as sources of competitive harm potentially implies the need for antitrust investigations whenever dominant firms potentially violate any law, as they would acquire an advantage by saving costs or raising rivals’ costs.[15] Antitrust authorities would therefore become economy-wide regulators.

While some recent cases brought by U.S. antitrust authorities have also placed privacy concerns in a prominent position,[16] there are two reasons that Europe appears to represent the primary testing ground for an integrated approach for privacy and antitrust. First, European policymakers long have prided themselves as leaders in regulating digital markets, notably for a broad array of heterogeneous legislative initiatives that have in common their strenuous efforts to foster data sharing and their sponsors’ belief that the emergence of large technology platforms requires a bespoke approach.[17] In this sense, the initiative that blazed the path for the emerging integrationist perspective was the EU’s General Data Protection Regulation (GDPR), which assigned control rights over data to individuals and, in light of the emerging regulatory convergence of privacy and antitrust, introduced a general data-portability right for individuals, the rationale of which was inherently pro-competitive.[18]

Second, on the antitrust side of the ledger, the decision handed down by the German competition authority in the Facebook case was the first (and remains the primary) example of the trend toward enforcers asserting that competition law should be informed by data-protection principles and that data protection should enforced outside its usual legal context, with the goal of remedying the shortcomings of privacy law.[19]

Despite the purported synergies underpinning the respective policy goals of competition and data-protection law, however, their interests and objectives are not necessarily aligned.[20] In particular, there are signs that some major digital firms may interpret data-protection requirements in ways that risk distorting competition.[21] Namely, once privacy harms are included among the interests ostensibly protected in antitrust proceedings, platforms may have incentive to adjust their strategies to invoke data protection as a business justification for allegedly anticompetitive conduct.[22]

For example, some platforms justify their decisions to deny rivals access to their facilities on grounds that doing so would risk violating their users’ privacy.[23] App-store providers in particular have described some restrictions that may be interpreted as anticompetitive self-preferencing (e.g., requiring in-app purchases to be routed through their own in-app payment processor, limiting sideloading, and limiting app developers’ ability to communicate with end users about the availability of alternative payment options) as necessary to guarantee users’ security and privacy.[24]

The most debated example illustrating the growing tension between data protection and antitrust is Apple’s adoption of its “app tracking transparency” (ATT) policy, which creates new consent and notification requirements that change the way app developers can collect and use consumer data for mobile advertising on iOS. There very well could be privacy benefits associated with the new Apple framework, as it may enhance users’ privacy and control over their personal data. But ATT also would now differentiate between a user’s consent for Apple’s advertising services and consent for third-party advertising services. The ATT policy might therefore represent a form of discrimination that benefits Apple’s own advertising services and reinforces its position in app distribution to the detriment of rivals. For these reasons, the ATT policy is under investigation by several antitrust authorities.[25]

Given this backdrop, this paper seeks to investigate the intersection of privacy and competition law and to analyze how data-protection rules and principles have been applied in antitrust proceedings by the European Commission and by EU national competition authorities (NCAs). The analysis of the case law will illustrate how data protection has been progressively transformed from a weapon used by antitrust authorities to limit data accumulation to a shield exploited by digital platforms to justify potentially anticompetitive strategies and to game antitrust rules.

As a result, the paper aims to demonstrate the fallacy of the narrative that describes the relationship between privacy and antitrust in terms of synergy and complementarity. Such a paradigm, indeed, does not provide useful insights to solve the growing conflicts between the interests protected and the goals pursued by these different fields of law.

As has already happened with regard to the traditional intersection of intellectual-property protection and competition law, invoking a convergence of aims does not in itself sketch out a pragmatic solution. Notably, competition authorities’ cooperation with data-protection regulators may help to ensure a coherent and uniform interpretation and application of the GDPR, it will not help antitrust authorities to strike the balance between privacy benefits and anticompetitive restrictions. In such a scenario, competition law enforcers risk being forced, like Buridan’s Ass, to make a choice that cannot be made.[26]

The remainder of the paper is structured as follows. Section II examines the European cases in which privacy concerns have been addressed in antitrust proceedings to tackle data-accumulation strategies by large online platforms. Section III deals with the strategic use of privacy as a business justification for potential anticompetitive conduct, which emerges as a byproduct of promoting the integration of privacy and antitrust. Taking stock of the German Facebook case recently addressed by the Court of Justice of the European Union (CJEU),[27] Section IV illustrates how the intrinsic conflict between data-protection and competition law cannot be solved merely by invoking a purported synergy or complementarity. Section V concludes.

II.     Privacy as an Antitrust Sword Against Data-Accumulation Strategies

While data-protection and competition law serve different goals, it is commonly argued that the emergence of business models involving the collection and commercial use of personal data creates inevitable linkages between market power and data protection.[28] Notably, given that the key goal of the GDPR was to enable individuals to have control of their own personal data,[29] applying competition rules to digital markets could, it is asserted, promote precisely that control.[30] As a consequence, “previously separate policy areas become interlinked, and different regulatory authorities are increasingly required to consider a given set of issues from the perspective of contrasting policy aims and objectives.”[31]

From this perspective, combining data-protection and competition law is justified on grounds that a common aim they share is to avoid exploitation of personal data and restrictions on consumers’ privacy.[32] Since end users may experience less privacy and autonomy as a result of excessive data collection and use:

Reductions in privacy could also be a matter of abuse control, if an incumbent collects data by clearly breaching data protection law and if there is a strong interplay between the data collection and the undertaking’s market position.[33]

Indeed, from the standpoint of competition law, the idea has been advanced that the acquisition and exploitation of user information is itself the result of, or evidence of, market failure.[34] In particular, users of dominant advertiser-based platforms are said to suffer both from significant information asymmetries as a result of opaque data policies, and from platform lock-in, with no choice other than to consent to the harvesting and use of their data because of the lack of viable alternatives.[35]

On the data-protection side of the ledger, it is bears noting that, according to the GDPR, consent means any “freely given, specific, informed and unambiguous” indication of a data subject’s wishes—whether by statement or some other clear affirmative action—that signifies agreement to the processing of his or her personal data.[36] Further, the GDPR specifies the conditions for consent, which include that: the request for consent be presented in a manner clearly distinguishable from other matters; that it be in an intelligible and easily accessible form; that it use clear and plain language; that the data subject has the right to withdraw consent at any time; and that, when assessing whether consent is freely given, utmost account shall be taken of whether, inter alia, the performance of a contract—including the provision of a service—is conditional on consent to processing personal data not actually needed for the performance of that contract.[37]

A. Privacy Harm as an Antitrust Abuse

As the French and German competition authorities have argued in a joint paper:

[L]ooking at excessive trading conditions, especially terms and conditions which are imposed on consumers in order to use a service or product, data privacy regulations might be a useful benchmark to assess an exploitative conduct, especially in a context where most consumers do not read the conditions and terms of services and privacy policies of the various providers of the services that they use.[38]

From this perspective, privacy concerns support the use of antitrust intervention to limit data-accumulation strategies by treating the restriction on privacy as a form of exploitative abuse.

Another way that privacy interests can be leveraged by antitrust authorities to address competitive concerns about data accumulation is through the merger-review process. Indeed, “firms that gain a powerful position through a merger may be able to gain further market power through the collection of more consumer data and privacy degradation.”[39] The use of merger review is expected to be more effective to achieve privacy-policy goals given that, while an antitrust abuse investigation may at best neutralize or alleviate exploitation of data gathered by a dominant player, merger proceedings would prevent data accumulation in the first place.

  1. The German Facebook case: Users’ privacy-exploitation claim

The Bundeskartellamt’s decision in Facebook undoubtedly represents the apex, to date, of enforcers’ application of the integrationist perspective.[40] According to the German competition authority, Facebook unlawfully exploited its dominant position in the German market for social networks by making the use of its social-networking service conditional on users granting extensive permission to collect and process their personal data. Notably, Facebook failed to make its users fully aware of the fact that it collected their personal data from sources other than the Facebook platform and then merged those data with personal information gathered through its own platform.[41] Further, Facebook put its users in the difficult position of either accepting this data policy or refraining from use of the social network in its entirety.

Indeed, even well-informed users would have not been able to voluntarily consent to such data collection and combination, as they would fear the alternative of no longer being able to access the social network.[42] Therefore, according to the German competition authority, when the data controller is in a dominant position, its users’ consent is insufficient under the GDPR, because the platform’s market power always puts users in the position of having to either take or leave any offers made.

Considering these findings, the Bundeskartellamt established a link between market power and privacy concerns. In its view, Facebook’s terms and conditions were neither justified under data-protection principles nor appropriate under competition-law standards. To comply with the GDPR, users should have been asked whether they voluntarily consent to the practice of combining data in their Facebook user accounts, which could not consist merely of ticking a box. Indeed, given Facebook’s superior market power, the user’s choice to either accept comprehensive data combination or to refrain from using the social network could not be regarded as voluntary consent.[43] The Bundeskartellamt therefore concluded that Facebook had infringed GDPR rules by depriving its users of the human right to control the processing of their personal data and of the constitutional right of informational self-determination.

This form of coercion is, however, also relevant to competition law, as it was the result of Facebook’s dominant position. Hence, Facebook’s conduct could be considered exploitative within the meaning of the general clause of Section 19(1) of the German Competition Act (GWB), according to which competition law applies in every case where one bargaining party is so powerful that it can dictate the terms of the contract, with the end result being the abolition of the contractual autonomy of the other bargaining party. From the Bundeskartellamt’s standpoint, if a dominant firm collects and analyzes users’ data pursuant to terms and conditions that do not comply with EU data-protection rules, it also violates antitrust law by acquiring an unfair competitive advantage over firms that do adhere to the GDPR.

In summary, while the primary concern in the Facebook case was an antitrust issue (i.e., the excessive quantity of data that Facebook accumulated in its unique dataset),[44] the Bundeskartellamt elaborated a theory of harm based primarily on protecting the constitutional right to informational self-determination. In other words, the competition authority invoked the right under which data-protection law affords individuals the power to decide freely and without coercion how their personal data is processed. Such reasoning is consistent with the case law of Section 19(1) GWB, which allows an antitrust authority to consider the protection of constitutional values and interests in assessing the practices of dominant firms. While the Bundeskartellamt contended that its proceedings against Facebook would also generally be possible under the EU’s antitrust provision on exploitative abuses (Article 102(a) TFEU),[45] Section 19 GWB offered a broader (and, hence, more legally convenient) general clause.[46]

This privacy-focused approach also manifested in the remedy that Meta presented, and which the Bundeskartellamt welcomed. To implement the German antitrust authority’s decision, Meta proposed several changes to the accounts center that would allow customers to decide whether they wanted to use all services separately, each with their own circumscribed functions, or to use additional functions across accounts, which would require sharing more personal data.[47] In the Bundeskartellamt’s view, this solution would allow Meta’s customers to make a largely free and informed decision.

The Bundeskartellamt’s approach in the Facebook case therefore appears quite distinctive and essentially German-specific, as well as particularly controversial with respect to the scope and boundaries of competition and data-protection enforcement.[48] Indeed, in ascertaining a privacy violation previously undetected by any data-protection authority, the Bundeskartellamt acted as a self-appointed enforcer of data-protection rules.

It also interpreted data-protection rules in ways that far exceed the limits of its legal competence, given that there is nothing in the GDPR that makes the quality of a user’s consent agreement contingent on the data controller’s market power. Indeed, the GDPR makes no distinction at all on the basis of a firm’s market power. Size does not matter when it comes to data-protection law; a dominant firm is just as bound by privacy rules as its smaller rivals. At the same time, from the perspective of competition law, following the Bundeskartellamt’s expansive stance, virtually every legal infringement by a dominant firm could amount to an antitrust violation.

Because of the thorny implications for the interface between antitrust and data-protection law, the Facebook decision unsurprisingly sparked a heated debate not only in the literature, but also between German courts.

The Higher Regional Court (Oberlandesgericht, or OLG) of Du?sseldorf suspended the landmark decision, expressing serious doubts about its legal basis and complaining that the Bundeskartellamt was “merely discussing a data protection issue, and not a competition problem.”[49] Pursuant to both European and German antitrust provisions, a charge of abuse of market power by a dominant undertaking requires a finding of anticompetitive conduct and, hence, damage to competition—namely, to the freedom of competition, that is “safeguarding competition and the openness of market access.”[50] Therefore, dominant undertakings carry a special responsibility only in the domain of competition, rather than for compliance with the entire legal system by avoiding any violation of the law.[51] Further, in the appellate court’s view, no influence was exerted on users, as Facebook’s terms of service simply require them to weigh the benefits of using an ad-financed (and, therefore, free) social network against the consequences of Facebook’s use of the additional data that it gathers.

However, the Federal Supreme Court (Bundesgerichtshof, or BGH) overturned the OLG’s judgment and held that Facebook must comply with the Bundeskartellamt’s decision.[52] The BGH’s reasoning did, however, differ from the Bundeskartellamt’s. According to the Federal Supreme Court,  it is inconclusive whether Facebook’s processing and use of personal data complied with the GDPR. The court’s decision turned instead on Facebook’s terms of service, which the BGH found are abusive if they deprive Facebook users of any choice in whether they wish to use the network in a more personalized manner (thus, linking their experience to Facebook’s potentially unlimited access to characteristics that include their off-Facebook use of the internet more generally) or whether they wanted a level of personalization that was based solely on data that they themselves share on Facebook.[53]

Notably, the BGH found that Facebook’s data processing constitutes an “imposed extension of services,” as users receive an indispensable service only in combination with another undesired service.[54] Accordingly, such a practice was evaluated as both an exploitative and an exclusionary abuse. The lack of options available to users affects their personal autonomy and the exercise of their right to informational self-determination, as protected by the GDPR. Given lock-in effects that serve as barriers for network users who would otherwise like to switch providers, the BGH found that this lack of options exploits users in a manner relevant under competition law since, under effective competition, one would expect more diverse market offerings for social networks.[55] Further, the terms of service could also impede competition for online advertising, allowing Facebook to protect its dominant position against rivals, as they would be able to improve their offerings due to privileged access to a considerably larger database.[56]

As a result of this clash among the German courts, the Higher Regional Court of Du?sseldorf decided to refer the case to the CJEU, adding a new twist to the Facebook saga.[57] In particular, the OLG of Du?sseldorf raised seven questions about the interpretation of the GDPR, fundamentally asking the CJEU to untie the knot and clarify the competence of a competition authority to determine and penalize a GDPR breach; the prohibition on processing sensitive personal data and the conditions applicable to consenting to their use; the lawfulness of processing personal data in light of certain justification; and the validity of a user’s consent to processing personal data given to an undertaking in a dominant position.[58]

It is also worth noting the different approaches taken by other authorities concerning the very same Facebook conduct. Notably, the Italian competition authority evaluated such practices as violations of the Consumer Code (instead of the competition law),[59] while in Belgium, the Court of First Instance of Brussels found a violation of privacy rules.[60]

  1. The Digital Markets Act: Rivals’ exclusion and primacy of data-protection interests over competition-policy goals

The Facebook case has already influenced the broader debate about the limits of competition law to address certain features of digital markets effectively. The EU’s Digital Markets Act (DMA)—which was explicitly grounded in the assumption that competition law alone is unfit to tackle certain challenges and systemic problems posed by the platform economy—specifically prohibits combining personal data across a gatekeeper’s services, a provision clearly inspired by the German investigation.[61]

Notably, pursuant to Article 5(2) DMA, a gatekeeper shall not: (a) process—for the purpose of providing online-advertising services—end users’ personal data using third-party services that themselves make use of the gatekeeper’s core platform services; (b) combine personal data from the relevant core platform service with personal data from any further core platform services, or from any other services provided by the gatekeeper, or with personal data from third-party services; (c) cross-use personal data from the relevant core platform service in other services provided separately by the gatekeeper, including other core platform services, and vice versa; and (d) sign end users into the gatekeeper’s other services in order to combine personal data, “unless the end user has been presented with the specific choice and has given consent” within the meaning of the GDPR.

Further, according to Recital 36—given that gatekeepers process personal data from a significantly larger number of third parties than other undertakings—data processing for the purpose of providing online-advertising services gives gatekeeper platforms potential “advantages in terms of accumulation of data,” thereby “raising barriers to entry.” To ensure that gatekeepers do not unfairly undermine the “contestability” of core platform services, gatekeepers should enable end users to “freely choose to opt-in” to such data processing and sign-in practices. This may be accomplished by offering a less-personalized but equivalent alternative, and without making the use of (or certain functions of) the core platform service conditional on the end user’s consent.[62]

Moreover, in light of Recital 37, when a gatekeeper does request consent, it should proactively present a “user-friendly solution” to the end user to provide, modify, or withdraw consent in an explicit, clear, and straightforward manner. In particular, consent should be given by a clear affirmative action or statement establishing a freely given, specific, informed and unambiguous indication of agreement by the end user, as defined in the GDPR.

Lastly, it should be as easy to withdraw consent as to give it. Gatekeepers should not design, organize, or operate their online interfaces in a way that deceives, manipulates, or otherwise materially distorts or impairs end users’ ability to freely give or withdraw consent.[63] In particular, gatekeepers should not be allowed to prompt end users more than once a year to give consent for a data-processing purpose for which the user either did not initially give consent or actively withdrew consent.

The idea that only opt-in mechanisms can produce effective consent within the meaning of the GDPR is confirmed by the obligation under Article 6(10) DMA, which imposes on gatekeepers the duty to provide business users, or third parties authorized by a business user, access to aggregated and non-aggregated data (including personal data) generated in the context of using the relevant core platform services.[64]

The provision under Article 5(2) DMA provides interesting insights into the relationship between data-protection and competition law. By emphasizing that the primary concern is online gatekeepers’ data-accumulation strategies, the DMA’s approach differs from the one the Bundeskartellamt pursued in Facebook. Rather than focusing on potential harms to users’ self-determination and digital identity, the DMA points to a pure antitrust harm related to market contestability. Therefore, even if “[t]he data protection and privacy interests of end users are relevant to any assessment of potential negative effects of the observed practice of gatekeepers to collect and accumulate large amounts of data from end users,”[65] the primary interest protected is a competitive one—namely to avoid foreclosure against rivals.

From this perspective, it may be argued that the DMA adopts an integrated approach that takes data-protection principles into account within a competitive assessment of gatekeepers’ conduct. The very last part of the provision, however, demonstrates the opposite. By subordinating the prohibitions to respect the GDPR, European authorities arguably acknowledge the potential tensions between data-protection interests and competition-policy goals. Moreover, in the event of such a conflict, the DMA affirms the primacy of the former. Indeed, all the forms of conduct listed in Article 5(2) are forbidden “unless” the end user has been presented with a specific choice and given consent within the meaning of the GDPR.

  1. New German platform-specific antitrust rules and the Google case

There is another interesting and ongoing German investigation regarding Google’s data-processing terms. Notably, in January 2023, the Bundeskartellamt issued a statement of objections against Google claiming that, under the company’s current terms, users are not given “sufficient choice” as to how their data are processed across services.[66]

The antitrust authority noted that Google’s business model relies heavily on processing user data and that its current terms allow the company to combine various data from various services and use them, for example, to create very detailed user profiles that the company can exploit for advertising and other purposes, or to train functions provided by Google services. Google may, for various purposes, collect and process data across services, which include both its own widely used services (Google Search, YouTube, Google Play, Google Maps, and Google Assistant), as well as numerous third-party websites and apps. Bundeskartellamt President Andreas Mundt stated that this grants Google a “strategic advantage” over other companies.[67]

According to the Bundeskartellamt’s preliminary assessment, the choices offered to users are too general and insufficiently transparent. The authority contends that sufficient choice would require that users be able to limit data processing to the specific service used. In addition, they also must be able to differentiate between the purposes for which the data are processed. Moreover, the choices must not be devised in a way that would make consenting to data processing across services easier than not consenting to it.

The framing of the Google investigation is similar to that of the Facebook case. The antitrust authority is fundamentally concerned with a data-accumulation strategy that it contends confers to Google a critical competitive advantage. And given that having access to more user data than rivals have cannot in itself be considered anticompetitive, privacy concerns are exploited to limit such a strategy.

There is, however, a significant difference worth highlighting. In the Google case, the Bundeskartellamt’s position benefits from a new provision of Section 19a GWB,[68] which empowers national competition authorities to tackle platform-specific practices that are similar and functionally equivalent to those prohibited under the DMA.[69] Notably, since January 2021, the Bundeskartellamt has had the power to designate undertakings of “paramount significance for competition across markets.” The factors relevant to this designation include a platform’s dominant position in one or more markets; financial strength or access to other resources; vertical integration and activities in otherwise related markets; access to data relevant for competition; and the importance of the activities for third parties’ access to supply and sales markets and related influence on third parties’ business activities. Google has been the first platform to be designated as of paramount significance for competition across markets.[70]

Once the designation is completed, the Bundeskartellamt can prohibit such undertakings from engaging in anticompetitive practices. In particular, the new provision introduces a list of seven types of abusive practices that are prohibited, unless the undertaking is able to demonstrate that the conduct at issue is objectively justified. While the targeted practices are similar to those captured by the DMA, the main differences are that the German list is considered exhaustive and the practices at issue are not prohibited per se. Instead, it introduces a reversal of the burden of proof, allowing firms to provide objective justifications for their conduct, which is not allowed under the DMA.

For the sake of this analysis, pursuant to paragraph 4 of Section 19a GWB, the Bundeskartellamt may prohibit an undertaking of paramount significance for competition across markets from creating or appreciably raising barriers to market entry (or otherwise impeding other undertakings) by processing data relevant for competition that have been collected by the undertaking, or demanding terms and conditions that permit such processing—in particular, making the use of its services conditional on a user agreeing to data processing by the undertaking’s other services or by a third-party provider without “sufficient choice” as to whether, how, and for what purpose such data are processed.

As mentioned, while the Google investigation resembles the background of the Facebook decision, the introduction of Section 19a(4) GWB has relevant implications. The new provision is clearly inspired by the strategy investigated in Facebook and, as already enshrined in the DMA, essentially aims to ease enforcement, avoiding the hurdles and burdens of standard antitrust analysis. Practically speaking, the Bundeskartellamt therefore does not need to struggle to find a proper theory of harm and can easily avoid the odyssey it experienced in Facebook. Moreover, the new provision’s wording changes the legal landscape, distinguishing the Google investigation from both the parallel DMA provision and the Facebook decision. Indeed, by relying on the lack of “sufficient choice” for users, Section 19a(4) GWB does not include any reference to the GDPR, thus allowing the Bundeskartellamt to provide an autonomous interpretation. With regard to the comparison with Facebook, on the other hand, Section 19a(4) GWB—just like the DMA—aims to promote contestability in the market (“creating or appreciably raising barriers to market entry”). Hence, data accumulation is prohibited to the extent that it excludes rivals, rather than whether it exploits users’ privacy.

That the German provision is effective has been confirmed by Google’s decision to end the proceeding by submitting commitments.[71] Under those commitments, Google will give its users the option to grant free, specific, informed, and unambiguous consent to have their data processed across services.[72] Google will also offer corresponding choice options for particular combinations of data and services, and will design selection dialogues to avoid dark patterns, thus not guiding users manipulatively towards cross-service data processing.

It is worth noting that Google’s commitments involve more than 25 services, with only those services that the European Commission has since designated as core platform services under the DMA (i.e., Google Shopping, Google Play, Google Maps, Google Search, YouTube, Google Android, Google Chrome and Google’s online-advertising services) excluded from the list. While this was intended to avoid practical conflicts with application of the DMA, it also represents an acknowledgment that the DMA and German antitrust law pursue the very same goals. Indeed, as stated in the decision, Google’s commitments “are intended to correspond in substance to an extension of Google’s obligations under Article 5(2) DMA” to further services and, therefore, “in case of doubt, the terms used in the Commitments are to be interpreted in accordance with their meaning in the DMA.”[73]

B. Privacy Harm in Merger Analysis: The European Commission’s Case Law

Given this broad consensus regarding synergies between data-protection and competition law in digital markets, it is somewhat surprising how reluctant the European Commission has been to implement this integrated approach in the context of merger analysis.[74] Indeed, while acknowledging privacy’s role as a parameter of competition between online platforms, the Commission has to date not blocked any merger on the grounds of protecting individuals’ control over personal data, and it has nearly always approved unconditionally those mergers that raised privacy concerns.

Notably, in the days before the GDPR, the Commission authorized the Google/DoubleClick merger, in the process affirming that antitrust and data-protection rules had wholly separate scopes.[75] While it could have determined that the combined data-collection activities of two players active in the online-advertising industry raised concentration concerns and a possible unfair advantage in producing targeted advertising, the Commission’s assessment, under pure antitrust criteria, was that it was unlikely that the new entity would obtain a competitive advantage unmatchable by its rivals.[76] Further, the Commission underlined that its decision exclusively concerned an appraisal of the operation under competition rules, without prejudice to other obligations imposed on the parties by data-protection and privacy laws.[77]

This stance of maintaining separate regulatory spheres of inquiry was even more clearcut in the 2014 Facebook/WhatsApp merger.[78] Assessing the potential edge the combined entity might derive from controlling huge amounts of data, the Commission found that, regardless whether the merged entity would start using WhatsApp user data to improve targeted advertising on Facebook, there continued to be large troves of valuable internet user data that were not within Facebook’s exclusive control.[79] More importantly, the Commission stated that:

Any privacy-related concerns flowing from the increased concentration of data within the control of Facebook as a result of the Transaction do not fall within the scope of the EU competition law rules but within the scope of the EU data protection rules.[80]

The outcome and reasoning were the same in Microsoft/LinkedIn.[81] Consistent with the findings in Facebook/WhatsApp, the results of the Commission’s market investigation revealed that privacy is an important parameter of competition and a driver of customer choice.[82] But not only did the transaction not raise serious antitrust concerns in online advertising, given that combining the firms’ respective datasets did not appear to result in raising rivals’ barriers to entry or expansion,[83] but also:

[S]uch data combination could only be implemented by the merged entity to the extent it is allowed by applicable data protection rules. … Microsoft and LinkedIn are subject to relevant national data protection rules with respect to the collection, processing, storage and usage of personal data, which, subject to certain exceptions, limit their ability to process the dataset they maintain.[84]

Moreover, the Commission noted that the GDPR “may further limit Microsoft’s ability to have access to, and process, its users’ personal data in the future since the new rules will strengthen the existing rights and empower individuals with more control over their personal data.”[85]

In a nutshell, the Commission again chose to defer to privacy rules for protecting individuals’ personal data and analyzed the transaction’s antitrust issues while “[a]ssuming such data combination [was] allowed under the applicable data protection legislation.”[86] The Commission did not discuss whether the relevant markets under consideration were sufficiently competitive to provide users with the optimal level of privacy-friendly options. It didn’t establish any link between the merging firms’ market power and the variety of privacy-friendly tools and services they provided. Nor did it find any connection between such market power and the optimal quantity of personal data that the firms under scrutiny should have collected.

In Apple/Shazam, despite some concern that the acquisition would grant Apple access to commercially sensitive information about competitors of its Apple Music service, the Commission regarded it as unclear whether the merged entity would be able to put competing providers of digital-music streaming apps at a competitive disadvantage. And they again stressed that personal-data processing remained subject to the GDPR.[87]

The recent Google/Fitbit merger offered the Commission another opportunity to interrogate overlaps among data protection and antitrust. Ultimately, the Commission’s analysis focused on the data collected via Fitbit’s wearable devices and the interoperability of wearable devices with Google’s Android operating system for smartphones.[88] While some market participants complained that, in combining those databases, Google could obtain a competitive advantage in the digital health-care sector that would leave competitors unable to compete, others (including the European Data Protection Board) raised privacy concerns on grounds that the merger would make it increasingly difficult for users to track the purposes for which their health data would be used.[89]

To address such issues, Google offered (and the Commission accepted) commitments to maintain a technical separation of Fitbit user data by storing them in a data silo separate from any Google data used for advertising; that it will not use the health and wellness data collected from users’ wrist-worn wearable devices and other Fitbit devices for Google Ads; and it will ensure that users have an effective choice to grant or deny the use of health and wellness data stored in their Google Account or Fitbit Account by other Google services.

With regard to privacy concerns, the Commission reminded those involved that the parties are held accountable to implement appropriate technical and organizational measures to ensure that data processing is performed in accordance with the GDPR.[90] More specifically, the Commission noted that the GDPR is designed to enhance transparency over data processing, accountability by data controllers and, ultimately, users’ control over their data.[91] The Commission found no evidence that privacy was an important parameter of competition in wearables and underlined that any privacy or data-protection decision or initiative the parties might adopt would have to comply with the data-protection rules set out by the GDPR.[92]

The Commission addressed similar privacy issues arising from the combination of datasets in Microsoft/Nuance[93] and Meta/Kustomer,[94] each time noting that GDPR served as the appropriate safeguard.

Moreover, the Commission appears to retain this “separatist” stance, as confirmed recently by its unconditional approval of a joint venture among Deutsche Telekom, Orange, Telefo?nica, and Vodafone, which will offer a platform to support brands and publishers’ digital-marketing and advertising activities in France, Germany, Italy, Spain, and the United Kingdom.[95] Subject to a user’s consent (i.e., on an opt-in basis only), the joint venture will generate a unique digital code derived from the user’s mobile or fixed-network subscription that will allow brands and publishers to recognize users on their websites or applications on a pseudonymous basis, group them under various categories, and tailor their content to specific user groups.

Whatever privacy and security benefits or harms might arise from the operation, the Commission was ultimately guided in its decision by the lack of competition concerns. Moreover, the Commission declared that it has been in contact with data-protection authorities during its investigation and that data-protection rules are fully applicable, irrespective of the merger’s clearance.

III.   Privacy as a Shield Against Antitrust Allegations

Amid these limited and somewhat confused attempts to address privacy concerns in digital markets by integrating data-protection rules and competition-law enforcement, a novel and challenging phenomenon has emerged. Taking stock of some authorities’ willingness to grant primacy to data protection in the context of antitrust interventions, some platforms have implemented changes to their ecosystems with the declared aim of ensuring increased privacy to end users. For instance, Apple and Google have developed policies to restrict third parties from sharing user data through apps in the platforms’ respective operating systems and websites in their respective browsers.[96] These policies include Apple’s ATT, Intelligent Tracking Prevention, and iCloud Private Relay, and Google’s Android Privacy Sandbox and Chrome Privacy Sandbox. To a certain extent, the DMA may have even encouraged some of these design choices by apparently endorsing the view that only opt-in systems can ensure effective consent within the meaning of the GDPR.

The suspicion is that such facially noble intentions may actually conceal a goal of achieving anticompetitive advantages at the expense of rivals and business users. Therefore, it appears that a new form of regulatory gaming is on the horizon. Particularly in online-advertising markets, privacy may be weaponized as a business justification for potentially anticompetitive conduct and data-protection requirements may be leveraged to distort competition. The relevance and dangerousness of such hypotheses are confirmed by certain antitrust investigations launched recent years, which the following paragraphs will analyze.

A. Apple’s ATT Policy

As illustrated above, data represents a primary input for platforms whose business models rely on monetizing consumer information by selling targeted advertising and personalized sponsored content. In digital markets, advertisers benefit from access to detailed (and hence, highly valuable) user data, such as browsing behavior, profiles on company websites, demographic information, shopping habits, and past purchase history, especially given the potential to use that data across advertising platforms.[97] Therefore, the effectiveness of targeted advertising and the overall profitability of advertising-based business models rely on data tracking.

To enhance users’ privacy protection, however, regulatory interventions like the GDPR aim to reduce data collection and mitigate platforms’ tracking by requiring explicit consent for users’ individual-behavior data to be used for targeted advertising.[98] In addition, some platforms have adopted (or announced) privacy-centric policies that would limit third parties’ ability to track data, thus affecting the profitability and revenues of their advertising strategies.[99]

Apple’s ATT policy is a paramount example of such product changes. With the iOS 14.5 privacy update, Apple introduced an opt-in mechanism that imposes more restrictive rules on competing app developers than those the company applies to itself. The differential treatment mostly concerns features that prompt users to grant apps permission to track them. Without consumers opting into this prompt, developers cannot access their identifiers for advertisers (IDFA), which are used to monitor users’ activity across apps.

The wording of the prompts ATT offers for user consent may unduly influence users to withhold consent from third-party apps. For apps developed by Apple itself, the consent prompt focuses on the positive aspects of personalized services, rather than the tracking of users’ browsing activity. In contrast, the prompt for third-party app developers places greater emphasis on other companies’ app and website tracking activities (without explaining the term “track”) and does not provide information about the benefits that users could derive from personalized advertising. Moreover, even if the user gives consent to be tracked, third-party app developers remain unable to share the same data that would allow for the personalization of ads, and measure their effectiveness, on another app. Indeed, for third-party app developers, the ATT framework introduces a double opt-in, requiring the user to consent to being tracked for each access to different apps, even if these apps are linked.

This model illustrates an apparent tension between data-protection interests and antitrust goals. While the ATT policy has been framed as a privacy-protecting measure, it is not just the level of privacy chosen by Apple in its digital ecosystem that is at issue, but also the competitive implications that arise from the choice to adopt discriminatory privacy policies. Indeed, the differentiated treatment imposed on third-party app developers appears likely to reduce their advertising revenues, and hence their level of competitiveness vis-à-vis Apple, and could eventually enhance the dominance of the iOS ecosystem.

Notably, the ATT framework may hinder competitors’ ability to sell advertising space, in ways that redound to Apple’s own advantage—in particular, benefiting the company’s own direct sales and advertising-intermediation platforms. Further, limiting third parties’ ability to profile users may reduce business-model differentiation. The advertising-based monetization model used by free and freemium apps may be rendered less sustainable, causing these apps to exit the market or gradually shift to the fee-supported model. This would come at the expense of end consumers, for whom the possibility of choosing free or lower-priced apps could be reduced.[100]

For these reasons, the ATT framework is currently under scrutiny by antitrust authorities in France,[101] Germany,[102] Italy,[103] and Poland,[104] who suspect that Apple is masking an anticompetitive strategy under the guise of privacy protection. Similar doubts have been raised by the UK Competition and Markets Authority in its market study on mobile ecosystems.[105]

Given these kinds of market responses, it is difficult to see how an integrated approach to data-protection and competition law could be implemented in practice. Contrasting the Italian and French investigations may provide useful insights into this conundrum. The Italian competition authority correctly stated that the case does not implicate the level of privacy chosen by Apple, but rather its decision to adopt a differentiated policy at the expense of its rivals.[106] Conversely, in evaluating whether to issue an interim measure against Apple, France’s Autorité de la Concurrence solicited input from the domestic data-protection regulator (the Commission Nationale de L’Informatique et des Liberte?s, or CNIL), which de facto prevented the competition authority from ordering interim measures. Indeed, in the CNIL’s view, the changes proposed by Apple could be of genuine benefit to both users and app publishers.[107] In particular, the ATT prompt would give users more control over their personal data by allowing them to make choices in a simple and informed manner,[108] and would allow app publishers to collect informed consent as required by the applicable regulation.

It is worth noting, however, that while all the other competition authorities are investigating Apple’s policy as a potential form of discriminatory self-preferencing, the French authority has initially evaluated whether the introduction of the ATT prompt would result in imposing unfair trading conditions or a supplementary obligation, in breach of Article 102(a) and (d) TFEU. The complaint’s investigation on the merits of the case will allow the French authority to assess whether ATT does or does not result in a form of discrimination.

B. Google’s Privacy Sandbox

Concerns regarding the potential impact of privacy policies on digital-advertising competition and publishers’ ability to generate revenue have also been against Google’s proposals to remove third-party cookies and other functionalities from its Chrome browser. In particular, Google’s Privacy Sandbox project would disable third-party cookies on the Chrome browser and Chromium browser engine, with the stated goal of better protecting consumer privacy. The project would replace those cookies with a new set of tools for targeting advertising and other functionalities. Therefore, similar to Apple’s ATT policy, Google’s planned privacy changes raise concerns about anticompetitive discrimination against rivals.

Indeed, in 2021, the European Commission initiated antitrust proceedings to investigate the effects of Google’s privacy policies on online display advertising and online display advertising-intermediation markets. The inquiry focused on whether Google had violated EU competition rules by favoring—through a broad range of practices—its own online display advertising-technology services in the ad tech supply chain, to the detriment of competing providers of advertising-technology services, advertisers, and online publishers.[109] Notably, the Commission also examined restrictions on third parties’ ability to access data about user identity or user behavior, which remained available to Google’s own advertising-intermediation services, as well as Google’s announced plans to cease making advertising identifiers available to third parties on Android mobile devices whenever a user opts out of personalized advertising.

The Commission declared that it would “take into account the need to protect user privacy, in accordance with EU laws in this respect,” underscoring that “[c]ompetition law and data protection laws must work hand in hand to ensure that display advertising markets operate on a level playing field in which all market participants protect user privacy in the same manner.”[110]

A similar investigation was launched that same year by the UK Competition and Markets Authority (CMA).[111] The CMA subsequently accepted commitments from Google designed to ensure consistent use of data by both third parties and Google’s own digital-advertising businesses through the use of safeguards to support privacy without self-preferencing.[112] In considering how best to address legitimate privacy concerns without distorting competition, the CMA highlighted the relevance of the close partnership with the UK Information Commissioner’s Office (ICO), the public body tasked with the enforcement of the Data Protection Act 2018, which is the UK’s implementation of the GDPR.[113]

IV.   The Failure of the Integrated Approach

The call for integrating privacy into antitrust enforcement reflects the policy goal of curbing ever-increasing personal-data collection and processing by a few large online platforms, who monetize such data by selling targeted advertising. Toward this aim, competition and data-protection laws are described as synergistic, as the economic features of digital markets generate connections between market power and data power. Against this background, rather than relying on the GDPR, scholars and policymakers ask competition law to step in to address the perceived problem of data-protection authorities lacking capacity to address privacy concerns effectively, as well as the extreme difficulty of forbidding data accumulation under antitrust provisions. Therefore, rather than reflecting a natural connection, data-protection and competition laws are fundamentally obtorto collo complementary, as each are considered weak in isolation.

Four primary theories of harm have been advanced to bring antitrust and privacy issues together.[114]

According to the first theory, there is a close relationship between (the lack of) competition in digital markets and privacy violations. In a competitive market, this theory asserts, firms would compete to offer privacy-friendly products and services, but the economic features of digital markets strengthen gatekeepers’ power, regardless of their willingness to deliver privacy-enhancing solutions.[115]

The second theory centers on risks arising from potential “databases of intentions” and primarily invokes the role of merger control.[116] Under this view, mergers among companies that hold significant data assets require more stringent scrutiny, as such mergers would grant the new entity tools to better profile individuals and invade their privacy.

A further attempt to justify commingling antitrust and privacy relies on assessing the quality of products and services as privacy-friendly.[117] As consumer welfare is not solely dependent on prices and output, products and services viewed as not privacy-friendly or that intrude into users’ privacy may be considered low-quality and therefore harm consumer welfare.

Finally, it has been argued that privacy policies could be applied by antitrust enforcers when they are implemented by dominant players that rely on data as a primary input of their products and services—e.g., by forcing individuals to accept take-it-or-leave-it terms involving the unwanted collection and use of their data.[118]

This overview of EU antitrust proceedings, however, demonstrates that none of these four theories of harm has been successful and that the much-invoked integrated approach is more proclaimed than adopted in practice. Indeed, neither other NCAs nor the European Commission have ever shared the Bundeskartellamt’s stance of considering a GDPR violation as a benchmark for finding a dominant firm’s practice to be abusive. Further, in the context of merger analysis, the Commission has systematically stated that any privacy-related concerns resulting from data collection and processing are within the scope of the GDPR enforcement.

Even in Germany, the Bundeskartellamt’s approach has been sufficiently controversial to spark a clash among courts and a request for clarification from the CJEU. The recent update of the GWB seems to confirm the limits of such an approach, as the new Section 19a provides an antitrust authority with a convenient shortcut to target Facebook-like data-accumulation strategies on grounds of market contestability—namely, prohibiting rivals’ foreclosure rather than users’ privacy exploitation.

In addition, these EU antitrust proceedings demonstrate that twisting competition-law enforcement may be counterproductive. Indeed, the growing phenomenon of digital platforms adopting privacy policies as justification for potentially anticompetitive conduct does not fit the narrative of the complementarity of antitrust and privacy.[119] Emerging as a byproduct of the Facebook investigation, the Apple ATT case illustrates the intrinsic tension between these areas of law, highlighting the urgency of determining how to strike a balance between conflicting interests. From this perspective, the Facebook and Apple ATT cases are two faces of the same coin. Each results from the strategic use of privacy in antitrust proceedings by both competition authorities and digital platforms, respectively.

Moreover, the French episode of Apple ATT shows that proposing cooperation between authorities is just rhetoric unfit to resolve these tensions. It is regularly affirmed that any tension between competition and data protection law “can be reconciled through careful consideration of the issues on a case-by-case basis, with consistent and appropriate application of competition and data protection law, and through continued close cooperation” between the authorities.[120] Nonetheless, in the French Apple ATT case, the data-protection regulator’s intervention actually jeopardized the antitrust investigation, demonstrating how the different goals pursued under antitrust and privacy provisions may be irreconcilable in practice.

Finally, the EU’s solution to alleged failures by antitrust and privacy regulators in addressing data accumulation in digital markets has ultimately been crafted outside the traditional competition-law framework and according to a regulation that resolves any potential conflict between competition and data-protection policy goals once and for all. Even the DMA, however, does not fully square with any of the aforementioned theories of harm, as it introduces a pure privacy exception.[121] Indeed, tackling data collection and processing by digital gatekeepers, Article 5(2) DMA prohibits personal-data accumulation strategies unless they are compliant with the GDPR—namely, unless users have been presented with the specific choice and given consent according to data-protection rules. Therefore, rather than providing criteria to evaluate case by case how to strike a balance among the interests involved, the DMA establishes competition-policy deference to privacy, finding that, where personal-data collection and processing by large online platforms are involved, privacy is the greater good.

A. The CJEU’s Judgment in Meta

Given this background, the CJEU’s July 2023 judgment in Meta was much-awaited, representing the season finale of the German Facebook saga.[122]

The decision is in line with the opinion delivered by the Advocate General (AG) Athanasios Rantos.[123] As Rantos had argued, “conduct relating to data processing may breach competition rules even if it complies with the GDPR; conversely, unlawful conduct under the GDPR does not automatically mean that it breaches competition rules.”[124] Therefore, the lawfulness of conduct under antitrust provisions “is not apparent from its compliance or lack of compliance with the GDPR or other legal rules.”[125] Further, according to well-settled CJEU principles, the antitrust assessment requires demonstrating that a dominant undertaking used means other than those within the scope of competition on the merits and, toward this aim, the court must take account of the circumstances of the case, including the relevant legal and economic context.[126] “In that respect, the compliance or non-compliance of that conduct with the provisions of the GDPR, not taken in isolation but considering all the circumstances of the case, may be a vital clue as to whether that conduct entails resorting to methods prevailing under merit-based competition.”[127] Indeed, “access to personal data and the fact that it is possible to process such data have become a significant parameter of competition between undertakings in the digital economy. Therefore, excluding the rules on the protection of personal data from the legal framework to be taken into consideration by the competition authorities when examining an abuse of a dominant position would disregard the reality of this economic development and would be liable to undermine the effectiveness of competition law.”[128]

It follows that. “in the context of the examination of an abuse of a dominant position by an undertaking on a particular market, it may be necessary for the competition authority of the Member State concerned also to examine whether that undertaking’s conduct complies with rules other than those relating to competition law, such as the rules on the protection of personal data laid down by the GDPR.”[129]

Rantos more explicitly distinguished the hypothesis under which an antitrust authority, when prosecuting a breach of competition provisions, rules “primarily” on an infringement of the GDPR from cases in which such evaluations are merely “incidental”:

[T]he examination of an abuse of a dominant position on the market may justify the interpretation, by a competition authority, of rules other than those relating to competition law, such as those of the GDPR, while specifying that such an examination is carried out in an incidental manner and is without prejudice to the application of that regulation by the competent supervisory authorities.[130]

Given the differing objectives of competition and data-protection law, however, where an antitrust authority identifies an infringement of the GDPR in the context of finding of abuse of a dominant position, it does not replace the data-protection supervisory authorities.[131] Therefore, when examining whether an undertaking’s conduct is consistent with the GDPR, competition authorities are required to consult and cooperate sincerely with the competent data-protection authority in order to ensure consistent application of that regulation.[132] In addition, where the data-protection authority has ruled on the application of certain provisions of the GDPR with respect to the same practice or similar practices, the competition authority cannot deviate from that interpretation, although it remains free to draw its own conclusions from the perspective of applying competition law.[133]

While these principles are compelling, they do not appear conclusive in addressing the issue, for two main reasons.

First, as competition authorities have significant leeway in framing their investigations, it will be extremely difficult in practice to demonstrate that they are primarily—rather than incidentally—tackling a data-protection breach. In this regard, the German Facebook investigation represents an illustrative example. In the press release announcing the launch of the proceedings, the Bundeskartellamt stated that Facebook’s terms and conditions violated data-protection law and may “also” be regarded as abuses of a dominant position.[134] Later in the press release, however, in a section concerning the preliminary assessment, the authority changed that perspective, asserting that Facebook’s contractual terms were unfair, quite apart from any privacy infringement, and that, in assessing the competitive impact of such a strategy, it was “also” applying data-protection principles. Further, the Bundeskartellamt ascertained a privacy violation previously undetected by any data-protection authority. If the Facebook case fulfills both requirements of an incidental assessment of a privacy breach and sincere cooperation with the data-protection authority, it will be difficult to imagine any antitrust investigation not passing the bar.[135]

Second, the judgment only examines a scenario in which a GDPR infringement may occur, while not being useful to unraveling the very different situation in which the adoption of a privacy-enhancing solution is invoked as justification for anticompetitive conduct. In that case, cooperation between competition and data-protection authorities has thus far proven to be a harbinger of new issues and conflicts, rather than a panacea for all of the problems.

Finally, the CJEU also addressed another crucial topic of the integration between antitrust and privacy—that being the meaning of “consent” under the GDPR, and especially the requirement of freedom of consent. Supporters of an integrated approach find the legal basis of the privacy/antitrust marriage in the GDPR to be pivotally centered on the role assigned to freely given consent.[136] Notably, they imagine that the GDPR provides the legal basis for a link between data power and market power by stating that, among other things, there is no freely given consent to personal-data processing where there is a “clear imbalance” between the data subject and the controller.[137] In this respect, if the controller holds a dominant position on the market, it is argued that such market power could lead to a clear imbalance in the sense described in the GDPR.

According to the CJEU, however, while it may create such an imbalance, the existence of a dominant position alone cannot, in principle, render the consent invalid.[138] Notably, the fact that the operator of an online social network holds a dominant position on the social-network market does not, as such, prevent users of that social network from validly giving their consent, within the meaning of the GDPR, to the processing of their personal data by that operator. Consequently, the validity of consent should be examined on a case-by-case basis.

Moreover, as observed by Rantos, this does not imply that for market power to be relevant for GDPR enforcement, it needs to be regarded as a dominant position within the meaning of competition law.[139] Therefore, the relationship between data-protection and competition law is not one of mutual respect. While a competition authority is required to cooperate with a data-protection regulator in the case of a privacy breach, and is bound by the interpretation the latter gives of the GDPR, the converse does not apply with regard to the notion of “clear imbalance” under the GDPR. Data-protection authorities are granted significant leeway to establish market power under the GDPR.[140]

V.     Conclusion

The features of digital markets and the emergence of a few large online gatekeepers whose business models revolve around collecting and processing large amounts of data may suggest a link between market power and data power. Accordingly, scholars and policymakers have supported regulatory measures intended to promote data sharing and to empower individuals with more control over their personal data. From a different perspective, this also has led to the idea that competition and data-protection are intertwined and therefore require an integrated approach where, despite holding different objectives, antitrust enforcement should also protect privacy interests.

The integrationist movement claims that unity makes strength. According to this view, while competition and data-protection laws are, in isolation, considered unfit to safeguard their respective interests, the inclusion of privacy harms into antitrust assessments would allow competition authorities to better tackle data-accumulation strategies, and that the enforcement of antitrust rules would be more effective in ensuring data protection.

The purported complementarity, or even synergy, between competition and data-protection law appears, however, difficult to detect in practice. The only case in which a GDPR breach has been considered a proper legal basis for an antitrust intervention is the rather controversial Bundeskartellamt Facebook decision. Further, recent legislative initiatives that have introduced provisions clearly inspired by Facebook and essentially motivated by the aim of bypassing the traditional antitrust analysis (e.g., Article 5(2)DMA and Section 19a GWB) confirm the failure of the integrationist narrative and awareness that it would be impossible to endorse the Bundeskartellamt’s stance. Moreover, whether or not one would argue that the DMA represents a concrete and advanced attempt at integrating data-protection concerns in competition policy, it is worth pointing out that Article 5(2)DMA actually establishes antitrust deference toward privacy.

As if this were not enough, the idea of commingling antitrust and privacy has generated a significant side effect. As a reaction to Facebook and the DMA, some platforms have, indeed, adopted policy changes to restrict user-data tracking on their ecosystems in ways that undermine the effectiveness of rivals’ targeted advertising. The strategic use of privacy as a business justification to pursue anticompetitive advantages testifies once again to the tension between these fields of law. Further, as shown by the French Apple ATT investigation, the call for close cooperation between the authorities is often just a useless and rhetorical expedient.

The proposal to integrate competition and data-protection law in digital markets has been submitted as a much-needed boost to strengthen antitrust enforcement against gatekeepers and their data strategies. Moving away from pure efficiency-oriented assessments to embrace broader social interests, advocates claim, would help ensure more aggressive and effective antitrust enforcement. Including privacy harms in antitrust proceedings turns out, instead, to be a potential curse for competition authorities, providing the major digital players with an opportunity for regulatory gaming to undermine antitrust enforcement.

This should serve as a cautionary tale about the risks of twisting rules to achieve policy outcomes and the importance of respecting the principles and scope of different areas of law.

 

[1] See Jacques Cre?mer, Yves-Alexander de Montjoye, & Heike Schweitzer, Competition Policy for the Digital Era, (2019) Report for the European Commission, 4, available at https://ec.europa.eu/competition/publications/reports/kd0419345enn.pdf (referring to the possibility that a dominant platform could have incentives to sell “monopoly positions” to sellers by showing buyers alternatives that do not meet their needs).

[2] See Alessandro Bonatti, The Platform Dimension of Digital Privacy, forthcoming in The Economics of Privacy, (Avi Goldfard & Catherine Tucker, eds.), University of Chicago Press; Daron Acemoglu, Ali Makhdoumi, Azarakhsh Malekian, & Asu Ozdaglar, Too Much Data: Prices and Inefficiencies in Data Markets, 14 Am Econ J Microecon 218 (2022); Shota Ichihashi, The Economics of Data Externalities, 196 J. Econ. Theory 105316 (2021); Omri Ben-Shahar, Data Pollution, 11 J. Leg. Anal. 104 (2019); Jay Pil Choi, Doh-Shin Jeon, & Byung-Cheol Kim, Privacy and Personal Data Collection with Information Externalities, 173 J. Public Econ. 113 (2019); see also Jeanine Miklós-Thal, Avi Goldfarb, Avery M. Haviv, & Catherine Tucker, Digital Hermits, NBER Working Paper No. 30920 (2023), (arguing that, as advances in machine learning allow firms to infer more accurately sensitive data from data that appears otherwise innocuous, users’ data-sharing decisions polarize between a group of users choosing to share no data and another group choosing to share all their data (sensitive or not sensitive)).

[3] See, e.g., Competition and Data Protection in Digital Markets: A Joint Statement Between the CMA and the ICO, UK Competition and Markets Authority and Information Commissioner’s Office, (2021) 5, https://www.gov.uk/government/publications/cma-ico-joint-statement-on-competition-and-data-protection-law [hereinafter “CMA-ICO Joint Statement”]; Privacy and Competitiveness in the Age of Big Data: The Interplay Between Data Protection, Competition Law and Consumer Protection in the Digital Economy, European Data Protection Supervisor (2014) https://edps.europa.eu/data-protection/our-work/publications/opinions/privacy-and-competitiveness-age-big-data_en.

[4] See, e.g., Investigation of Competition in Digital Markets’, Majority Staff Reports and Recommendations, U.S. House Energy and Commerce Subcommittee on Antitrust, Commercial, and Administrative Law (2020), 28, available at https://www.govinfo.gov/content/pkg/CPRT-117HPRT47832/pdf/CPRT-117HPRT47832.pdf [hereinafter, “Antitrust Subcommittee Report”]; Frank Pasquale, Privacy, Antitrust, and Power, 20 George Mason Law Rev. 1009 (2013); Pamela J. Harbour & Tara I. Koslov, Section 2 in a Web 2.0 World: An Expanded Vision of Relevant Product Markets, 76 Antitrust Law J. 769 (2010).

[5] See, e.g., Antitrust Subcommittee Report, supra note 4, 39, citing Howard A. Shelanski, Information, Innovation, and Competition Policy for the Internet, 161 U. Pa. L. Rev. 1663 (2013), to argue that “[t]he persistent collection and misuse of consumer data is an indicator of market power in the digital economy”; European Data Protection Supervisor, supra note 3, 35, stating that, where there are a limited number of operators or when one operator is dominant, “the concept of consent becomes more and more illusory;” see also, Online Platforms and Digital Advertising, UK Competition and Markets Authority (2020) para. 6.26, available at https://assets.publishing.service.gov.uk/media/5fa557668fa8f5788db46efc/Final_report_Digital_ALT_TEXT.pdf, stating that “[i]n a more competitive market, we would expect that it would be clear to consumers what data is collected about them and how it is used and, crucially, the consumer would have more control. We would then expect platforms to compete with one another to persuade consumers of the benefits of sharing their data or adopt different business models for more privacy-conscious consumers.” However, see also James C. Cooper & John M. Yun, Antitrust & Privacy: It’s Complicated, J. Law Technol. Policy 343 (2022), finding no systematic relationship between privacy ratings and market concentration.

[6] See, e.g., Report on Social Media Services, Australian Competition & Consumer Commission (2023), 128, https://www.accc.gov.au/media-release/accc-report-on-social-media-reinforces-the-need-for-more-protections-for-consumers-and-small-business; Rebecca Kelly Slaughter, The FTC’s Approach to Consumer Privacy, Federal Trade Commission (2019) 3, available at https://www.ftc.gov/system/files/documents/public_statements/1513009/slaughter_remarks_at_ftc_approach_to_consumer_privacy_hearing_4-10-19.pdf.

[7] Antitrust Subcommittee Report, supra note 4, 28; Maurice E. Stucke & Ariel Ezrachi, When Competition Fails to Optimise Quality: A Look at Search Engines, 18 Yale J. Law Technol. 70 (2016).

[8] Pamela J. Harbour, Dissenting Statement in the Matter of Google/DoubleClick, Federal Trade Commission (2007), 4, available at https://www.ftc.gov/sites/default/files/documents/public_statements/statement-matter-google/doubleclick/071220harbour_0.pdf.

[9] For a critical perspective, see Giuseppe Colangelo, In Fairness We (Should Not) Trust: The Duplicity of the EU Competition Policy Mantra in Digital Markets, Antitrust Bulletin (forthcoming).

[10] See Cristina Caffarra & Johnny Ryan, Why Privacy Experts Need a Place at the Antitrust Table, ProMarket (2021) https://www.promarket.org/2021/07/28/privacy-experts-antitrust-data-harms-digital-platforms, arguing that “[t]here is a market power crisis and a privacy crisis, and they compound each other.”

[11] See, e.g., Wolfgang Kerber & Karsten K. Zolna, The German Facebook Case: The Law and Economics of the Relationship Between Competition and Data Protection Law, 54 Eur. J. Law Econ. 217 (2022), arguing that digital markets exhibit two types of market failure (i.e., competition problems on the one hand, and information and behavioral problems on the other) and suggesting that the effectiveness of enforcement should also be an important criterion for determining which policy should deal with a case if both laws can be applied. Accordingly, if data-protection law is uncapable of dealing effectively with privacy issues and competition law appears better able to overcome this challenge, then the competition authority should step in as the lead enforcer. On the enforcement failure of old and new data-protection regimes, see Filippo Lancieri, Narrowing Data Protection’s Enforcement Gap, 74 Maine Law Rev. 15 (2022).

[12] For an overview of various theories that have emerged in the literature, see Erika M. Douglas, The New Antitrust/Data Privacy Law Interface, Yale L.J. F. 647 (2021); Giuseppe Colangelo & Mariateresa Maggiolino, Data Protection in Attention Markets: Protecting Privacy Through Competition? 8 J. Eur. Compet. Law Pract. 363 (2017). See also, Consumer Data Rights and Competition Background: Note by the Secretariat, OECD (2020), available at https://one.oecd.org/document/DAF/COMP(2020)1/en/pdf, and Geoffrey A. Manne & Ben Sperry, The Problems and Perils of Bootstrapping Privacy and Data into an Antitrust Framework, CPI Antitrust Chronicle 2 (2015), exploring the difficulties associated with incorporating consumer-data considerations into competition policy and enforcement.

[13] See Noah Joshua Phillips, Remarks at the Mentor Group Paris Forum, Federal Trade Commission (2019), 13-15, https://www.ftc.gov/news-events/news/speeches/remarks-commissioner-noah-joshua-phillips-mentor-group-paris-forum; and Maureen K. Ohlhausen & Ben Rossen, Privacy and Competition: Discord or Harmony? 67 Antitrust Bulletin 552 (2022).

[14] See, e.g., Susan Athey, Christian Catalini, & Catherine E. Tucker, The Digital Privacy Paradox: Small Money, Small Costs, Small Talk, NBER Working Paper No. 23488 (2017); Alessandro Acquisti, Curtis Taylor, & Liad Wagman, The Economics of Privacy, 54 J Econ Lit 442 (2016). See also, Avi Goldfarb & Catherine Tucker, Shifts in Privacy Concerns, 102 Am Econ Rev: Papers and Proceedings 349 (2012), noting that individuals’ privacy preferences evolve over time; notably, as people grow older. they get more privacy-conscious. See also Jeffrey T. Prince & Scott Wallsten, How Much Is Privacy Worth Around the World and Across Platforms?, 31 J Econ Manag Strategy. 841 (2022), estimating individuals’ valuation of online privacy across countries (United States, Mexico, Brazil, Colombia, Argentina, and Germany) and data types (personal information on finances, biometrics, location, networks, communications, and web browsing), and finding that Germans value privacy more than people in the United States and Latin American countries do and that, across countries, people most value privacy for financial and biometric information.

[15] Giuseppe Colangelo & Mariateresa Maggiolino, Antitrust Über Alles. Whither Competition Law After Facebook?, 42 World Competition Law and Economics Review 355 (2019).

[16] See, e.g., Federal Trade Commission v. Facebook, Case No. 1:20-cv-03590 (D.D.C. 2021), para. 163, arguing that “[t]he benefits to users of additional competition include some or all of the following: … variety of data protection privacy options for users, including, but not limited to, options regarding data gathering and data usage practices”; and U.S. et al. v. Google, No. 1:20-cv-03010 (D.D.C. 2020), para. 167, arguing that “[b]y restricting competition in general search services, Google’s conduct has harmed consumers by reducing the quality of general search services (including dimensions such as privacy, data protection, and use of consumer data), lessening choice in general search services, and impeding innovation.” See also, Executive Order on Promoting Competition in the American Economy, The White House (2021), https://www.whitehouse.gov/briefing-room/presidential-actions/2021/07/09/executive-order-on-promoting-competition-in-the-american-economy, urging federal agencies to pay closer attention to “unfair data collection and surveillance practices that may damage competition, consumer autonomy, and consumer privacy.”

[17] See Margrethe Vestager, Tearing Down Big Tech’s Walls, Project Syndicate (2023) https://www.project-syndicate.org/commentary/eu-big-tech-legislation-digital-services-markets-by-margrethe-vestager-2023-03, stating that “[w]e are proud that Europe has become the cradle of tech regulation globally.”

[18] Regulation (EU) 2016/679 of the European Parliament and of the Council of 27 April 2016 on the protection of natural persons with regard to the processing of personal data and on the free movement of such data, and repealing Directive 95/46/EC, [2016] OJ L 119/1, Article 20. See Bert-Jaap Koops, The Trouble with European Data Protection Law, 4 Int. Data Priv. Law 4, 44 (2014), arguing that “[b]y its nature, data portability would be more at home in the regulation of unfair business practices or electronic commerce, or perhaps competition law—all domains that regulate abuse of power by commercial providers to lock-in consumers.”

[19] Bundeskartellamt, 7 February 2019, Case B6-22/16.

[20] CMA-ICO Joint Statement, supra note 3, 18-19.

[21] Ibid., 23.

[22] Douglas, supra note 12.

[23] See, e.g., hiQ Labs v. LinkedIn, 938 F.3d 985 (9th Cir. 2019), affirmed 31 F.4th 1180 (9th Cir. 2022), allowing hiQ continued access to LinkedIn users’ profile information in the name of competition. Notably, the court pointed out that hiQ’s entire business depends on being able to access public LinkedIn member profiles and that, at the same time, there is little evidence that LinkedIn users who choose to make their profiles public actually maintain an expectation of privacy with respect to the information that they post publicly. Therefore, “even if some users retain some privacy interests in their information notwithstanding their decision to make their profiles public, we cannot, on the record before us, conclude that those interests—or more specifically, LinkedIn’s interest in preventing hiQ from scraping those profiles—are significant enough to outweigh hiQ’s interest in continuing its business, which depends on accessing, analyzing, and communicating information derived from public LinkedIn profiles.”

[24] See, e.g., Epic Games v. Apple, 559 F. Supp. 3d 898, 922–23 (N.D. Cal. 2021), affirmed in part and reversed in part 2023 U.S. App. LEXIS 9775 (9th Cir. 2023), finding that Apple’s restrictions are designed to improve device security and user privacy; and District Court (Rechtbank) of Rotterdam, 24 December 2021, Case No. ROT 21/4781 and ROT 21/4782, dismissing the arguments that Apple’s in-app payment system is needed for security and privacy.

[25] See, e.g., Autorità Garante della Concorrenza e del Mercato, 11 May 2023, Case A561; Press Release, Bundeskartellamt Reviews Apple’s Tracking Rules for Third-Party Apps, Bundeskartellamt (2022), https://www.bundeskartellamt.de/SharedDocs/Meldung/EN/Pressemitteilungen/2022/14_06_2022_Apple.html; Autorité de la Concurrence, 17 March 2021, Decision 21-D-07, Apple, https://www.autoritedelaconcurrence.fr/en/decision/regarding-request-interim-measures-submitted-associations-interactive-advertising-bureau; Apple – The President of UOKiK Initiates an Investigation, Urz?d Ochrony Konkurencji i Konsumentów (2021), https://uokik.gov.pl/news.php?news_id=18092. See also, Mobile Ecosystems: Market Study Final Report, UK Competition and Markets Authority (2022) Chapter 6 and Appendix J, https://www.gov.uk/cma-cases/mobile-ecosystems-market-study.

[26] Phillips, supra note 13, 15.

[27] CJEU (Grand Chamber), 4 July 2023, Case C-252/21, Meta Platforms v. Bundeskartellamt, EU:C:2023:537.

[28] See, e.g., European Data Protection Supervisor, supra note 3, 26, stating that “clearly power is achieved through control over massive volumes of data on service users.”

[29] See GDPR, supra note 18, Recital 7.

[30] European Data Protection Supervisor, supra note 3, 26.

[31] CMA-ICO Joint Statement, supra note 3, 5.

[32] Nicholas Economides & Ioannis Lianos, Restrictions on Privacy and Exploitation in the Digital Economy: A Market Failure Perspective, 17 J. Competition Law Econ. 765 (2021).

[33] Competition Law and Data, Autorité de la Concurrence and Bundeskartellamt (2016), 25, available at https://www.bundeskartellamt.de/SharedDocs/Publikation/DE/Berichte/Big%20Data%20Papier.pdf?__blob=publicationFile&v=2.

[34] Economides & Lianos, supra note 32.

[35] Ibid., 770-771.

[36] GDPR, supra note 18, Article 4(11).

[37] Ibid., Article 7.

[38] Autorité de la Concurrence and Bundeskartellamt, supra note 33, 25. See also Australian Competition & Consumer Commission, supra note 6, 41, arguing that exploitative conduct involves the use of market power to “give less and charge more” and that, for consumers, this may involve lower-quality services or the excessive costs of providing personal data to access services.

[39] Autorité de la Concurrence and Bundeskartellamt, supra note 33, 24.

[40] Facebook, supra note 19. For a comment on the different episodes of the Facebook saga, see, e.g., Kerber and Zolna, supra note 11; Anne C. Witt, Excessive Data Collection as a Form of Anticompetitive Conduct: The German Facebook Case, 66 Antitrust Bulletin 276 (2021); Marco Botta and Klaus Wiedemann, The interaction of EU competition, consumer, and data protection law in the digital economy: the regulatory dilemma in the Facebook odyssey, 64 Antitrust Bulletin 428 (2019); Colangelo and Maggiolino, supra note 15.

[41] Facebook, supra note 19, paras. 778-780 and 792, stating that users could not have expected that the platform would analyse data emanating from other websites and, when they had the opportunity to read Facebook’s terms of service, users could barely understand the reasons why Facebook was processing and combining their data since Facebook’s terms of service were very complex, replete with links to other explanations, and significantly too opaque to allow ordinary users to understand its data policy.

[42] Ibid., section B(II), stating that voluntary consent to users’ information being processed cannot be assumed if their consent is a prerequisite for using the Facebook service in the first place.

[43] Ibid., para. 645, highlighting that GDPR’s Recitals 42 and 43 state that consent is not freely given where consumers have no alternative options, or where there are clear power imbalances. See also Inge Graef & Sean Van Berlo, Towards Smarter Regulation in the Areas of Competition, Data Protection and Consumer Law: Why Greater Power Should Come with Greater Responsibility, 12 Eur. J. Risk Regul. 674 (2021), arguing that, in formulating this two-way interaction between data-protection law and competition law, the Bundeskartellamt has not only incorporated data-protection principles into its competition analysis, but similarly transferred elements of competition law into data protection; and Orla Lynskey, Grappling With ‘Data Power’: Normative Nudges From Data Protection and Privacy, 20 Theor. Inq. Law 189 (2019), supporting the view that the GDPR provides a normative foundation for imposing a special responsibility on controllers holding data power, analogous to the special responsibility that competition law imposes on dominant firms.

[44] See Press Release, Bundeskartellamt Prohibits Facebook From Combining User Data From Different Sources, Bundeskartellamt (2019), https://www.bundeskartellamt.de/SharedDocs/Publikation/EN/Pressemitteilungen/2019/07_02_2019_Facebook.html;jsessionid=8A581062B36687451A3D1E7A5C256390.2_cid378?nn=3600108, arguing that “[t]he combination of data sources substantially contributed to the fact that Facebook was able to build a unique database for each individual user and thus to gain market power.”

[45] Facebook FAQs, Bundeskartellamt (2019), 6, https://www.bundeskartellamt.de/SharedDocs/Publikation/EN/Pressemitteilungen/2019/07_02_2019_Facebook_FAQs.pdf?__blob=publicationFile&v=6.

[46] See Colangelo & Maggiolino, supra note 15.

[47] Press Release, Meta (Facebook) Introduces New Accounts Center – An Important Step in the Implementation of the Bundeskartellamt’s Decision, Bundeskartellamt (2023), https://www.bundeskartellamt.de/SharedDocs/Meldung/EN/Pressemitteilungen/2023/07_06_Meta_Daten.html.

[48] Colangelo & Maggiolino, supra note 15.

[49] OLG Du?sseldorf, 26 August 2019, Case VI-Kart 1/19 (V), 10.

[50] Ibid., 11.

[51] Ibid., 12.

[52] Bundesgerichtshof, 23 June 2020, Case KVR 69/19.

[53] Ibid., para. 58.

[54] Ibid..

[55] Ibid., para. 86.

[56] Ibid., para. 94.

[57] OLG Du?sseldorf, 24 March 2021, Case Kart 2/19 (V).

[58] Meta, supra note 27.

[59] Autorità Garante della Concorrenza e del Mercato, 10 December 2018, Case PS11112, Facebook-Condivisione dati con terzi.

[60] Nederlandstalige Rechtbank van Eerste Aanleg te Brussel, 16 February 2018.

[61] Regulation (EU) 2022/1925 on contestable and fair markets in the digital sector and amending Directives (EU) 2019/1937 and (EU) 2020/1828 (Digital Markets Act) [2022] OJ L 265/1, Article 5(2).

[62] Ibid., Recital 36.

[63] Ibid., Recital 37.

[64] For critical analysis of this issue and more generally on the controversial relationship between the DMA and the GDPR, see Alba Ribera Marti?nez, The Circularity of Consent in the DMA: A Close Look into the Prejudiced Substance of Articles 5(2) and 6(10), Concorrenza e Mercato (forthcoming). See also Marco Botta & Danielle Da Costa Leite Borges, User’s Consent Under Art. 5(2) Digital Markets Act (DMA): Exploring the Complex Relationship Between the DMA and the GDPR, EUI RSC Working Paper (forthcoming), arguing that, while respecting the general criteria indicated by Art. 7 GDPR, the users’ consent under Art. 5(2) DMA should be adjusted to the DMA peculiarity and that the DMA should be considered as a lex specialis, taking precedence over the GDPR in case of conflict. Previously, the revised e-Privacy Directive introduced an opt-in system for website cookies: see Directive 2009/136/EC amending Directive 2002/22/EC on universal service and users’ rights relating to electronic communications networks and services, Directive 2002/58/EC concerning the processing of personal data and the protection of privacy in the electronic communications sector and Regulation (EC) No 2006/2004 on cooperation between national authorities responsible for the enforcement of consumer protection laws, (2009) OJ L 337/11, Article 5(3).

[65] DMA, supra note 61, Recital 72.

[66] Press Release, Statement of Objections Issued Against Google’s Data Processing Terms, Bundeskartellamt (2023), https://www.bundeskartellamt.de/SharedDocs/Meldung/EN/Pressemitteilungen/2023/11_01_2023_Google_Data_Processing_Terms.html.

[67] Ibid.

[68] Entwurf Eines Gesetzes zur A?nderung des Gesetzes Gegen Wettbewerbsbeschra?nkungen fu?r ein Fokussiertes, Proaktives und Digitales Wettbewerbsrecht 4.0 und Anderer Wettbewerbsrechtlicher Bestimmungen, Bundestag (2020), available at https://dserver.bundestag.de/btd/19/234/1923492.pdf.

[69] See Giuseppe Colangelo, The European Digital Markets Act and Antitrust Enforcement: A Liaison Dangereuse, 47 Eur. Law Rev. 597 (2022).

[70] Bundeskartellamt, 30 December 2021, Case B7-61/21, https://www.bundeskartellamt.de/SharedDocs/Entscheidung/EN/Entscheidungen/Missbrauchsaufsicht/2022/B7-61-22.html.

[71] Bundeskartellamt, 5 October 2023, Case B7-70/21.

[72] The Bundeskartellamt identified four main deficiencies to support its prohibition of Google’s data-processing terms (ibid., paras. 50-54). Namely, because of a lack of sufficient granularity in the settings options, users could not opt out of cross-service data processing or limit data processing to the Google service in which the data were generated. End users could only choose between accepting personalization across all services or opting out of personalization altogether. Further, users were not given sufficient choice within the meaning of Section 19a GWB, as in some cases, Google offers users no choice at all as to data-processing options. Furthermore, the settings options that Google offered lacked sufficient transparency—i.e., sufficiently concise and comprehensible indications providing users with sufficient information as to whether, how, and for what purpose Google processes data across services. Finally, when creating a Google account, a user’s options consent or reject consent were not equivalent.

[73] Ibid., para. 78.

[74] See, e.g., Inge Graef, Damian Clifford, & Peggy Valcke, Fairness and Enforcement: Bridging Competition, Data Protection, and Consumer Law, 8 Int. Data Priv. Law 200, 219-220 (2018).

[75] European Commission, 11 March 2008, Case COMP/M.4731. Previously, in a different setting (i.e., discussing an exchange-of-information case), the CJEU (23 November 2006, Case C-238/05, Asnef-Equifax, EU:C:2006:734, para. 63) affirmed that “any possible issues relating to the sensitivity of personal data are not, as such, a matter for competition law, they may be resolved on the basis of the relevant provisions governing data protection.”

[76] Google/DoubleClick, supra note 75, para. 364. See also para. 365, where the Commission noted that “that the combination of data about searches with data about users’ web surfing behaviour [wa]s already available to a number of Google’s competitors.”

[77] Ibid., para. 368.

[78] European Commission, 3 October 2014, Case COMP/M.7217.

[79] Ibid., para. 189.

[80] Ibid., para. 164.

[81] European Commission, 6 December 2016, Case COMP/M.8124.

[82] Ibid., fn 330.

[83] Ibid., para. 180.

[84] Ibid., para. 177.

[85] Ibid., para. 178.

[86] Ibid., para. 179.

[87] European Commission, 6 September 2018, Case COMP/M.8788, paras. 221 and 314.

[88] European Commission, 17 December 2020, Case COMP/M.9660.

[89] See, Statement on Privacy Implications of Mergers, European Data Protection Board (2020), available at https://edpb.europa.eu/sites/default/files/files/file1/edpb_statement_2020_privacyimplicationsofmergers_en.pdf, arguing that “(t)here are concerns that the possible further combination and accumulation of sensitive personal data regarding people in Europe by a major tech company could entail a high level of risk to the fundamental rights to privacy and to the protection of personal data.”

[90] Google/Fitbit, supra note 84, para. 410.

[91] Ibid., fn. 299.

[92] Ibid., fn. 300.

[93] European Commission, 21 December 2021, Case COMP/M.10290.

[94] European Commission, 27 January 2022, Case COMP/M.10262.

[95] Press Release, Commission Clears Creation of a Joint Venture by Deutsche Telekom, Orange, Telefo?nica and Vodafone, European Commission (2023), https://ec.europa.eu/commission/presscorner/detail/en/IP_23_721. Previously, in a similar vein, see European Commission, 4 September 2012, Case COMP/M.6314, Telefo?nica UK/Vodafone UK/ Everything Everywhere/ JV.

[96] UK Competition and Markets Authority, supra note 25, Appendix J.

[97] See, e.g., Nils Wernerfelt, Anna Tuchman, Bradley Shapiro, & Robert Moakler, Estimating the Value of Offsite Data to Advertisers on Meta, SSRN (2022) https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4176208, finding that the costs to acquire new consumers through targeted advertisements increases tremendously without access to offsite data. On the value of external data and on the relevance (especially for small and medium-sized players) of gaining access to external data from large players in the marketplace, see also Xiaoxia Lei, Yixing Chen, & Ananya Sen, The Value of External Data for Digital Platforms: Evidence from a Field Experiment on Search Suggestions, SSRN (2023) https://ssrn.com/abstract=4452804.

[98] For a review of the economic literature on the GDPR and its unintended consequences on firms’ performance, innovation, competition, and market concentration, as well as its impact on personalized marketing channels, see Garrett A. Johnson, Economic Research on Privacy Regulation: Lessons from the GDPR and Beyond, (forthcoming) in The Economics of Privacy, supra note 2.

[99] See Reinhold Kesler, Digital Platforms Implement Privacy-Centric Policies: What Does It Mean for Competition?, CPI Antitrust Chronicle 1 (2022), and Daniel Sokol & Feng Zhu, Harming Competition and Consumers Under the Guise of Protecting Privacy: Review of Empirical Evidence, CPI Antitrust Chronicle 12 (2022), for a review of economic studies showing that advertising revenues decrease with limited tracking abilities and providing empirical evidence of reduced user tracking on Apple as a consequence of the ATT policy. See also Wernerfelt, Tuchman, Shapiro, & Moakler, supra note 97, finding that restrictions on offsite data particularly harms smaller advertisers.

[100] See Sokol & Zhu, supra note 99. See also Kesler, Digital Platforms Implement Privacy-Centric Policies: What Does It Mean For Competition?, supra note 99, suggesting that the ATT brings back paid apps and reinforces the industry trend toward more in-app payments. With regard to the possibility that the ATT framework may affect the developers’ incentives in the Apple ecosystem, see also Cristobal Cheyre, Benjamin T. Leyden, Sagar Baviskar, & Alessandro Acquisti, The Impact of Apple’s App Tracking Transparency Framework on the App Ecosystem, CESifo Working Paper No. 10456 (2023), https://www.cesifo.org/en/publications/2023/working-paper/impact-apples-app-tracking-transparency-framework-app-ecosystem, finding that developers did not withdraw from the market after ATT and instead adapted to operate under the new conditions. Further, see Ding Li & Hsin-Tien Tsai, Mobile Apps and Targeted Advertising: Competitive Effects of Data Exchange, SSRN (2022), https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4088166, finding that apps’ inability to use tracking for advertising affects large apps to a greater degree, as they experience larger declines than smaller apps in download numbers and innovation.

[101] Autorité de la Concurrence, supra note 25.

[102] Bundeskartellamt, supra note 25.

[103] Autorità Garante della Concorrenza e del Mercato, supra note 25.

[104] Urz?d Ochrony Konkurencji i Konsumentów, supra note 25.

[105] UK Competition and Markets Authority, supra note 25.

[106] Autorità Garante della Concorrenza e del Mercato, supra note 25, para. 47.

[107] Autorité de la Concurrence, supra note 25. In a similar vein, see Anzo DeGiulio, Hanoom Lee, & Eleanor Birrell, “Ask App not to Track”: The Effect of Opt-In Tracking Authorization on Mobile Privacy, in Emerging Technologies for Authorization and Authentication (Andrea Saracino and Paolo Mori, eds.), Springer Cham (2022), 152, finding that opt-in authorizations are effective at enhancing data privacy. Conversely, see Chongwoo Choe, Noriaki Matsushima, & Shiva Shekhar, The Bright Side of the GDPR: Welfare-Improving Privacy Management, CESifo Working Paper No. 10617 (2023) https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4558426, distinguishing among platforms’ business models and arguing that, if the firm’s revenue is largely usage-based rather than data-based, then both the firm’s profit and consumer surplus increase after the GDPR’s opt-in requirement, while if the firm’s revenue is largely from data monetization, then the opt-in can reduce the firm’s profit and consumer surplus.

[108] See also Catherine Armitage, Nick Botton, Louis Dejeu-Castang, & Laureline Lemoine, Study on the Impact of Recent Developments in Digital Advertising on Privacy, Publishers and Advertisers, AWO Belgium (2023) Report for the European Commission, 227, https://op.europa.eu/en/publication-detail/-/publication/8b950a43-a141-11ed-b508-01aa75ed71a1/language-en, arguing that consent prompts under the ATT policy are user-friendly, easily accessible, comprehensible and actionable; and UK Competition and Markets Authority, supra note 25, para. 6.163, acknowledging the privacy benefits associated with the introduction of ATT, as it enhances users’ control over their personal data and significantly improves developers’ compliance with data-protection law.

[109] Press Release, Commission Opens Investigation into Possible Anticompetitive Conduct by Google in the Online Advertising Technology Sector, European Commission (2021), https://ec.europa.eu/commission/presscorner/detail/en/ip_21_3143.

[110] Ibid.

[111] Press Release, Investigation into Google’s ‘Privacy Sandbox’ Browser Changes, UK Competition and Markets Authority (2021), https://www.gov.uk/cma-cases/investigation-into-googles-privacy-sandbox-browser-changes.

[112] Ibid.

[113] See also UK Competition and Markets Authority, supra note 25, para. 10.19, stating that “[w]orking closely with the ICO, the CMA now has a role in overseeing the development of Google’s proposals for replacements to third-party cookies, so that they protect privacy without unduly restricting competition and harming consumers.”

[114] Colangelo & Maggiolino, supra note 12.

[115] See, e.g., UK Competition and Markets Authority, supra note 5; Antitrust Subcommittee Report, supra note 4; Pasquale, supra note 4; Harbour & Koslov, supra note 4.

[116] Harbour, supra note 8.

[117] Antitrust Subcommittee Report, supra note 4; Stucke & Ezrachi, supra note 7.

[118] See Autorité de la Concurrence and Bundeskartellamt, supra note 33. See also Australian Competition & Consumer Commission, supra note 6; Slaughter, supra note 6.

[119] Douglas, supra note 12, 667.

[120] See, e.g., CMA-ICO Joint Statement, supra note 3, 26.

[121] At best, it may be argued that the DMA, supra note 61, Recitals 36 and 72, supports the theory of harm that, because of network effects and other structural features of digital markets, the strengthening of gatekeepers’ power lowers their incentives to compete through offering high levels of privacy. These Recitals consider that ensuring data protection facilitates contestability of core platform services by avoiding the risks that gatekeepers raise barriers to entry and allow other undertakings to differentiate themselves better through the use of superior privacy guarantees.

[122] Meta, supra note 27.

[123] Opinion of the Advocate General Athanasios Rantos, 20 September 2022, Case C-252/21, EU:C:2022:704.

[124] Ibid., fn 18.

[125] Ibid., para. 23.

[126] See CJEU, 17 February 2011, Case C-52/09, Konkurrensverket v. TeliaSonera Sverige AB, EU:C:2011:83; 27 March 2012, Case C-209/10, Post Danmark A/S v. Konkurrencerådet, EU:C:2012:172; 6 October 2015, Case C-23/14, Post Danmark A/S v. Konkurrencerådet (Post Danmark II) EU:C:2015:651; 6 September 2017, Case C-413/14 P, Intel v. Commission, EU:C:2017:632; 30 January 2020, Case C-307/18, Generics (UK) and Others v. Competition and Markets Authority, EU:C:2020:52; 25 March 2021, Case C-152/19 P, Deutsche Telekom v. Commission (Deutsche Telekom II), EU:C:2021:238; 12 May 2022, Case C-377/20, Servizio Elettrico Nazionale SpA v. Autorità Garante della Concorrenza e del Mercato, EU:C:2022:379.

[127] Meta, supra note 27, para. 47, quoting Rantos, supra note 123, para. 23.

[128] Meta, supra note 27, para. 51.

[129] Ibid., para. 48.

[130] Rantos, supra note 123, para. 24.

[131] Meta, supra note 27, para. 49.

[132] Ibid., paras. 52 and 54.

[133] Ibid., para. 56. See also Rantos, supra note 120, paras. 29-30.

[134] See Giuseppe Colangelo & Mariateresa Maggiolino, Data Accumulation and the Privacy-Antitrust Interface: Insights from the Facebook Case, 8 Int. Data Priv. Law 224 (2018).

[135] See also Peter Georg Picht, CJEU on Facebook: GDPR Processing Justifications and Application Competence, SSRN (2023) 3, https://ssrn.com/abstract=4521320, arguing that it is doubtful whether informal communications, as apparently held by the Bundeskartellamt with one of the competent GDPR authorities, sufficiently protect party rights.

[136] See, e.g., Klaus Wiedemann, Data Protection and Competition Law Enforcement
in the Digital Economy: Why a Coherent and Consistent Approach is Necessary
, 52 IIC 915 (2021), arguing that the regulation of consent to the processing of personal data under the GDPR serves as a dogmatic link between data-protection and competition law, as the freedom to choose granted by the GDPR to users whose personal data are monetized shares significant overlaps with the economic freedom acknowledged in competition-law jurisprudence.

[137] GDPR, supra note 18, para. 74.

[138] Meta, supra note 27, paras. 147 and 149. See also Rantos, supra note 123, para. 75.

[139] Rantos, supra note 123, para. 75.

[140] For an analysis of the critical implications, see Alessia Sophia D’Amico, Market Power and the GDPR: Can Consent Given to Dominant Companies Ever Be Freely Given?, SSRN (2023), https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4492347. See also Peter Georg Picht & Ce?dric Akeret, Back to Stage One? – AG Rantos’ Opinion in the Meta (Facebook) Case, SSRN (2023), 4, https://ssrn.com/abstract=4414591, considering the question of whether GDPR market power can be not only less than competition-law dominance but also of a different nature—e.g., based on a set of parameters that would not suffice, as such, to establish market power in the competition-law sense.

Continue reading
Data Security & Privacy

Devaluing SEPs: Hold-Up Bias and Side Effects of the European Draft Regulation

Scholarship Abstract The EU Commission’s recent proposal for a regulation on standard essential patents (SEPs) envisages a radical overhaul of the current framework, introducing an essentiality . . .

Abstract

The EU Commission’s recent proposal for a regulation on standard essential patents (SEPs) envisages a radical overhaul of the current framework, introducing an essentiality check system, a conciliation process for fair, reasonable and non-discriminatory (FRAND) terms, and a mechanism to determine a reasonable aggregate royalty. However, both the economic justification and the approach endorsed by the proposal are questionable. Indeed, on one hand, there is no evidence of a market failure to justify the initiative and, in addition, the provisions appear to be one-sided, apparently being aimed only at addressing a hold-up problem and pursuing a value-distribution goal from SEP owners to implementers. Accordingly, this paper views the proposal critically, arguing that it departs from the well-established meaning and rationale of FRAND commitments by disregarding hold-out problems, and it jeopardises the suitability of SEPs to serve as valuable financial collateral, thereby endangering future investments in innovation.

Continue reading
Intellectual Property & Licensing

Goodbye Margrethe, Hello Didier: What Next for European Competition Law?

TOTM European Commissioner for Competition Margrethe Vestager announced Sept. 5 that she was leaving her position after nearly a decade in charge, which for the last . . .

European Commissioner for Competition Margrethe Vestager announced Sept. 5 that she was leaving her position after nearly a decade in charge, which for the last four years has also included holding the title of “executive vice president of the European Commission for a Europe fit for the Digital Age.” Her departure caps off an uncharacteristically tumultuous couple of months for the EU’s competition watchdog, amid a backdrop of looming elections and political infighting. Where the agency goes from here is anyone’s guess.

Read the full piece here.

Continue reading
Antitrust & Consumer Protection

Finding An Efficiency-Oriented Approach to Scrutinise the Essentiality of Potential SEPs: A Survey

Scholarship Introduction Over the last two decades, standard essential patents (SEPs) have been at the centre of a lively debate among scholars, courts and competition authorities, . . .

Introduction

Over the last two decades, standard essential patents (SEPs) have been at the centre of a lively debate among scholars, courts and competition authorities, mainly on the competitive implications of the successful adoption of a standard. Indeed, standards are key to ensuring interoperability and technical compatibility across a broad range of modern industries, but at the same time, they come with exclusionary effects for companies precluded from practicing the standard. For these reasons, standards development organisations (SDOs) typically adopt disclosure and licensing rules, requiring firms taking part in a standardisation initiative to disclose the existence of any intellectual property right (IPR) that might cover a technology considered to be implemented into the standard and clarify whether they would be willing to offer a licence to such IPR on fair, reasonable and non-discriminatory (FRAND) terms if the technology is implemented into the standard.

Much of the attention has so far been devoted to the economic and legal meanings of FRAND commitments as a mechanism to avoid hold-up and reverse hold-up problems between licensors and licensees, thus preventing SEPs holders from demanding excessively high royalties when implementers are locked-in to a standard and licensees from engaging in strategic practices to escape the payment of royalties or depress prices, respectively. However, SDOs’ disclosure rules also deserve similar consideration.

Continue reading
Intellectual Property & Licensing

Regulatory Myopia and the Fair Share of Network Costs: Learning from Net Neutrality’s Mistakes

Written Testimonies & Filings Abstract Seeking to boost funding for the next generation of telecommunications infrastructure, European Union (EU) policymakers have proposed mandating that some large online platforms pay . . .

Abstract

Seeking to boost funding for the next generation of telecommunications infrastructure, European Union (EU) policymakers have proposed mandating that some large online platforms pay a special usage fee to network operators. Framed as a way to ensure that the largest users of internet infrastructure contribute their “fair share” to telecommunications networks, the proposal would be another unnecessary and harmful regulatory intervention. These comments paper seek to demonstrate that the fair-share debate itself is, in fact, the byproduct of an earlier intrusive government initiative: net-neutrality regulation. Like net neutrality’s anti-discrimination rules, a “fair share” tax would represent a solution that doesn’t work to a problem that doesn’t exist. Moreover, the debate reflects the EU’s fundamentally misguided inclination toward an industrial-policy approach to the digital transformation, built on the unsound belief that innovation can be delivered via regulation and by subsidizing legacy domestic firms with rents transferred from successful global players. Rather than continuing to interfere in market dynamics and private negotiations without any solid evidence of market failure, the EU should instead learn from its past mistakes and acknowledge the limited scope for regulation in these dynamic markets.

I. Introduction

“[W]e have a vision, and we have a goal,”[1] European Commissioner Thierry Breton said in a February 2023 speech in Helsinki announcing the launch of a public consultation on the future of connectivity and infrastructure in the European Union (EU).[2] The consultation’s stated goal is to keep pace with transformative technological developments and to make Europe a digital leader by boosting deployment of forward-looking telecommunications infrastructure. Toward this end, the European Commission argues, it is essential that the regulatory framework is fit for purpose, with adequate funding to support the required investments.[3]

Given that ambitious goal, these comments investigate the likelihood that this vision can become a reality.

As part of the 2030 Digital Decade policy program,[4] European policymakers are seeking a means to equip Europe with the next generation of connectivity infrastructure. The primary solution offered—one that has the backing of incumbent European telecom operators (telcos)—is to make some large online platforms (so-called “Big Tech”) contribute to the cost of telecom networks. The proposal has been justified on grounds that Big Tech firms use a large share of bandwidth, while the telcos have seen a decline in their returns on investment.[5]

Essentially, the proposal would constitute a direct welfare transfer from online content and application providers (CAPs) or over-the-top service providers (OTTs) to benefit telcos and other internet service providers (ISPs). This would be accomplished by setting a data-transmission threshold and charging CAPs a fee when they transmit data exceeding that threshold. Indeed, the questionnaire the Commission released as part of the public consultation does not ask whether such a levy is needed, but merely seeks input on how it should be structured.[6]

Unsurprisingly, telcos have described the fair-share tax as “a once in a lifetime opportunity to recover digital leadership in Europe.”[7] Telco operators argue that a few Big Tech firms generate a significant portion of all internet traffic, but do not adequately contribute to the development of such networks.[8] These concerns find support in the recent European Declaration on Digital Rights and Principles for the Digital Decade, which calls for a framework through which “all market actors benefiting from the digital transformation assume their social responsibilities and make a fair and proportionate contribution to the costs of public goods, services and infrastructures, for the benefit of all Europeans.”[9]

EU policymakers have also explored the need to encourage consolidation in the telecom industry in order to sustain investments that will stanch “Europe’s progressive technological decline.”[10] Under this vision, the path to promote investment and spur innovation in Europe’s digital future would be forged not only through rent transfers from CAPs to telcos, but also by defeating “excessive competition” in the telecom section.[11]

We argue here that the current debate stems, instead, from earlier invasive and unnecessary regulatory initiatives. Notably, the “fair share” proposal is the poison fruit of net-neutrality regulation, which has prevented telcos from monetizing their networks. In an alternative framework, the telecom sector could have instead been permitted to manage the transmission of content and services according to their value for end users, anticipated bandwidth use, or a host of other quality requirements upon which various CAPs depend.

Rather than acknowledging the limits of regulation, the fair-share proposal reflects the Commission’s persistent distrust of market forces and private-ordering mechanisms. Further, the debate represents just the latest instance of a more generalized EU industrial-policy approach to the digital transformation. This approach rests on the unsound belief that innovation can be delivered through regulation and by subsidizing legacy domestic EU firms through the transfer of rents from successful global players.

Having in this section provided an overview of the conflict between telecom operators and CAPs, Section II frames the “fair share” debate within the broader EU industrial-policy approach to the digital transformation, noting similarities with earlier efforts to support the EU’s audiovisual and publishing industries. Section III investigates the controversial relationship between “fair share” duties and net-neutrality rules. Section IV points out the limited role for regulation and the principles that should guide government intervention in fast-moving industries. Section V concludes.

II. A Solution in Search of a Problem

The 2030 Digital Decade policy program highlights the need to foster investment in high-speed telecommunications networks if the EU is to meet the connectivity targets established in the path to the digital transformation.[12]

Data traffic represents the critical determinant of telecom networks’ size and capacity. EU telcos claim, however, that exponential growth of internet traffic has left them unable to earn viable returns on network investments.[13] According to the telcos, traffic growth is disproportionately driven by a small number of OTTs, who provide relatively little direct economic contribution to network rollout.

According to a report for the European Telecommunications Network Operators Association (ETNO), just six firms generated roughly 56% of all network traffic, with Google accounting for 21%; Meta accounting for 15.4%; Netflix accounting for 9.4%; Apple accounting for 4.2%; Amazon accounting for 3.7%; and Microsoft accounting for 3.3%.[14] Further, a study conducted by Frontier Economics on behalf of Deutsche Telekom, Orange, Telefo?nica, and Vodafone estimated that traffic driven by OTTs could generate annual costs for EU telcos of €36 to 40 billion.[15] Such findings are often cited by telcos to make the case that OTTs are free riding on their network investments and need to be made to more equitably share the burden:

Digital platforms are profiting from hyper scaling business models at little cost while network operators shoulder the required investments in connectivity. At the same time our retail markets are in perpetual decline in terms of profitability.[16]

To address the concern of free riding, telcos have proposed a sending-party-network-pays system, which would mandate that the largest online platforms pay usage fees to compensate network operators.[17] In singling out the largest platforms for exceptional treatment, the proposal resembles how EU institutions already approach the regulation of “gatekeepers” under the Digital Markets Act (DMA) and “very large online platforms” under the Digital Services Act (DSA).[18] The proposal would establish a direct compensation mechanism, rather than private negotiations among the relevant parties, because it assumes that network operators are not positioned to negotiate fair terms with leading OTTs due to the latter’s alleged strong market positions, asymmetric bargaining power, and a lack of a level regulatory playing field.

The telcos point to the revenue and market capitalization enjoyed by the largest OTTs as demonstrating that the services Big Tech provides are essential for consumers.[19] But while the growth in traffic volume for the OTTs’ services creates additional costs for network operators, the telcos contend that they cannot respond to that growth in demand with higher retail prices, both because of strong competition in the retail telecommunications market and due to regulatory interventions at the wholesale level.[20] These factors, they contend, have created an uneven regulatory playing field between OTTs and telcos. Moreover, they argue that this uneven playing field has contributed to declining profit margins for telcos’ traditional retail revenue streams and that, consequently, telcos’ costs of capital are now higher than their returns on capital.

For their part, OTTs argue that they contribute to the internet ecosystem with investments in content-delivery networks and infrastructure—such as data centers, undersea cables, and satellites—and by creating content that is attractive to consumers, who in turn buy access from the ISPs to consume that content.[21] Therefore, they argue, it is the end users who generate traffic by consuming content, and they already pay ISPs through their subscriptions.

This debate over how network costs should be allocated is not new, and nor is the idea of a sending-party-network-pays system. The Body of European Regulators for Electronic Communications (BEREC) rejected a similar proposal 10 years ago, arguing that requests for dataflows stem not from content providers, but from retail ISPs’ own customers. BEREC further contended that increased demand for broadband access can be attributed to the success of content providers.[22]

Indeed, broadband networks are two-sided markets that bring together CAPs and end users. ISPs derive revenue from end users, who in turn pay for internet service to gain access to OTTs’ content. Since both sides of the market (content providers and end users) contribute to the cost of internet connectivity, BEREC found that “[t]here is no evidence that operators’ network costs are already not fully covered and paid for in the Internet value chain.”[23]

Further, BEREC acknowledged that the current “model has enabled a high level of innovation, growth in Internet connectivity, and the development of a vast array of content and applications, to the ultimate benefit of the end user.”[24] Therefore, “the nature of services to be delivered across the network, and the charging mechanisms applied to them, should continue to be left to commercial negotiations among stakeholders.”[25]

While prevailing internet traffic volumes are notably higher today than those observed a decade ago, it does not appear that BEREC regards the recent changes in traffic patterns as sufficient to modify its underlying assumptions regarding the sending-party-network-pays regime.[26] Indeed, in a recent preliminary assessment of a proposed direct compensation mechanism to benefit telcos, BEREC confirmed that it feels “the 2012 conclusions are still valid” and that the sending-party-network-pays model would provide ISPs “the ability to exploit the termination monopoly” and could be of “significant harm to the internet ecosystem.”[27]

BEREC also questioned the assumption that an increase in traffic directly translates into higher costs, noting that the costs of network upgrades necessary to handle increased traffic volumes are small relative to total network costs, and that upgrades come with significant increases in capacity.[28] In other words, BEREC found that rising traffic volumes do not directly lead to significant incremental costs relative to total network costs.[29]

Finally, BEREC once again found no evidence of free riding along the value chain,[30] finding that the IP-interconnection ecosystem remains largely competitive and that costs for internet connectivity are typically covered by ISPs’ customers.

It would be reasonable to assume that if there had been such a significant free-riding, this would have been reflected in ISPs financial statements and also in loss warnings.[31]

BEREC’s preliminary findings and continued skepticism of replacing freely negotiated internet interconnections with mandated network-usage fees are supported by studies that similarly find a lack of evidence of free riding;[32] report significant investments by CAPs to support network infrastructure;[33] and raise concerns about the potential side effects of a sending-party-network-pays model on the proper functioning of internet connectivity.[34]

A study conducted by WIK-Consult for the Federal Network Agency Germany (Bundesnetzagentur) confirmed that the IP-interconnection ecosystem is largely competitive and warned against the kinds of potential unintended consequences already seen in South Korea, the only country thus far that has mandated sending-party-network-pays billing.[35] South Korea provides a cautionary tale about the adverse effects that stem from interference in voluntary negotiations. Indeed, there is evidence that the competitive distortions between CAPs and ISPs generated by the Korean initiative had negative effects for consumers in terms of costs and the degradation of quality.[36]

Some EU member states have also been skeptical of telcos’ pleas and of the idea more generally that charging a toll on the internet is an appropriate strategy to promote network investments.[37] According to these members, the proposed “fair share” toll would pose considerable risks to the internet ecosystem and is likely to cause considerable harm to businesses and consumers. Indeed, as the envisaged data-transmission tax will affect the most popular services and content, a huge percentage of consumers are expected to bear the relative cost, as targeted OTTs eventually pass the new fees paid to ISPs downstream.[38] These concerns were expressed in a letter from Austria, Estonia, Finland, Germany, Ireland, and the Netherlands that urged the Commission to publish the Broadband Cost Reduction Directive (BCRD) review without discussion of the “fair share” debate.[39] In their view, while the revised BCRD should aim to accelerate the deployment of very high-capacity networks, the fair-share proposal is a distinct topic that requires a proper evidence-based assessment of its own merits.

A. Blaming and Taxing Digital Platforms

From a broader perspective, the “fair share” debate reflects the EU’s recent industrial-policy approach to the digital transformation.

The internet has deeply transformed traditional industries by favoring the emergence of new business models and creating opportunities for new players to enter those markets. Because of these challenges, some legacy incumbents struggle to keep pace with innovation and new forms of competition, disrupting entire industries. It is no secret that Europe has lagged behind in the digital economy and that established European companies have suffered most from the emergence of digital markets, as they have thus far been unable to develop competitive platform-based ecosystems.

Against this backdrop, European institutions have looked to subsidies as the solution to rescue some legacy players. Such interventions have been justified by policymakers on grounds of alleged market failures or the importance of public interests at stake. Such claims are not new, and public deliberation would ordinarily turn to evaluating whether the claimed market failures are real and whether the measures identified to promote future competition and innovation are effective. But EU policymakers have managed to evade such questions by insisting that the rescues they obviously seek not rely directly on subsidies from the European public.[40] Instead, the proposed subsidies would come from private, largely U.S.-based firms.

In sum, the manifesto for the new protectionist EU industrial policy is to “blame and tax Big Tech.” This narrative holds that the success of a few large online platforms is the cause of the purported market failures, and that it is therefore fair to tax their success and force them to share their profits.[41] The approach is shortsighted but, from the perspective of EU policymakers, certainly convenient.

The internet’s impact on business models is seen as particularly threatening to the media industry. In light of new technologies to transmit audiovisual-media services, European institutions argued for a regulatory framework that would ensure “optimal conditions of competitiveness” for European media and safeguard certain “public interests, such as cultural diversity.”[42]

The policy solutions identified by the revised Audiovisual Media Services (AVMS) Directive are twofold.[43] First, European works are required to represent at least 30% of on-demand audiovisual-media services’ catalogs, and the services are require to ensure the prominence of those works.[44] Second, to ensure adequate levels of investment in European works, EU member states are permitted to impose financial obligations (including requiring direct investments in content and mandated contributions to the national fund) on media-service providers established within their territory, or on the basis of revenues the providers generate from services that are provided in and targeted toward the member state’s territory.[45]

In other words, to counter U.S. platforms’ dominance in the European video-on-demand (VOD) market,[46] the new AVMS Directive targets large foreign companies by imposing content quotas and financial obligations under a regime that has been termed the “Netflix tax.”[47] While this protectionist intervention to rescue the European audiovisual market is ostensibly made in the name of the public interest, both of the envisaged measures more accurately reflect resentment of the global players’ success than they do concern for Europe’s noble cultural diversity.[48]

Shortly after the AVMS Directive’s enactment, taxing Big Tech also became the preferred solution to rescue the European publishing industry.[49] Seeking to address a purported gap in value between digital platforms and news publishers, the Directive on Copyright in the Digital Single Market granted the latter a right to control and receive compensation for the reproduction and availability of online summaries of their news articles.[50] Indeed, publishers claim that the sustainability of their entire industry has been jeopardized by the emergence of digital gatekeepers, which capture most of the advertising revenue without bearing the cost of the investments needed to produce news content. It is alleged that this unfair split of revenues is the result of asymmetric bargaining power, which makes it difficult for press publishers to negotiate with Big Tech on an equal footing.[51]

In sum, the news publishers’ case that free riding and asymmetry of bargaining power justify their request for revenue sharing are the same arguments used by telcos to support their own “fair share” proposal. The publishing industry’s struggles, however, started swell before the emergence of digital platforms. Newspapers’ business models were first hit by the advent of the internet, which changed consumption habits and enabled the growth of new forms of journalism.[52] Moreover, digital platforms arguably play a complementary role to news sites, as legacy publishers benefit from inbound links that drive audience traffic. Indeed, empirical evidence does not support the free-riding narrative.[53] It may be sound policy to support publishers in their digital transformation but, as argued some years ago, “[t]axing new digital players will not save press publishing industry and legacy business models.”[54]

Such findings also apply to the telcos. Indeed, as is evident from this brief analysis, there are strong similarities between the audiovisual market and the publishing industry when it comes to the fair share of network costs. All of these policy initiatives stem from European industries’ inability to keep the pace with the digital transformation that has been enhanced by the spread of high-speed internet. While the internet revolution has enabled the emergence of new global players, legacy European companies are struggling to adapt their business models and strategies in order to compete.

In this context, policymakers frequently invoke the need to protect public interests as justification for regulatory interventions they claim would correct purported market failures, but that instead merely alter the prevailing market dynamics. Indeed, protectionist interventions that impose financial obligations on successful players will not address the problems in question, and will therefore be ineffective at achieving the goal of closing the competition gap between European firms and the global players. Moreover, as discussed in the next section, taxing online providers in the telecommunications sector, specifically, would appear to be clearly at odds with the rationale that underlies European efforts to enforce the net-neutrality regulation.[55]

III. The Net-Neutrality Problem

The European Commission’s “fair share” proposal is of dubious compatibility with net neutrality, which was the flagship initiative delivered by the Commission in the previous political term. Indeed, the Commission has appeared anxious to reassure the public that there is no going back on net neutrality and that it remains “strongly committed” to protecting a neutral and open internet.[56] But there are manifest concerns that direct compensation from large OTTs to ISPs would endanger the principle of net neutrality.[57] Indeed, the fair-share proposal appears at odds with both the legal obligations of net neutrality and its underlying economic rationale.

Net neutrality has always been a particularly contentious topic, as confirmed by the transatlantic divergence on the topic. While the EU regulation remains in force, the U.S. Federal Communications Commission’s (FCC) 2015 Open Internet Order was repealed in 2018 by the superseding Restoring Internet Freedom Order.[58] The FCC reverted to its pre-2015 position, concluding that the benefits of a market-based, light-touch regime for internet governance outweigh those of utility-style, common-carrier regulation. Quoting then-FCC Chairman Ajit Pai, “there was no problem to solve. The Internet was not broken in 2015. We were not living in a digital dystopia.”[59]

Given the assumption that broadband providers enjoy endemic market power, a common feature of net-neutrality regulations is the imposition of non-discrimination rules that ensure all internet traffic is treated equally. As terminating-access monopolists, ISPs are deemed gatekeepers for edge providers that seek to reach their end-user subscribers—hence, they may discriminate against the former and impose restrictions on the latter. Toward this end, the 2015 Open Internet Order imposed three ex ante bright-line rules preventing U.S. ISPs from blocking content, throttling traffic, or discriminating against specific content for a fee (so-called “paid prioritization”).[60] These rules were predicated on the belief that there was a need to protect and promote openness, since “the Internet’s openness promotes innovation, investment, competition, free expression, and other national broadband goals.”[61]

In a similar vein, by establishing common rules to safeguard equal and non-discriminatory treatment of internet traffic, the EU Regulation pointed to the need to protect end-users and guarantee the continued functioning of the internet ecosystem as an engine of innovation:[62]

The internet has developed over the past decades as an open platform for innovation with low access barriers for end-users, providers of content, applications and services and providers of internet access services. … However, a significant number of end-users are affected by traffic management practices which block or slow down specific applications or services.[63]

Indeed, proponents of net neutrality typically claim that allowing ISPs to treat different CAPs differently through, e.g., paid prioritization would stifle innovation by hindering the entrance of new content providers. This, in turn, would negatively affect the welfare of end-users through rising subscription fees, less variety of content, and reduced quality of connections.[64] Opponents, on the other hand, question the very economic logic of net-neutrality regulation, maintaining that it would increase regulatory costs, dampen ISPs’ incentives to invest in broadband capacity, and harm both consumers and content providers.[65]

Moreover, these types of regulations explicitly prevent ISPs from bargaining with CAPs in ways that would allow ISPs to seek payment for excessive network usage. Thus, some substantial portion of the “problem” that “fair share” seeks to correct directly arises from telcos being constrained from arm’s-length negotiations with CAPs.

Net-neutrality opponents also contest the claim that ISPs have and use market power in ways that lead to market foreclosure, arguing that this is not supported by empirical evidence.[66] A related concern is that vertically integrated ISPs with market power could potentially self-preference their own content.[67] But even if a vertically integrated ISP had market power, it is not obvious that compromising the quality of content requested by end users would be profit maximizing.[68] That is, even in this extreme hypothetical, the threat of user defection because of degraded quality mutes or answers the concern.

More generally, the economic literature has stressed that the consequences of net-neutrality regulation depend on precise policy choices, how they are implemented, and how long-run economic trade-offs play out.[69] Strict net neutrality may lead to socially inefficient allocations of traffic, as well as traffic inflation. It would thereby harm efficiency by distorting both ISPs and content providers’ investments and service-quality choices.[70]

Given the ambiguous effects of net neutrality’s anti-discrimination rules, the most controversial issue concerns whether any value is added value by enforcing a net-neutrality regime through an ex ante regulatory ban, rather than traditional ex post case-by-case antitrust enforcement.[71] Indeed, net neutrality introduces a blanket ban of practices that would not be per se antitrust violations.[72] Notably, net neutrality de facto prevents broadband providers from introducing vertical contractual restraints, which have typically proven to be welfare enhancing more often than anticompetitive.[73] Therefore, there is a risk that, in the name of leveling the playing field, net neutrality focuses on competitor welfare rather than consumer welfare.[74] In sum, given the ambiguous welfare effects of discrimination, it is impossible to establish in advance whether the purported exclusionary effects outweigh their potential procompetitive benefits. Hence, there is no economic support for an ex ante absolute prohibition.

The “fair share” solution of taxing Big Tech to fund broadband-network improvements also appears to violate both the economic rationale for and legal obligation of equal treatment under net neutrality. By only imposing fees on OTTs that transmit data exceeding a certain threshold, the “fair share” proposal clearly discriminates against some online services and content—that is, the largest ones. With regard to the economic rationale, net neutrality has been justified on the grounds that broadband providers enjoy endemic market power as terminating-access monopolies. It would therefore be strange to impose an intervention to restore “fairness” in the relationship between network operators and content providers on the premise that the former suffers from an asymmetry of bargaining power. Indeed, under EU net-neutrality rules, ISPs are assumed to have insurmountable bargaining power, even though the “fair share” proposal presumes them to be powerless before Big Tech.

Indeed, as noted above, net neutrality is a primary driver of the current “fair share” debate. Allowing paid prioritization between ISPs and CAPs likely would have prevented the emergence of these claims. Indeed, it could be argued that, on the one hand, net neutrality has tilted the balance in favor of large OTTs[75] and, on the other hand, paid prioritization would be the efficient market answer to different content offerings.

Notably, conventional economic principles justify vertical restraints and discriminatory practice, as online content varies in terms of value for consumers, bandwidth use, and quality requirements.[76] Indeed, as was raised years ago during the U.S. net-neutrality debate, a ban on paid prioritization is inconsistent with a well-developed body of literature showing that it is impossible to determine ex ante whether any specific instance of paid prioritization will have positive or negative effects for consumers.[77] Moreover, restraints on prioritization are likely to thwart a range of welfare-increasing business models on the internet and to chill further pricing innovations.[78]

Therefore, the fair-share proposal struggles to address the same fundamental question already raised in the case of net neutrality: whether a regulatory intervention is justified in the first place.

IV. Regulatory Humility and Lessons Unlearned

According to the economic literature, regulatory intervention is only justified under limited circumstances. The case for regulation is best substantiated where it can correct market failures, such as when free and unrestricted competition is unable to allocate resources efficiently.[79] Even under the romantic assumption that regulation serves consumers’ interests and policymakers have sufficient information and enforcement powers to both promote the public interest and maximize social welfare, the primary focus of regulation will still be to tackle market failures.[80]

Outside those examples of market failure, effective competition is commonly accepted to be the best regulator, as it has been empirically demonstrated to lead to lower prices, better quality, and greater innovation.[81] Without a proper justification, regulation negatively interferes in market dynamics by generating inefficiencies, introducing artificial barriers to entry, and deterring technological innovation.

Calibrating regulation is extremely difficult. Although regulation is expected to be forward-looking, it may lack flexibility, and the imposition of rigid sets of rules can risk enshrining a static view of the market at the expense of its dynamic evolution. Moreover, consistent with both private-interest and public-choice theory, government intervention is often prone to capture by special interests, rather than promoting general social welfare.

Although these are limits of regulation generally, they are particularly critical in fast-moving industries, where it is challenging to design a future-proof framework.[82] Therefore, especially when dealing with digital transformations, it is appropriate to embrace regulatory humility, acknowledge the inherent limits of regulation, and refrain either from picking winners and losers in the marketplace or from preemptively intervening in the absence of solid evidence of market failure and consumer harm.[83] Notably, the market-failure approach assumes that government activity should be limited to the minimal amount of intervention sufficient to correct for specific failures.[84]

Further, interventions to correct market failures should neither require nor assume a particular technology. This would ensure much-needed flexibility to adapt the rules to rapidly changing realities, thus avoiding early obsolescence. It would also avoid the weaponization of regulation to protect incumbents’ market position by freezing investments and hindering the development of new technologies. In sum, the principles of minimal and technologically neutral intervention reflect a light-touch approach of regulatory self-restraint, with awareness that the market is generally better suited to promote innovation and that regulation scores poorly on dealing with the unexpected.

The EU’s net-neutrality rules departed from the principles of self-restraint and technological neutrality.[85] Despite the fact that there was no discernible evidence of a market failure, EU policymakers chose to interfere with the management of internet traffic. Moreover, they did so by imposing an outright ban on common marketplace practices whose effects are at least ambiguous, and hence deserving of case-by-case assessment. As a result, net neutrality picked winners (OTTs) and losers (ISPs). At the time, academics and other experts warned against the adoption of rigid regulation, which by definition cannot aspire to be future-proof and is apt to capture the dynamics of industries characterized by rapid innovation.[86]

Indeed, net neutrality did not anticipate the rise of OTT services. A fascinating slogan has apparently proven to be more influential than economic principles and reality. And now, “fair share” advocates want the EU to step into the breach created by net-neutrality regulation and impose further (likely inefficient) levies on Big Tech. The more rational course would be to reconsider the nature of net neutrality’s non-discrimination principles in the first place. Alas, the “fair share” proposal in fact shares several features with net-neutrality regulation, demonstrating that, rather than learn from previous mistakes, European institutions are ready to repeat them. In particular, the proposal at issue does not square with economics.

Indeed, the economic justification for the regulatory intervention is missing, as there is no evidence of a market failure to address. Quite the opposite, according to BEREC.[87] The current model has fostered innovation, growth in internet connectivity, and the development of a vast array of content and applications. In other words, it has generated significant benefits for end users. The increase in traffic volume has not altered this fundamental reality and the IP-interconnection ecosystem largely remains highly competitive. At the same time, there is no evidence of free riding by CAPs along the value chain. As a result, the adoption of a sending-party-network-pays model would represent an unwarranted threat to the internet ecosystem that would generate costs with little or no countervailing benefits.

It is even questionable whether increases in internet traffic have resulted in higher costs for the telcos, who also benefit from the demand for broadband access that has been driven by the success of OTTs’ content and services.[88] More generally, it is not clear how punishing the success of some OTTs would promote investment and innovation in the broadband market.

Further, rather than abiding by the principle of minimal intervention, the proposal would interfere with market dynamics by substituting a direct-compensation mechanism for private negotiations. The justification advanced for such an invasive intervention is the alleged asymmetry of the telcos’ bargaining position vis-à-vis large OTTs. The assertion is that OTTs enjoy this disproportionate bargaining position because of their market power and an uneven regulatory playing field. Leaving aside the inherent knowledge problem in a central regulator deciding how dynamic data flows should be valued, this explanation is at odds with the primary assumption of net neutrality—that the telcos play a gatekeeper role because of their control of access to the internet. In reality, both Big Tech and the ISPs are sufficiently competent parties that they should be able to negotiate mutually beneficial business terms among themselves.

If telcos face an uneven regulatory playing field, it is precisely because of net neutrality, which limits their ability to monetize their networks by discriminating among content and applications. Rather than acknowledge that interfering with market forces was the original mistake and that it is therefore time to restore private parties’ ability to freely negotiate the terms for content delivery, EU policymakers once again choose to blame the market.

If we acknowledge that internet traffic is generated by consumers (rather than by OTTs), payments into a fund managed by the European Commission would have the same welfare implications as direct payments.[89] Given that everyone benefits from the internet, if there is a policy issue regarding financing the next generation of telecommunications infrastructure, it makes more sense for that to be financed out of a fund born through general taxation.

The proposed tax on Big Tech has been framed as ensuring that they pay their “fair share” of network costs. But fairness is in the eye of the beholder. The term is so vague that it inherently grants policymakers greater discretion and room for intervention, all in the name of a purportedly noble cause.[90] Unfortunately, regulations that aren’t supported by market-failure framework are doomed to be captured by private interests. From this perspective, the “fair share” proposal is, indeed, consistent with public-choice theories of regulation that regard it as a rent-seeking device to benefit a small group of incumbents at the expense of rivals and consumers.

V. Conclusion

According to an old saying, history tends to repeat itself. This result is avoidable only if we learn from our mistakes.[91] Looking at the “fair share” debate, European institutions appear condemned to repeat the past.

When it comes to technology and innovation, Europe systematically lags behind the United States and China. In the best-case scenario, it is catching up, but there is a significant gap to close. This picture is captured by various proxies of technological progress, such as the number of patents, the amount of R&D expenditure, the amount of private investment in artificial intelligence, the location of so-called “unicorn” firms, and the number of leading research institutions in high-tech fields.[92]

There is another digital-economy scoreboard, however, on which Europe is the clear frontrunner. Namely, Europe celebrates its position as the leading regulator of digital markets.[93] Indeed, in less than a decade, Europe has delivered the GDPR, the DMA, the DSA, and countless data-sharing initiatives. Indeed, it would appear that regulation is at least a partial cause of the EU’s poor results in the digital economy. After all, EU policymakers’ primary concern should be to ensure that the regulatory framework is fit for purpose. But over the past decade, when the expected results didn’t arise or when there were unintended consequences, rather than question the treatment, EU policymakers routinely have suggested increasing the dosage.

Against this background, the idea of introducing a tax on CAPs to boost investments in the next generation of telecommunications infrastructure could be just considered another piece of the jigsaw.

However, it is worth remembering that the diminished bargaining position that telcos have vis-à-vis online platforms is the result of another EU regulation. Indeed, without the net-neutrality ban on paid prioritization, telcos would have been free to negotiate differentiated terms for the delivery of OTTs’ content and services. OTTs could have been charged according to bandwidth usage, through side payments for setting up optimized network nodes, or through any number of other mutually beneficial business arrangements.

Further, the proposal contradicts the central premise of net neutrality, which was that broadband providers’ position as internet gatekeepers threatens OTTs and end users. But rather than acknowledge the mistakes of that earlier unnecessary and myopic intervention, the EU is supporting another shortsighted initiative that would be at odds with the economic rationale and the legal provisions of current internet regulation.

Again, as BEREC stated in 2012, the internet “has developed well without regulatory intervention, through stakeholders’ coordination in the free market. Its ability to evolve over time and self-adapt has been key to its growth and success.”[94] More recently, this message has been reiterated, emphasizing that “[t]he internet’s ability to self-adapt has been and still is essential for its success and its innovative capability.”[95]

There was no evidence of market failure to justify net neutrality, and there isn’t a market failure to justify imposing a “fair share” tax for network costs. Therefore, like net-neutrality anti-discrimination rules, mandating some large online platforms to compensate network operators with a usage fee would be a solution that wouldn’t work to a problem that doesn’t exist.[96]

The “fair share” proposal also reflects another pattern of recent EU industrial policy already seen in the audiovisual and publishing industries. As the digital revolution challenges existing business models, thus requiring a radical transformation of entire economic sectors, some incumbents suffer in adapting to the new environment, which requires facing new rivals but also taking advantages of new opportunities. This is part of the natural evolution of the market, where the disruptive force of innovation is generally welcome.

The EU is, instead, apparently concerned about the welfare of some legacy incumbents, especially if they are EU-born companies. As a result, market dynamics are once again threatened by regulatory interventions that impose financial obligations on successful online (and largely foreign) players. Such protectionist initiatives are at odds with the fundamental principle of competitive neutrality, according to which governments actions should ensure that all enterprises face a level playing field, irrespective of factors such as their ownership, location, or legal form.[97] Moreover, they have already proven to be an ineffective means to help companies in reinventing themselves and filling their competitive gap.

In sum, the EU not only assumes that it could lead and deliver innovation through regulation, but also that an industry’s digital transformation could be achieved by subsidizing legacy homegrown companies with welfare transfers from successful foreign players.

Such a vision does not live up to the ambitious goals of the 2030 Digital Decade. Insofar as Europe will be a place where innovation is regulated, rather than invented, there will be no chance to reverse its technological decline and recover digital leadership. Taxing Big Tech will not make Europe great again.

[1] Thierry Breton, Getting Europe Ready for the Next Generation of Connectivity Infrastructure, European Commission (Feb. 6, 2023), https://ec.europa.eu/commission/presscorner/detail/en/SPEECH_23_623.

[2] See Press release, Commission Presents New Initiatives, Laying the Ground for the Transformation of the Connectivity Sector in the EU, European Commission (Feb. 23, 2023), https://ec.europa.eu/commission/presscorner/detail/en/ip_23_985.

[3] Exploratory Consultation – The Future of the Electronic Communications Sector and Its Infrastructure, European Commission (Feb. 23, 2023), https://digital-strategy.ec.europa.eu/en/consultations/future-electronic-communications-sector-and-its-infrastructure (paras. 2.1 and 2.3, quantifying investment needs until 2030 of about 174 billion euros).

[4] Decision (EU) 2022/2481 of the European Parliament and of the Council Establishing the Digital Decade Policy Programme 2030 (Dec. 14, 2022), OJ L 323/4; see also, 2030 Digital Compass: The European Way for the Digital Decade, European Commission (Jan. 26, 2023), COM/2021/118 final.

[5] Breton, supra note 1; see European Commission, supra note 3, para 2.3, reporting that “some European providers of electronic communication networks and services, especially incumbents, claim that they suffer from a decreasing market valuation and lower return on investment, especially when compared to companies in the US.” The European Commission also mentioned that telcos’ claims regarding declining margins and rising costs are stem from current uncertainties (including high inflation, rising interest rates, and geopolitical tensions) that have led capital markets to focus on assets with better short-term returns and profitability and to prefer solutions that protect them from demand risk.

[6] This was also the opinion expressed by the German secretary at the Ministry for Digital Affairs and Transport (BMDV); see Christian Zentner, Kritik an Geplanter „Zwangsabgabe“ für Netflix und Co, Bundestag (March 2, 2023), https://www.bundestag.de/presse/hib/kurzmeldungen-936322 (finding the questionnaire to be “slightly tendentious”).

[7] Carlos Rodri?guez Cocina, You Have Not Seen This Movie Before: Fair Share Is Not a Remake, Telefónica (March 10, 2023), https://www.telefonica.com/en/communication-room/blog/you-have-not-seen-this-movie-before-fair-share-is-not-a-remake.

[8] Europe’s Internet Ecosystem: Socio-Economic Benefits of a Fairer Balance Between Tech Giants and Telecom Operators, Axon Partners Group Consulting (May 11, 2022), https://axonpartnersgroup.com/europes-internet-ecosystem-socio-economic-benefits-of-a-fairer-balance-between-tech-giants-and-telecom-operators (report prepared for the European Telecommunications Network Operators’ Association); Estimating OTT Traffic-Related Costs on European Telecommunications Networks, Frontier Economics (April 7, 2022), available at https://www.telekom.com/resource/blob/1003588/384180d6e69de08dd368cb0a9febf646/dl-frontier- g4-ott-report-stc-data.pdf (report for Deutsche Telekom, Orange, Telefonica, and Vodafone); see also, European Commission, supra note 3, Section 4 (describing the phenomenon as a “paradox” between increasing volumes of data on the infrastructures and alleged decreasing returns and appetite to invest in network infrastructure).

[9] European Declaration on Digital Rights and Principles for the Digital Decade, European Commission (2022), 28 final, 3.

[10] Alan Burkitt-Gray, Vestager Calls for EU to Centralise and Consolidate Telecoms, Capacity (Jan. 31, 2023) https://www.capacitymedia.com/article/2b7xs7payiktkefkh1hj4/news/vestager-calls-for-eu-to-centralise-and-consolidate-telecoms; see also, Breton, supra note 1.

[11] Id.

[12] Supra note 4.

[13] See, CEO Statement on the Role of Connectivity in Addressing Current EU Challenges (Sep. 26, 2022), available at https://etno.eu//downloads/news/ceo%20statement_sept.2022_26.9.pdf; see also, United Appeal of the Four Major European Telecommunications Companies (Feb. 14, 2022),  https://www.telekom.com/en/company/details/united-appeal-of-the-four-major-european-telecommunications-companies-646166.

[14] Axon, supra note 8; see also, 2023 Global Internet Phenomena Report, Sandvine (Jan. 2023) https://www.sandvine.com/global-internet-phenomena-report-2023-download?submissionGuid=7b66978f-d664-4f10-b50b-28a48700788f.

[15] Frontier Economics, supra note 8.

[16] United Appeal, supra note 13.

[17] Axon, supra note 8.

[18] Regulation (EU) 2022/1925 on Contestable and Fair Markets in the Digital Sector and Amending Directives (EU) 2019/1937 and (EU) 2020/1828 (Digital Markets Act), (2022) OJ L 265/1; Regulation (EU) 2022/2065 on a Single Market for Digital Services and Amending Directive 2000/31/EC (Digital Services Act), (2022) OJ L 277/1.

[19] Axon, supra note 8, 18.

[20] Id.

[21] See, e.g., Doing Our Part: How Google’s Network Helps Internet Content Reach Users, Google (Apr. 20, 2022) https://cloud.google.com/blog/products/infrastructure/google-network-infrastructure-investments; Network Fee Proposals Are Based on a False Premise, Meta (Mar. 23, 2023), https://about.fb.com/news/2023/03/network-fee-proposals-are-based-on-a-false-premise.

[22] BEREC’s Comments on the ETNO Proposal For ITU/WCIT Or Similar Initiatives Along These Lines, BoR(12) 120, Body of European Regulators for Electronic Communications (2012), 3; Report on IP-Interconnection Practices in the Context of Net Neutrality, BoR (17) 184, Body of European Regulators for Electronic Communications (2017), (finding the internet-protocol-interconnection market to be competitive); Neelie Kroes, Adapt or Die: What I Would Do If I Ran a Telecom Company (Oct. 1, 2014), https://ec.europa.eu/commission/presscorner/detail/de/SPEECH_14_647 (arguing that OTTs are driving digital demand: “[EU homes] are demanding greater and greater bandwidth, faster and faster speeds, and are prepared to pay for it. But how many of them would do that if there were no over the top services? If there were no Facebook, no YouTube, no Netflix, no Spotify?”); see also, Proposals for a Levy on Online Content Application Providers to Fund Network Operators. An Economic Assessment Prepared for the Dutch Ministry of Economic Affairs and Climate, Oxera (Feb. 27, 2023), 19, available at https://open.overheid.nl/documenten/ronl-8a56ac18a98a337315377fe38ac0041eb0dbe906/pdf, (noting that the cause of the traffic is the consumer’s initial request rather than the CAP’s fulfilment of that request).

[23] BEREC 2012, supra note 22, 4; see also, Oxera, supra note 22, 14 (arguing that there is no clear evidence that the absence of charging CAPs means that telcos are unable to raise revenues and cover their costs).

[24] BEREC 2012, supra note 22, 4.

[25] Id., 1.

[26] BEREC Preliminary Assessment of the Underlying Assumptions of Payments from Large CAPs to ISPs, BoR (22) 137, Body of European Regulators for Electronic Communications (2022), 4.

[27] Id., 4-5.

[28] Id., 7-8 (“BEREC considers in this regard the incremental costs necessary for the upgrade in capacity on a given network to handle more incoming traffic. These costs can incorporate to some extent technological upgrades as far as they are relevant for solving capacity issues. These costs have to be differentiated from the total network costs, which are mostly coverage costs.”).

[29] Id., 9

[30] Id., 11-14.

[31] Id., 13; see also, Plans for Charging Internet Toll by Large Telecom Companies Feared to Have Major Impact on European Consumers and Businesses, Government of the Netherlands (Feb. 27, 2023), https://www.rijksoverheid.nl/documenten/publicaties/2023/02/27/plans-for-charging-internet-toll-by-large-telecom-companies-feared-to-have-major-impact-on-european-consumers-and-businesses (arguing that “the large telecom operators seem to forget that consumers already pay for their Internet traffic, through their Internet subscription. The plea for an Internet toll actually implies that large telecom operators want to get paid twice.”).

[32] David Abecassis, Michael Kende, & Guniz Kama, IP Interconnection on the Internet: A European Perspective for 2022, Analysys Mason (Sep. 26, 2022), https://www.analysysmason.com/consulting-redirect/reports/ip-interconnection-european-perspective-2022; Volker Stocker & William Lehr, Regulatory Policy for Broadband: A Response to the “ETNO Report’s” Proposal for Intervention in Europe’s Internet Ecosystem, SSRN (Oct. 16, 2022), https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4263096; Brian Williamson, An Internet Traffic Tax Would Harm Europe’s Digital Transformation, Communications Chambers (Jul. 2022), available at https://lisboncouncil.net/wp-content/uploads/2022/07/COMMUNICATIONS-CHAMBERS-Internet-Traffic-Tax-2.pdf.

[33] David Abecassis, Michael Kende, & Shahan Osman, The Impact of Tech Companies’ Network Investment on the Economics of Broadband ISPs, Analysys Mason (Oct. 12, 2022), https://www.analysysmason.com/consulting-redirect/reports/internet-content-application-providers-infrastructure-investment-2022.

[34] See, e.g., Connectivity Infrastructure and the Open Internet, BEUC: The European Consumer Organisation (Sep. 16, 2022), available at https://www.beuc.eu/sites/default/files/2022-09/BEUC-X-2022-096_Connectivity_Infrastructure-and-the_open_internet.pdf; Bijal Sanghani, Fair Share Debate and Potential Impact of SPNP on European IXPs and Internet Ecosystem, European Internet Exchange Association (Jan. 3, 2023), available at https://www.euro-ix.net/media/filer_public/1a/e4/1ae40d86-95ea-460a-920d-3b335c2439d4/spnp_impact_on_ixps_-_final.pdf.

[35] Karl-Heinz Neumann, et al., Competitive Conditions on Transit and Peering Markets, WIK-Consult (Feb. 28, 2022), available at https://www.bundesnetzagentur.de/EN/Areas/Telecommunications/Companies/Digitisation/Peering/download.pdf?__blob=publicationFile&v=1.

[36] Id., 36-38; see also Oxera, supra note 22, 28—33 (arguing that implementation of such a scheme would entail significant transaction and regulatory costs, as the regulator would be required to fulfil such recurring tasks as traffic analysis and verification, dispute settlement, and coordination with companies and other authorities).

[37] Government of the Netherlands, supra note 31; see also, Zentner, supra note 6 (stating that the telecommunications companies’ argument that such a levy would provide them with more money for network expansion does not hold water).

[38] Government of the Netherlands, supra note 31; Oxera, supra note 22 (predicting that only a limited portion of the additional revenue stream to telecom operators would be passed on to the internet subscribers in the form of slightly lower subscription fees, and that this would be offset by price increases from online services for subscriptions to, e.g., Spotify or Netflix more expensive).

[39] Call for Release of BCRD Revision – Refusal of Merge with Fair Share Debate, Austria, Estonia, Finland, Germany, Ireland, and the Netherlands (May 12, 2022), available at https://www.permanentrepresentations.nl/binaries/nlatio/documenten/publications/2022/12/05/call-for-release-of-bcrd-revision—refusal-of-merge-with-fair-share-debate/Call+for+release+of+BCRD+revision+-+Refusal+of+merge+with+fair+share+debate_def.pdf.

[40] See Breton, supra note 1 (arguing that the burden of financing connectivity infrastructure should not rest solely on the shoulders of member states or the EU budget).

[41] See Tobias Kretschmer, In Pursuit of Fairness? Infrastructure Investment in Digital Markets, SSRN (Sep. 20, 2022), https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4230863 (arguing that a transfer from large OTTs to telcos would be equivalent to a tax on success and that this would appear to arbitrarily target a group of largely U.S.-based firms while letting at least partly European newcomers and/or smaller firms enjoy the same externalities at no cost).

[42] Directive 2010/13/EU on the coordination of certain provisions laid down by law, regulation or administrative action in Member States concerning the provision of audiovisual media services (Audiovisual Media Services Directive), [2010] OJ L 95/1, Recitals 4 and 12.

[43] Directive (EU) 2018/1808 amending Directive 2010/13/EU on the coordination of certain provisions laid down by law, regulation or administrative action in Member States concerning the provision of audiovisual media services (Audiovisual Media Services Directive) in view of changing market realities, [2018] OJ L 303/69.

[44] Id., Recital 35 and Article 13(1).

[45] Id., Recital 36 and Article 13 (2).

[46] For analysis of the EU market, see David Graham, et al., Study on the Promotion of European Works in Audiovisual Media Services, Attentional, KEA European Affairs, and Valdani Vicari & Associati (Aug. 28, 2020), https://digital-strategy.ec.europa.eu/en/library/study-promotion-european-works.

[47] See Sally Broughton Micova, The Audiovisual Media Services Directive: Balancing Liberalisation and Protection, E. Brogi & P.L. Parcu (eds.), Research Handbook on EU Media Law and Policy, Edward Elgar Publishing (2020), 264 (arguing that the AVMS Directive is a unique blend of the liberal-market approach typical of the EU’s single market and classic protectionism, stemming from a history of concern that American content and media services would dominate European screens, threatening its cultures and industries).

[48] Id.; see also Joe?lle Farchy, Gre?goire Bideau, & Steven Tallec, Content Quotas and Prominence on VOD Services: New Challenges for European Audiovisual Regulators, 28 Int. J. Cult. Policy 419 (2022), (noting that the objective of cultural diversity contains a great ambiguity and that “[b]eyond the incantatory discourse on the expected benefits of cultural diversity, the notion is in fact complex, and refers to multiple, sometimes contradictory aspects.”).

[49] On the dispute between news publishers and digital platforms, see Giuseppe Colangelo, Enforcing Copyright Through Antitrust? The Strange Case of News Publishers Against Digital Platforms, 10 J. Antitrust Enforc. 133 (May 10, 2021); Giuseppe Colangelo & Valerio Torti, Copyright, Online News Publishing and Aggregators: A Law and Economics Analysis of the EU Reform, 27 Int. J. Law Inf. Technol. 75 (Jan. 11, 2019).

[50] Directive (EU) 2019/790 of 17 April 2019 on copyright and related rights in the Digital Single Market and amending Directives 96/9/EC and 2001/29/EC, [2019] OJ L 130/92, Article 15.

[51] Id., Recitals 54 and 55.

[52] See, e.g., The Evolution of News and the Internet, Organisation for Economic Co-operation and Development (Jun. 11, 2010), available at https://www.oecd.org/sti/ieconomy/45559596.pdf; Potential Policy Recommendations to Support the Reinvention of Journalism, U.S. Federal Trade Commission (Jun. 2010), available at https://www.ftc.gov/sites/default/files/documents/public_events/how-will-journalism-survive-internet-age/new-staff-discussion.pdf; Bertin Martens, et al., The Digital Transformation of News Media and the Rise of Disinformation and Fake News – An Economic Perspective, Joint Research Center (Apr. 25, 2018), available at https://joint-research-centre.ec.europa.eu/system/files/2018-04/jrc111529.pdf; Martin Senftleben, et al., New Rights or New Business Models? An Inquiry into the Future of Publishing in the Digital Era, 48 IIC 538 (2017).

[53] Colangelo-Torti, supra note 49.

[54] Id., 90.

[55] Regulation (EU) 2015/2120 laying down measures concerning open internet access and amending Directive 2002/22/EC on universal service and users’ rights relating to electronic communications networks and services and Regulation (EU) No 531/2012 on roaming on public mobile communications networks within the Union, (2015) OJ L 310/1.

[56] European Commission, supra note 2.

[57] Government of the Netherlands, supra note 31; BEREC, supra note 26, 5.

[58] Restoring Internet Freedom Order, Federal Communications Commission (2018) 33 FCC Rcd 311.

[59] Ajit Pai, FCC Releases Restoring Internet Freedom Order, Federal Communications Commission (Jan. 4, 2018) 1, https://www.fcc.gov/document/fcc-releases-restoring-internet-freedom-order/pai-statement.

[60] Open Internet Order, Federal Communications Commission (2015), 30 FCC Rcd 5601.

[61] Id., 5625-26.

[62] Regulation (EU) 2015/2120, supra note 55, Recital 1.

[63] Id., Recital 3.

[64] See, e.g., Barbara van Schewick, Towards an Economic Framework for Network Neutrality Regulation, 5 JTHTL 329, (2006)

[65] See, e.g., Michael L. Katz, Wither U.S. Net Neutrality Regulation?, 50 Rev. Ind. Organ. 441 (2017), (finding substantial tension between the regulation and the objective of promoting consumer choice and sovereignty, and noting that the internet has never been, and is not designed to be, neutral); Christopher S. Yoo, Beyond Network Neutrality, 19 JOLT 1 (2005), (considering network neutrality a misnomer that may reinforce sources of market failure in the last mile and dampen incentives to invest in alternative network capacity) Wolfgang Briglauer, et al., Net neutrality and High?Speed Broadband Networks: Evidence from OECD Countries, Eur. J. Law Econ. (forthcoming), (finding empirical evidence that net-neutrality regulations exert a significant and strong negative impact on fiber investments); Marc Bourreau, Frago Kourandi, & Tommaso Valletti, Net Neutrality with Competing Internet Platforms, 63 J Ind Econ 30 (2015), (noting that, in a model with competing ISPs—rather than a monopolistic market structure—a switch from the net-neutrality regime to the alternative discriminatory regime would be bene?cial in terms of investments, innovation, and total welfare).

[66] See, e.g., Katz, supra note 65, 450;

Thomas W. Hazlett & Joshua D. Wright, The Effect of Regulation on Broadband Markets: Evaluating the Empirical Evidence in the FCC’s 2015 “Open Internet” Order, 50 Rev. Ind. Organ. 487 (2017); Maureen K. Ohlhausen, Antitrust Over Net Neutrality: Why We Should Take Competition in Broadband Seriously, 15 Colorado Technology Law Journal 119 (2016); Timothy J. Tardiff, Net Neutrality: Economic Evaluation of Market Developments, 11 J. Competition Law Econ. 701 (2015); Gerald R. Faulhaber, The Economics of Network Neutrality, Regulation 18 (2011-12).

[67] Pietro Crocioni, Net Neutrality in Europe: Desperately Seeking a Market Failure, 35 Telecomm Policy 1, (2011) 6-7; see also, Zero-Rating Practices in Broadband Markets, DotEcon, Aetha Consulting, and Oswell and Vahida, (Feb. 2017), available at https://ec.europa.eu/competition/publications/reports/kd0217687enn.pdf.

[68] See Crocioni, supra note 67 (arguing that even a monopolist ISP may benefit from valuable complements and be better off charging a higher price for internet access, instead of trying to force customers onto its own services); see also Ohlhausen, supra note 66; Faulhaber, supra note 66.

[69] Shane Greenstein, Martin Peitz, & Tommaso Valletti, Net Neutrality: A Fast Lane to Understanding the Trade-offs, 30 JEP 127 (2016); see also Sébastien Broos & Axel Gautier, The Exclusion of Competing One-Way Essential Complements: Implications for Net Neutrality, 52 Int. J. Ind. Organ. 358 (2017), (showing that, even in monopoly and duopoly, imposing net neutrality does not always improve welfare).

[70] Joshua Gans & Michael L. Katz, Weak Versus Strong Net Neutrality: Corrections and Extensions, 50 J. Regul. Econ. 99 (2016); Martin Peitz & F. Schuett, Net Neutrality and Inflation of Traffic, 46 Int. J. Ind. Organ. 16 (2016).

[71] See, e.g., A. Douglas Melamed & Andrew W. Chang, What Thinking About Antitrust Law Can Tell Us About Net Neutrality, 15 Colorado Technology Law Journal 93 (2016); Ohlhausen, supra note 66.

[72] A good example is provided by the treatment of zero-rating offers. For an analysis, see Giuseppe Colangelo & Valerio Torti, Offering Zero-Rated Content in the Shadow of Net Neutrality, 5 Market and Competition Law Review 141 (2021); see also Pablo Iba?n?ez Colomo, Future-Proof Regulation Against the Test of Time: The Evolution of European Telecommunications Regulation, 42 Oxf. J. Leg. Stud. 1170 (2022), 1187-188 (noting that the very practices that are problematic from a net-neutrality perspective are healthy expressions of competitive markets; hence, absent a finding of significant market power, there is no support for a preemptive ban of vertical integration, exclusivity agreements, and other practices that have an equivalent object and/or effect: these practices are routinely examined by competition authorities and careful case-by-case evaluation has long been deemed appropriate for them).

[73] See, e.g., Katz, supra note 65; Ohlhausen, supra note 66; Joshua D. Wright, Net Neutrality: Is Antitrust Law More Effective than Regulation in Protecting Consumers and Innovation?, U.S. House Judiciary Subcommittee on Regulatory Reform, Commercial and Antitrust Law (Jun. 20, 2014), https://www.ftc.gov/legal-library/browse/prepared-statement-commissioner-joshua-d-wright-net-neutrality-antitrust-law-more-effective; Christopher S. Yoo, What Can Antitrust Contribute to the Network Neutrality Debate?, 1 Int. J. Commun. 493 (2007).

[74] Katz, supra note 65, 454.

[75] Irene Comeig, Klaudijo Klaser, & Luci?a D. Pinar, The Paradox of (Inter)net Neutrality: An Experiment on Ex-Ante Antitrust Regulation, 175 Technol Forecast Soc Change 121405. (2022).

[76] Ohlhausen, supra note 66, 137.

[77] See Justin (Gus) Hurwitz, et al., Amicus Curiae Brief in U.S. Telecom Association et al. v. FTC, International Center for Law & Economics (Aug. 6, 2015), available at  http://laweconcenter.org/images/articles/icle_oio_amicus_filed.pdf.

[78] Geoffrey Manne, et al., Policy Comments in the Matter of Protecting and Promoting the Open Internet, International Center for Law & Economics and TechFreedom (Jul. 17, 2014), available at https://laweconcenter.org/wp-content/uploads/2017/08/icle-tf_nn_policy_comments.pdf.

[79] Richard Baldwin, Martin Cave, & Martin Lodge, Understanding Regulation, Oxford University Press (2012).

[80] William J. Baumol, Welfare Economics and the Theory of the State, Harvard University Press (1952).

[81] Regulation and Competition. A Review of the Evidence, UK Competition and Markets Authority (2020), https://www.gov.uk/government/publications/regulation-and-competition-a-review-of-the-evidence, paras. 1.3 and 2.4,.

[82] Colomo, supra note 72.

[83] See Ajit Pai, Remarks at the 18th Global Symposium for Regulators, Federal Communications Commission (Jul. 10, 2018), https://www.fcc.gov/document/chairman-pai-remarks-global-symposium-regulators-geneva; Maureen K. Ohlhausen, Regulatory Humility in Practice, Federal Trade Commission (Apr. 1, 2015), available at https://www.ftc.gov/system/files/documents/public_statements/635811/150401aeihumilitypractice.pdf.

[84] Baldwin, Cave, & Lodge, supra note 79.

[85] See also Colomo, supra note 72.

[86] See, e.g., Melamed & Chang, supra note 71; Ohlhausen, supra note 66; Bruce M. Owen, Net Neutrality: Is Antitrust Law More Effective than Regulation in Protecting Consumers and Innovation?, U.S. House Judiciary Subcommittee on Regulatory Reform, Commercial and Antitrust Law (Jul. 8, 2014), https://ssrn.com/abstract=2463823.

[87] BEREC, supra note 26.

[88] Id.

[89] See also Oxera, supra note 22, 34 (arguing that the fund would still lead to a transfer of money from one group to another and would not lead to substantially lower transaction costs).

[90] Giuseppe Colangelo, In Fairness We (Should Not) Trust. The Duplicity of the EU Competition Policy Mantra in Digital Markets, The Antitrust Bulletin (forthcoming).

[91] Paul Crampton, Striking the Right Balance Between Competition and Regulation: The Key Is Learning from Our Mistakes, APEC-OECD Co-operative Initiative on Regulatory Reform (Oct. 2002), available at https://www.oecd.org/regreform/2503205.pdf.

[92] For useful information about several key innovation indicators, such as the value of venture-capital deals, the number of science and technology clusters, and government budget allocations for research and development, see, Global Innovation Index 2022, World Intellectual Property Organization, https://www.wipo.int/global_innovation_index/en/2022; see also Riccardo Righi, et al., AI Watch Index 2021, Joint Research Centre (Mar. 20, 2022), https://publications.jrc.ec.europa.eu/repository/handle/JRC128744.

[93] See Margrethe Vestager, Tearing Down Big Tech’s Walls, Project Syndicate (Mar. 9, 2023), https://www.project-syndicate.org/commentary/eu-big-tech-legislation-digital-services-markets-by-margrethe-vestager-2023-03 (“We are proud that Europe has become the cradle of tech regulation globally.”).

[94] BEREC, supra note 22, 1.

[95] BEREC, supra note 26, 3.

[96] Ajit Pai, The FCC and Internet Regulation: A First-year Report Card, Federal Communications Commission (Feb. 26, 2016) https://www.fcc.gov/document/commissioner-pai-remarks-internet-regulation-first-year-report-card.

[97] See, Recommendation of the Council on Competitive Neutrality, Organisation for Economic Co-operation and Development (May 30, 2021), https://legalinstruments.oecd.org/en/instruments/OECD-LEGAL-0462.

Continue reading
Telecommunications & Regulated Utilities