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Comments Regarding the Draft EU Regulation on Standard Essential Patents

Regulatory Comments I. Introduction On 27 April 2023, the European Commission published its Proposal for a Regulation on Standard Essential Patents (“SEP Regulation”). The proclaimed aims of . . .

I. Introduction

On 27 April 2023, the European Commission published its Proposal for a Regulation on Standard Essential Patents (“SEP Regulation”). The proclaimed aims of the SEP Regulation are to: 1. ensure that end users, including small businesses and EU consumers, benefit from products based on the latest standardised technologies; 2. make the EU attractive for standards innovation; and 3. encourage both SEP holders and implementers to innovate in the EU, make and sell products in the EU, and be competitive in non-EU markets.[1]

We are grateful for the opportunity to provide comments on the proposed SEP Regulation in the context of public feedback. The following is a summary of our observations:

  1. The available evidence does not demonstrate the existence of a market failure in SEP-licensing markets that would justify regulatory oversight. Instead, the Commission’s own evidence points to the low incidence of SEP litigation and no systemic negative effects on SEP owners and implementers. The mobile-telecommunication market—which is claimed to have the most SEP litigation and licensing inefficiencies—has over the years seen rapid growth, expansion, declining consumer prices, and new market entry.
  2. Some market imperfections are necessary-but-not-sufficient conditions for regulatory intervention. Regulation might not be necessary or proportionate if its aims could be achieved with less costly instruments.
  3. The proposed SEP Regulation appears to pursue the value-redistributive function of imposing costs on only one group (SEP owners), while accruing all benefits to non-EU-based standard implementers. It is difficult to find justification for such value redistribution from the evidence presented on the functioning of SEP licensing markets.
  4. The proposed SEP Regulation applies to all standards licensed on FRAND terms. It is unclear how many standards will be caught and why all standards licensed on FRAND terms are presumed to be inefficient, requiring regulatory intervention. One early study identified 148 standards licensed on FRAND terms in a 2010 laptop. No evidence was presented that licensing inefficiencies of these standards caused harms in laptop markets.
  5. Evaluators and conciliators need to be qualified and experienced experts in relevant fields. There are unlikely to be enough evaluators to conduct essentiality checks reliably on such a massive scale.
  6. The proposed SEP Regulation raises competition concerns, as it may allow implementers to exchange sensitive commercial information that could lead to a buyers cartel.
  7. Aggregate royalty-rate notifications and nonbinding expert opinions on global aggregate royalty rates may not produce meaningful inputs and may lead to even more confusion for implementers.
  8. The proposed SEP Regulation has extraterritorial effects. While the SEP Register and essentiality checks apply only for patents in force in EU Member States, a nonbinding opinion on aggregate royalties and FRAND determination will be worldwide, covering portfolios in other countries.
  9. Other countries may follow and introduce their own regulations on SEPs. Such regulations may be used as a strategic and protectionist tool to devaluate the royalties of innovative European SEP owners. The proliferation of regulatory regimes would make SEP licensing even more costly, with unknown effects on the viability of the current system of collaborative and open standardisation.

Considering the above, it is our view is that the proposed SEP Regulation, in its current form, is unnecessary, disproportionate, and likely to harm both European innovators and Europe’s technology leadership on a global stage.

Nevertheless, this is not to say that the SEP licensing framework cannot be further refined and simplified. It may be possible to find solutions that might improve the existing system in a cost-effective, balanced, and efficient way. We propose some private ordering instruments as an alternative to regulation, which could be used to make licensing in the Internet of Things (“IoT”) more efficient and transparent.

II. No Evidence of a Market Failure Justifying Regulatory Intervention

The current system of SEP licensing consists of bilateral negotiations and collective licensing via patent pools. The overwhelming majority of licensing agreements are concluded amicably,[2] but in cases where parties cannot agree, litigation may become necessary.[3] This is, of course, a feature of commercial disputes of all kinds.[4] Over the years, courts have proven more than capable of resolving various contentious questions about SEPs. For instance, they gave promulgated guidance regarding if and under what conditions the SEP owner can request and obtain an injunction for infringement of an SEP;[5] what the FRAND rate between the parties ought to be;[6] the scope of a FRAND license, whether global or national;[7] the meaning of a FRAND commitment’s non-discrimination requirements;[8] whether FRAND commitments require SEP owners to offer licenses at different levels of the production chain;[9] and how to adjudicate allegations of patent holdup (supposedly opportunistic behaviour of SEP owners attempting to charge more than FRAND terms) and holdout (implementers intentionally delaying or avoiding the conclusion of a licensing agreement).[10] The Court of Justice of the European Union (CJEU) provided a framework in Huawei v ZTE for good-faith license negotiation. Courts of the EU Member States have subsequently become accustomed to evaluating the conduct of both parties and have produced substantial case law and guidance on the contents of good-faith licensing negotiations.[11]

Despite successful interventions by the courts, the Commission is concerned that the current SEP licensing and litigation system is fraught with problems and inefficiencies. Three alleged major problems have been suggested as justifying regulatory intervention.

First are high transaction costs and licensing uncertainties. According to the Commission, the average per-licence bilateral negotiation costs for the SEP holder and implementer are estimated to be between €2 million and €11 million.[12] The Commissions asserts that licensing uncertainties follow from insufficient transparency of SEP ownership and essentiality, lack of information about FRAND royalties, and a dispute system not adapted for FRAND determination.[13] That system is said to be dissatisfactory for both parties.

The Commission maintains that SEP owners face long negotiations and high costs of licensing.[14] To better assess the value that the technology brings to standard implementations, an SEP owner would have to wait several years (on average, between two and four) until the standard is implemented in the market and then approach companies with an offer to license.[15] Negotiations would then ensue, taking about three years. If no agreement is reached, litigation would add another one to two and a half years.[16] During all this time, the SEP owner would not receive any royalties for use of its technology. According to the Commission, this may explain why major SEP owners usually have licenses with only 100-200 implementers with sufficiently high volumes and/or sales value that would allow for the absorption of these costs.[17] Thus, SEP owners are unable to license the whole market. High licensing and negotiation costs may reduce their income base and incentive for participation in developing new standards.[18]

On the other hand, the Commission says that implementers face uncertainty about the costs of using standards, potentially discouraging them from implementing new technologies.[19] Implementers who take a licence are also worried about being disadvantaged against their unlicensed foreign competitors.[20] Of course, licensees are worried about competitors who do not take licences—it makes no difference whether they are foreign or home-grown. But the Commission seems to have not taken into account that this holdout is not only real, but is the most egregious example of anticompetitive behaviour.

The second supposed problem is the growing IoT market that increasingly uses technological standards from the information and communications technology (“ICT”) industry.[21] IoT markets are fragmented; volumes for certain applications may be small and profit margins tight. These industries are also not familiar with SEPs. The combination of these factors is said to make SEP licensing more difficult and expensive.

The third major concern is the protection of small and midsize enterprises (“SMEs”). According to the Commission, SMEs lack the resources to negotiate with SEP owners on an equal footing or to engage in court proceedings.[22] They also do not have sufficient licensing expertise. 84% of EU-based standard implementers are SMEs, totalling about 3,192 companies.[23]

The publicly available evidence relayed by the Commission, however, does not justify any significant concern with the current SEP-licensing system, much less a concern of such magnitude to justify extensive regulatory intervention. In fact, the Commission’s study found that high transaction costs and licensing uncertainties have not led to increased litigation or systemic negative effects.[24]

First, the Commission found that the volume of SEP-litigation cases has been relatively stable in Europe, while falling in the United States but increasing in China.[25] In recent years, the share of declared SEPs subject to litigation has declined.[26] They further showed that the prevalence of SEP litigation is low and has not increased over time. According to the study, there are fewer than 0.05 lawsuits per-license involving major SEP licensors and patent pools.[27] Regarding the effects of the current SEP-licensing system on the incentives of SEP owners and implementers, the study found no evidence that SEP owners contribute less to standards development.[28] The econometric evidence suggests that a significant share of contributions to standards development relies on patent-related incentives, indicating the importance of preserving innovation incentives for the success of the standards-development process. On the implementation side, the study found no evidence that SEP-licensing frictions lead implementers to switch to alternative (royalty-free) standards or to have systematically depressed or delayed standards implementation.[29]

The evidence from the mobile-telecommunications market, which some believe is hindered by SEP-licensing inefficiencies, demonstrates that it is functioning particularly well, with year-to-year increased output, lower prices, increased market entry, and billions of euros of investment in research and development (R&D) for connectivity standards and the rollout of new network infrastructure.[30] For example, the latest estimate for the mobile economy in 2022 was 8.4 billion SIM connections and 4.4 billion mobile-internet subscribers, contributing $5.2 trillion or 5% of global gross domestic product, and directly and indirectly supporting 28 million jobs.[31] In Europe, subscriber penetration was 90%, and smartphone adoption was 81%.[32] By 2035, the impact of 5G is projected to grow to $13.2 trillion in global economic output, and the global 5G value chain will generate $3.6 trillion in economic output.[33] Moreover, 5G is expected to add up to €1 trillion to European GDP by 2025.[34] In comparison, the total estimated revenue from cellular SEP licensing was estimated to be less than 0.5% of the mobile economy.[35] Other studies found that the cumulative royalty yield of 2G, 3G, and 4G SEPs was only 3.4% of the smartphone’s average selling price, or just $9.60.[36]

As to potential licensing problems in the IoT, we have yet to see the full implementation of ICT standards and corresponding SEP licensing. As such, it is too early to conclude with a sufficient degree of certainty whether there will be a systemic problem with IoT licensing. The Commission’s Impact Assessment did not provide information on the current SEP-licensing revenues obtained from various IoT sectors.[37] Thus, we do not know the current magnitude of SEP licensing in the IoT. What is certain is that IoT devices will grow in the future. According to the CRA study, cellular IoT devices represented only 20% of mobile phones in 2022, which is expected to grow to 60% by 2030.[38] As such, while licensing in the IoT may generate significant revenues, we do not at the moment have sufficient information on how many IoT devices are currently licensed.

We may observe, however, that market actors are adapting to the challenges posed by IoT. Avanci is a platform for licensing 3G, 4G, and soon 5G in the IoT.[39] It has a licensing programme for car manufacturers and has more than 120 million licensed connected vehicles.[40] Avanci includes 56 licensors and has brought together the largest SEP owners, such as Samsung, Qualcomm, Nokia, and Ericsson. It offers a one-stop solution for vehicle manufacturers with a single per unit-license of $20 per vehicle—less than a parking ticket. According to some estimates, Avanci successfully covers more than 80% of the market.[41] It may be said that SEP licensing in the automotive sector has been successfully concluded, despite the initial reluctance of car manufacturers and disputes about the appropriate level of licensing.[42]

In another example, Sisvel, a patent-pool administrator, experimented with a novel payment mechanism to address concerns that companies that take a license are disadvantaged against their unlicensed competitors. For its Wi-Fi 6 pool, it provided a licensing programme that adjusts royalty payments based on the percentage of the licensed market.[43] In other words, most royalty payments will be deferred, unless and until other competitors also pay. Such a mechanism protects licensees from patent-infringement liability, while paying only a fraction of the due royalties until the whole market takes a licence. The experience of the Avanci and Sisvel pools demonstrates that SEP owners are adjusting to the changed market realities and looking for ways to simplify licensing, with innovative structures to address the need for certainty and transparency in the IoT.

As to the supposed harmful impact of the current system of SEP licensing on SMEs, it is difficult to draw such a conclusion from the available evidence. The Commission noted that most SMEs are de facto unlicensed because licensing costs outweigh potential licensing revenues.[44] To better understand the views of SMEs, the Commission carried out two surveys—a general one in which all stakeholders could participate and a targeted one only for SMEs. The Commission received responses from nine SMEs in the general survey, while 37 SMEs participated in the targeted survey.[45] That represents a sample of only 1.15% of the 3,192 SMEs that are reported to implement standards, making it impossible to draw general conclusions from such a limited sample. The question may be asked: if SMEs face licensing problems, why have they not expressed more interest in surveys? The only answer one can reasonably draw is that there is no problem. The SME survey shows some licensing; seven out of 37 SMEs had a license.[46] It would be interesting to know, however, which SEP owners approached and licensed SMEs, as well as the licensing policies of major SEP owners toward SMEs. We do not currently possess such information.

While there is no evidence that the current SEP licensing framework has produced systematic negative effects, this is not to say that the system could not be improved. Evidence still shows that licensing costs are not insignificant and that it takes years to conclude licensing agreements. Moreover, it is unlikely that every SEP owner could reach every implementer in the IoT, thus creating an uneven playing field between licensed and unlicensed implementers.

It is likely possible to improve the existing system in a cost-effective, balanced, and efficient way, including through private and public ordering instruments.[47] If the aims could be achieved with less costly instruments, extensive regulatory intervention might be neither necessary nor proportionate.[48] In other words, the existence of market imperfections is necessary but not sufficient conditions for regulatory intervention. Regulators should also be mindful not to fall into the “nirvana fallacy”, striving for ideal but unrealistic solutions that produce more costs than other feasible alternatives that may not lead to ideal results.[49]

III. Evaluating the Effects of SEP Regulation on SEP-Licensing Markets

While the Regulation pursues the worthwhile goals of increasing transparency and certainty to parties in SEP licensing, it is improbable that the proposed solutions will achieve those aims. This section raises several issues that should be considered in future policy discussions.

A. The Regulation’s Value-Redistributive Function

The Regulation imposes unbalanced costs and benefits. According to the Impact Assessment, SEP owners will bear all the costs, while implementers will reap all the benefits.[50] The 10-year average approximate annual benefits for SEP implementers are estimated to be €24.4 million, while for SEP owners, the costs are €28.9 million. As such, the Regulation does not attempt to improve conditions for all actors (i.e., pursue Pareto efficiency) but directly seeks to redistribute value from SEP owners to implementers. The Commission notes that a large part of SEP owners’ costs would be due to an expected increase in patent fees, thanks to the anticipated rise in the number of patents.[51] It adds that patent fees would represent revenue to European and national patent offices, making the whole system socially profitable.

The Commission recognised that it is difficult to predict the impact of SEP Regulation on royalty level. The Regulation’s effects may go in two opposing directions: 1. potentially more firms taking a license (increasing implementation costs and income for SEP owners), or 2. potentially lower royalties paid (decreasing implementers’ costs and SEP owners’ income).[52] The latter scenario would place even more costs on SEP owners. If royalty revenues fall and licensing costs of increase, an unintended but obvious consequence could be that SEP owners may no longer find collaborative standardisation attractive and might instead pursue proprietary solutions unencumbered by FRAND commitments. A fragmented global system would surely impede innovation.

The EU-based implementers will not even be among the primary beneficiaries of the Regulation’s value-redistribution.  According to the Commission’s Impact Assessment, just 8% of potential manufacturing firms are in the EU. In other words, 92% of implementers are non-EU companies. The Regulation would effectively subsidise non-EU implementers while, at the same time, harming European technology developers and Europe’s technological leadership.

It is difficult to see justifications for such value redistribution from the evidence presented on the functioning of SEP licensing. In our view, any regulation should attempt to lead to better outcomes than the perceived harms it seeks to address.

B. The Regulation’s Broad Scope

The Regulation has a very broad scope and applies to an unknown number of standards. Once it enters into force, the Regulation would catch all FRAND-committed SEPs.[53] It is not unclear why such broad scope is necessary. Concerns about SEP-licensing problems have focused overwhelmingly on just a few standards, mainly in cellular communication (3G, 4G, 5G) and Wi-Fi. Other standards licensed on FRAND terms have not been mentioned as potentially problematic. Nevertheless, the Regulation will apply to all standards licensed on FRAND terms.

The Commission noted that there were about 75,000 patent families of declared SEPs worldwide in 2021.[54] But we still lack information on how many standard developing organisations (“SDOs”) were analysed, nor the number of standards expected to be caught. An earlier 2010 study identified 251 technical-interoperability standards in a modern laptop, with 148 of those licensed under FRAND terms.[55] It is unclear why these 148 standards should be regulated, nor what market failures have been associated with them. If anything, a better understanding of the SEP-licensing system in the laptop market is required before introducing regulations.

The Regulation offers some exceptions from its full application for a few standards deemed unproblematic. By a special act, the Commission will designate standards and use cases “where there is sufficient evidence that … SEP licensing negotiations on FRAND terms do not give rise to significant difficulties or inefficiencies affecting the functioning of the internal market”.[56] In other words, there is a presumption that all standards with FRAND-licensing conditions are inefficient and affect the internal market’s functioning, with the onus placed on stakeholders to rebut this presumption.

Even for such unproblematic standards, the exceptions are limited; only the provisions on conciliators facilitating the agreement on aggregate royalty rates, the nonbinding expert opinion on global aggregate royalty rates, and the mandatory FRAND determination will not apply.[57] The costliest obligations—i.e., the registration of SEP and annual essentiality checks—will continue to apply even for these standards.

C. The Need for Qualified-Expert Evaluators and Conciliators

The extent of the Regulation’s reliability will depend on having qualified experts to work as evaluators and conciliators. Evaluators will need specialised knowledge of the particular technological area in which they will conduct essentiality checks. The Commission estimates that there are about 1,500 experts (650 patent attorneys and 800 patent examiners) qualified to do essentiality checks in the EU.[58]

The sheer magnitude of the task, however, will require many more evaluators and it is very doubtful that the optimal number of potential qualified experts are even available to join this process. For certain, special arrangements would need to be made with patent offices to grant patent examiners leave to conduct essentiality checks. Each year, evaluators will need to test a random sample of up to 100 SEPs if requested by each SEP owner or an implementer per standard. Thus, the amount of work may exponentially increase depending on how many standards are caught by the Regulation.

If 148 FRAND-licensed standards per laptop are to serve as a rough proxy, then we might expect more than 100-200 standards to be checked for essentiality every year. In addition, if SEP owners and implementers regularly use the possibility of testing up to 100 SEPs per standard and per SEP owner, the sheer magnitude of work may exceed the capacity of patent attorneys. Patent attorneys may find it challenging to regularly engage in such high volumes of essentiality checks while also serving other clients. And why should they do it at all unless the rate of pay is at least what they could earn in a patent law firm? To be blunt, the work would not be as much fun as acting for real clients, so the pay would probably have to be even higher to attract applicants.

Consequently, it is very unlikely that the capability even exists to annually perform a large number of essentiality checks of registered SEPs. If the requirements to become an evaluator were relaxed to address this workload, this would cast doubt on the reliability of the whole system. There is no point in building a battleship unless you are sure you can get a competent crew.

Additionally, the patent attorneys who most apt to be familiar with these technologies may well also find themselves with conflicts of interest. They will probably have worked for some SEP owners or implementers. Elaborate rules to avoid such conflicts would need to be implemented to prevent patent attorneys who were, or still are, engaged with certain clients from becoming evaluators of those clients’ registered SEPs. The conflicts problem would, of course, apply not just to individual attorneys but to their entire firms.

Conciliators would also need to be experts in the field. They might come from the ranks of retired judges, seasoned former company officials, or experienced lawyers. Conflict-of-interest provisions should also ensure their independence and impartiality in mandatory FRAND determinations.  But the job would, again, have to be sufficiently attractive, both in remuneration and in work content and culture. The Commission has made no investigation as to whether a sufficiently large pool of credible individuals could be found to make the system work.

Of course, there are well-established voluntary systems of conciliators and mediators, some of which are used now to help resolve FRAND disputes. But the proposal adds the idea of compulsory mediation or conciliation. There is scant evidence that either system works in other commercial disputes around the world, and it is unclear why it should be assumed to work here.

D. Competitive and Practical Concerns with Aggregate Royalty Rates

The Regulation also raises potential competition concerns. The participation of implementers in the process of providing expert opinion on global aggregate rates could be used as a vehicle for a buyers cartel and could devalue FRAND royalty rates. Namely, it is unclear from the text of the Regulation if implementers will be allowed to coordinate their submissions to conciliators. If this is permitted, implementers could use the process to exchange commercially sensitive information and agree on the maximum global aggregate royalties they would pay. This would be tantamount to a buyers cartel, with price fixing of input costs. Even if such coordination is not allowed, by individually submitting their maximum royalty expectations—which are made with the goal of minimising input costs—implementers might attempt to devalue SEP royalties. Given that there are far more implementers than there are SEP owners, implementers might have an outsized influence on conciliators preparing expert opinions. The Regulation also lacks competition safeguards against the exchange of commercially sensitive information by SEP owners in the process of joint notification of aggregate royalty rates, which establish the value that devices derive from using the standardised technologies in question.

Moreover, from a practical perspective, the provisions’ usefulness is questionable. The Regulation appears to allow multiple groups of SEP owners to jointly notify their views. This may add even more confusion to standard implementers. For example, some SEP owners could announce an aggregate rate of $10 per product, another 5% of the end-product price, while a third group would prefer a lower $1 per-product rate. Moreover, it is unclear what difference the joint aggregate royalty-rate notifications would bring to the existing practice of unilateral announcement of licensing terms. Many SEP owners already publicly announce their royalty programmes in advance, which was recognised by the Commission’s studies.[59] To be on the safe side, SEP owners may simply notify their maximum preference, knowing that negotiations would lead to different prices depending on the unique details of various licensees. As a result, the aggregate royalty rates may not produce meaningful data points.

Nonbinding expert opinions on global aggregate royalty rates could also add to the confusion. Implementers would likely initiate the process, which would then exist in parallel with SEP owners’ joint notifications of aggregate rates. All these different and possibly conflicting estimates might lead to even greater uncertainty. Moreover, if those providing nonbinding opinions are not universally regarded as “experts”, the parties are unlikely to respect such opinions.

Aggregate royalty notifications and nonbinding opinions might be used in the top-down method for FRAND-royalty determinations. A top-down method provides that the SEP owner should receive a proportional share of a standard’s total aggregate royalty. It requires: 1. establishing a cumulative royalty for a standard; and then 2. calculating the share in the total royalty for an individual SEP owner. This may be the reason for having aggregate royalty-rate notifications and opinions. At the same time, essentiality checks are still needed to filter out which patents are truly essential, and to assess each individual SEP owner’s share.

We caution strongly against relying too much on the top-down approach for FRAND-royalty determinations. It is not used in commercial-licensing negotiations, and courts have frequently rejected its application. Industry practice is to use comparable licensing agreements. The top-down approach was applied in Unwired Planet v Huawei only as a cross-check for the rates derived from comparable agreements.[60] TCL v Ericsson relied on this method, but was vacated on appeal.[61] The most recent Interdigital v Lenovo judgment considered and rejected its use, finding “no value in Interdigital’s Top-Down cross-check in any of its guises”.[62] Moreover, the top-down approach, as currently applied, relies only on patent counting. It does not consider that not every patent has the same value, nor that some patents may be invalid or not infringed by a specific device. Crucially, the top-down approach and aggregate royalty notifications/opinions would be related to global FRAND royalties, while the registration of SEPs and corresponding essentiality checks are limited only to EU SEPs. In other words, the SEP Regulation has extraterritorial effects, the consequences of which are discussed below.

E. Circumventing the Regulation by Litigating Outside the EU

As a result of the high costs imposed by the Regulation and the likely delays caused by mediation/conciliation, SEP owners may realistically decide to enforce their patents outside the EU, in such countries as the United Kingdom, the United States, China, and India—all of which have had SEP litigation. This would allow firms to avoid application of the Regulation entirely.[63] Judge Klaus Grabinski, president of the Court of Appeal of the Unified Patent Court, went out of his way to note just that at the Court’s opening ceremony in Luxembourg.[64]  In truth, the Regulation constitutes a statement of lack of faith that the new Court (or, indeed, any court) can do their job.

The evidence already shows that SEP litigation in China is rising, while the United States—historically, a major venue for SEP litigation—may see a renewed increase in cases should Europe become an unattractive option.[65] The UK is also a major forum that has witnessed important cases clarifying many aspects of FRAND licensing.

For its part, Europe has built an impressive case law in implementing the Huawei v ZTE judgment and clarified the steps in good-faith licensing negotiations, but it could be left behind in shaping global SEP-licensing practices if the Regulation serves to shift litigation to other jurisdictions.

F. The Geopolitical Effects

As currently drafted, the SEP Regulation has exterritorial effects, which may lead to unintended consequences. It applies to SEPs in force in one of the EU Member States. Such SEPs should be registered with the SEP Register and will be subject to essentiality checks. This is in accordance with the principle of territoriality.

The Regulation then provides, however, for a nonbinding expert opinion that will relate to a global royalty rate, and that FRAND determination shall concern a global FRAND license (unless otherwise specified by the parties). In other words, while SEP Register and essentiality checks apply only for patents in force in EU Member States, aggregate royalties and FRAND determination will be worldwide, covering portfolios in other countries.

This exterritoriality may lead to three effects. First, if the SEP Register and the result of essentiality checks for EU SEPs are used in global aggregate royalty and FRAND determinations, they will produce inaccurate results. Some patent owners focus on the United States and U.S.-based SDOs and do not patent as much in Europe. There may also be many SEPs in China and other Asian countries that do not have European counterparts.[66] It is a euro-centric view to assume that European SEPs are a sufficient basis to determine global aggregate and FRAND rates. The Commission’s Impact Assessment notes that the EU’s share of SEPs is only 15%, compared to the United States and South Korea’s shares of 19% and China’s 30%.[67]

Second, while it is true that standards are global and commercial practice is to license globally, it is a different matter altogether when legislation requires its institutions to adopt measures with extraterritorial effects. Conciliators determining global aggregate and FRAND rates would indirectly rule on foreign portfolios held by foreign companies. Other countries will not look on this favourably.

The third and principal unintended consequence is that other countries may introduce similar regulations and could easily justify their actions as incorporating a simple “best practice” from Europe. Imagine a situation in which similar regulations are adopted by other countries: requiring notification of national SEPs, conducting local essentiality checks, determining global aggregate royalty rates for a standard, and setting global FRAND-licensing terms. It would effectively transfer SEP disputes from courts into the hands of national regulators.

Moreover, the costs to SEP owners for enforcing SEPs would be compounded, since they would need to notify and pay for essentiality checks in multiple countries. The effects of these increased costs of SEP enforcement and licensing on innovation incentives and participation in collaborative standardisation would need to be assessed. A radically changed and fragmented SEP-licensing environment would also lead to even more uncertainty for both SEP owners and implementers.

An SEP regulation implemented by other countries might easily backfire and could be used as a strategic tool to devalue the royalties of innovative European SEP owners. China might be especially receptive to the idea of regulating SEP licensing. Jonathan Barnett has provided evidence regarding how China has strategically deployed competition and patent law to reduce royalties for SEPs held by foreign companies to the benefit of domestic manufacturers.[68] The EU has also launched a complaint before the World Trade Organization (“WTO”) against China’s practice of issuing broad anti-suit injunctions to prevent the enforcement of SEPs in other jurisdictions.[69] Instead of using competition and patent law, a regulation similar to the one proposed by the European Commission could attain the same industrial policy and protectionist aims.

Taken together, the proposed SEP Regulation makes licensing SEPs more costly, provides solutions that are likely to prove unworkable in practice, and risks countervailing measures by other countries that might be detrimental to European SEP owners and innovation.

IV. Market-Based Alternatives to the Proposed Regulation

Here, we suggest some measures as alternatives to the proposed Regulation. Consistent with the principle that extensive regulatory intervention might not be necessary or proportionate if the aims could be achieved with less-costly instruments, we believe small changes in the institutes of private ordering might improve the existing system in a cost-effective and balanced way. If regulatory action is to be pursued, however, then the application of the Regulation could be limited at first to only a few selected standards and/or use cases to tests its effects.

A. Pledges from SEP Owners Not to Assert SEPs Against SMEs

According to the Commission, most standard implementers are SMEs.[70] They are currently de facto unlicensed since the transaction costs apparently outweigh the expected licensing revenues. They will remain unlicensed until they achieve sufficient market scale for the licensing to become profitable. Nevertheless, there is some evidence that a small number of SMEs have a licence, but we do not have information on how many, or which SEP owners licensed those SMEs.[71]

The situation for SMEs is thus characterised by uncertainty. While most SMEs will not be approached for a license, a small number might still be targeted by some SEP owners. Those SMEs that took a licence would be disadvantaged compared to the unlicensed majority of SMEs. Additionally, SMEs are uncertain at what point they would be considered sufficiently large to trigger the interest of SEP owners.

A private-ordering solution could be for SEP owners to give a binding pledge not to enforce SEPs against SMEs. The Commission might investigate how much support such a measure has with SEP owners. Such a pledge could be given to relevant SDOs and made public. To avoid any doubt, a definition of an SME should also be provided. For example, the Commission considers an entity an SME if it has less than 250 employees and a turnover of no more than €50 million or a balance sheet of no more than €43 million.[72] Other definitions could also be considered. For instance, there may be successful companies in the IoT that employ less staff but generate large turnover and capture a significant share of the relevant market. In any event, a clear threshold should be set so that companies may know in advance at what point they would need to take a license and might expect to be approached by SEP owners.

The downside of binding pledges not to enforce SEPs against SMEs is that SMEs represent an important part of the market. As mentioned, 84% of standard-implementers in the EU are estimated to be SMEs. While it might not be profitable to license them individually, they may generate significant collective royalties. Thus, SEP owners would be renouncing a potentially substantial royalty income. A better option might be to consider ways to simplify and reduce the costs of licensing to SMEs, as discussed in the next proposal.

B. SME License-Purchasing Groups

One way for SMEs to get licensed simply and efficiently would be to form special license-purchasing groups (“LPGs”), as proposed by Ruud Peters et al.[73] LPGs would comprise SMEs with up to 15-20% share of the relevant market, and an LPG administrator experienced in patent licensing would take care of licensing negotiations on behalf of member SMEs. This option would simplify licencing for SMEs and reduce transaction costs for both sides. SEP owners would negotiate with just one entity and, with one license, could cover hundreds or thousands of SMEs that are not profitable to license individually. The benefits to SMEs would be that they could delegate licensing negotiations to experienced professionals and be ensured that they will receive a license on the same terms as other SMEs in the LPG.

It is important to note that this proposal differs from the licensing-negotiations groups (“LNGs”) suggested by the SEP Expert Group, which raise serious competition-law risks and may be considered a façade for buyers’ cartels among implementers.[74] In an LPG, there will be no discussion of product prices, profit margins, market share, the maximum amount of royalty, or licensing level. The tasks of the LPG administrator are only to check if an SME needs a license (i.e., if it produces standard-implementing products) and to negotiate such a license with individual SEP owners and pools based on their licensing programmes. In licensing negotiations, the LPG administrator would ensure that LPG members receive an appropriate volume discount, so that SMEs would not be disadvantaged relative to larger companies with significant volumes; guarantee that members comply with reporting obligations and royalty payments to qualify for a discounted rate for compliance; and attempt to negotiate a discount on past sales. If an SME that is a member of LPG does not accept a license negotiated by the LPG administrator, it would be considered an unwilling licensee, and the SEP owner might be able to sue and obtain an injunction in accordance with Huawei v ZTE.

Therefore, with appropriate competition safeguards and mechanisms against holdout, LPGs might be a vehicle for SMEs to receive a license in an efficient, inexpensive, and secure manner, and for SEP owners to cover the whole market, which is currently untapped because of the unprofitability of bilateral licensing with SMEs.

C. Support the Formation of IoT Patent Pools

Patent pools may be an effective solution for IoT use cases characterised by many implementers and where no-cross licensing is involved. We are already witnessing Avanci and Sisvel preparing and modelling new licensing programmes for different IoT applications. Patent pools would resolve many of the Commission’s concerns about transparency: they provide certainty that truly essential patents are included in a pool, and if many SEP owners accept the pool, it serves as a de facto aggregate royalty rate for a standard.

The Commission might explore ways to assist the creation of pools. The first step may be to initiate a dialogue with patent owners and pool administrators to understand what help they may need in setting new licensing programmes. Concrete measures could then be taken to incentivise and support pool formation. For example, a pool’s implementation costs are often substantial,[75] and the Commission might consider subsidising initial essentiality checks of patents included in a pool, which would be repaid after the pool starts generating licensing revenues.

D. Limit the Scope of the Proposed Regulation

If the Regulation is to be adopted in the present shape, which we think would be a mistake, its scope of application could be limited to only a few selected standards and/or use cases for which the Commission has evidence of licensing inefficiencies, and which would serve as a real-world test of the usefulness of new regulatory measures. In this way, we may observe in real time how regulatory measures would be applied in practice and their effects on SEP-licensing markets. After evaluating their effectiveness, the Regulation might later be expanded to include other standards where licensing inefficiencies have been identified, or it may be changed or completely repealed if the solutions proposed by the Regulation prove to be ineffective, burdensome, and costly, as we and many others predict they would be.

V. Conclusion

We would like to thank the European Commission for the opportunity to comment on the proposed SEP Regulation. We believe that the available evidence used by the Commission in preparation for this Regulation does not show the existence of market failure in SEP-licensing markets that justify  regulatory oversight. Quite the opposite, the mobile-telecommunications sector, which is alleged to be the most problematic, is seeing continuous growth, innovation, and market entry. The incidence of SEP litigation is low and has been declining over the years, with no systemic negative effects on SEP owners and implementers.

In our opinion, the proposed SEP Regulation would complicate SEP licensing even further and may alter incentives to innovate in the open-standardisation environment. It unevenly distributes all the benefits to implementers and costs to SEP owners, raising the costs of licensing even more. Its broad scope will capture all standards licensed on FRAND terms, despite not establishing with a sufficient degree of certainty that all these standards are problematic. The increased costs of enforcing SEPs may shift the litigation away from Europe to other parts of the world: the United States, United Kingdom, China, and India.

European courts have over the years have built impressive case law clarifying the contents of FRAND licenses and good-faith licensing negotiations. It would be a shame to see Europe lose its place in influencing the future SEP-licensing framework. Crucially, other countries may be inspired by the Commission’s SEP Regulation and decide to adopt similar regulatory regimes. Regulations implemented by other countries might easily backfire and be used for protectionist purposes and as a strategic tool to devalue the royalties of innovative European SEP owners. The primary beneficiaries of the Regulation might be non-EU based implementers, to the detriment of European innovators and Europe’s technological leadership.

While we believe the proposed SEP Regulation is unnecessary and disproportionate, this is not to say that the SEP-licensing framework cannot be further refined and simplified. The challenge, however, is to find solutions that improve the existing system in a cost-effective, balanced, and efficient way. We believe market-based mechanisms should be supported and sought over government regulation. It must also be emphasised that there is no one size-fits-all answer. Different solutions may be applied in different markets, and appropriate competition-law safeguards must be put in place to guarantee efficient market outcomes.

[1] European Commission, Explanatory Memorandum for 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 Final (“Explanatory Memorandum”).

[2] Justus Baron, Pere Argue-Castells, Armandine Leonard, Tim Pohlman, & Eric Sergheraert, Empirical Assessment of Potential Challenges in SEP Licensing, European Commission (2023), p. 112.

[3] See 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 (“Impact Assessment”) p. 26 (“about 70% of the implementers take a license without litigation according to the results from the public consultation”).

[4] Adapting Carl von Clausewitz’s aphorism: “Litigation is the continuation of negotiation by other means.”

[5] C-170/13 Huawei v ZTE, ECLI:EU:C:2015:477

[6] Unwired Planet v Huawei [2017] EWHC 711 (Pat).

[7] Sisvel v Haier, KZR 36/17 Federal Court of Justice (05 May 2020)

[8] Unwired Planet v Huawei; Huawei and ZTE v Conversant [2020] UKSC 37; Philips v Wiko, 6 U 183/16 Karlsruhe Higher Regional Court (30 October 2019); HEVC (Dolby) v MAS Elektronik, 4c O 44/18 Dusseldorf Regional Court (7 May 2020).

[9] Nokia v Daimler, 2 0 34/19, Mannheim Regional Court (18 August 2020); Sharp v Daimler, 7 O 8818/19 Munich Regional Court (10 September 2020).

[10] See, Sisvel v Haier, KZR 36/17 Federal Court of Justice (05 May 2020), 61 (that implementers should not engage in patent holdout by exploiting the structural disadvantage, which SEP holders face due to the limitation of their rights to assert patents in court); Optis v Apple [2022] EWCA Civ 1411, 115 (“Apple’s behaviour …. Could well be argued to constitute a form of hold out … while Optis’ contention … would open the door to holdout”); Ericsson v D-Link, 773 F.3d 1201, 1234 (Fed Cir 2014) (“The district court need not instruct the jury on hold-up or stacking unless the accused infringer presents actual evidence of hold-up or stacking. Certainly something more than a general argument that these phenomena are possibilities is necessary.”)

[11] An electronic database of court cases implementing Huawei v ZTE is available at: https://caselaw.4ipcouncil.com/guidance-national-courts.

[12] Impact Assessment p. 13.

[13] Id. at 17.

[14] Id. at 14.

[15] Id. at12.

[16] Id. at 12.

[17] Id.

[18] Id. at 16.

[19] Id. at 14.

[20] Id. at 16.

[21] Id. at 23.

[22] Id. at 17.

[23] Id. at 11.

[24] Baron et al., supra note 2.

[25] Id. at 109-110

[26] Id. at110

[27] Id. at 108, 112.

[28] Id. at 164.

[29] Id. at 164.

[30] For some of the voluminous literature, see: Alexander Galetovic, Stephen Haber, & Ross Levine, An Empirical Examination of Patent Holdup, 11(3) Journal of Competition Law & Economics 549 (2015); Keith Mallinson, Don’t Fix What Isn’t Broken: The Extraordinary Record of Innovation and Success in the Cellular Industry Under Existing Licensing Practices, 23 George Mason Law Review 967 (2016); David Teece, The “Tragedy of the Anticommons” Fallacy: A Law and Economics Analysis of Patent Thickets and FRAND Licensing, 32 Berkeley Technology Law Journal 1490 (2017); J. Gregory Sidak, Is Patent Holdup a Hoax, 3 Criterion Journal on Innovation 401 (2018); Alexander Galetovic, Stephen Haber, & Lew Zaretzki, Is There an Anti-Commons Tragedy in the Smartphone Industry, 32 Berkeley Technology Law Journal 1527 (2018); Daniel F. Spulber, Licensing Standard Essential Patents with FRAND Commitments: Preparing for 5G Mobile Telecommunications, 18 Colorado Technology Law Journal 79 (2020); Dirk Auer & Julian Morris, Governing the Patent Commons, 38(2) Cardozo Arts & Entertainment Law Journal 291 (2020).

[31] The Mobile Economy, GSMA (2023), available at https://www.gsma.com/mobileeconomy/wp-content/uploads/2023/03/270223-The-Mobile-Economy-2023.pdf.

[32] Ibid.

[33] The 5G Economy: How 5G Will Contribute to the Global Economy?, IHS Market (2019).

[34] The Impact of 5G on the European Economy, Accenture (Feb. 2021).

[35] Bowman Heiden, Jorge Padilla, & Ruud Peters, The Value of Standard Essential Patents and the Level of Licensing, 49(1) AIPLA Quarterly Journal 1, 5-6 (2021).

[36] Alexander Galetovic, Stephen Haber, & Lew Zaretzki, An Estimate of the Average Cumulative Royalty Yield in the World Mobile Phone Industry: Theory, Measurement and Results, 42 Telecommunications Policy 263 (2018); Keith Mallinson, Cumulative Mobile SEP Royalties (19 Aug. 2015); J. Gregory Sidak, What Aggregate Royalty Do Manufacturers of Mobile Phones Pay to License Standard-Essential Patents?, 1 Criterion Journal of Innovation 701 (2016).

[37] The Commission noted that SEP royalty payments in the mobile-telecommunications industry generate between EUR 14–18 billion per year (see Impact Assessment, supra note 3, at 9).

[38] Raphaël De Coninck, Christoph von Muellern, Samuel Zimmermann, & Kilian Müller, SEP Royalties, Investment Incentives and Total Welfare, CRA Study 2022, (2022), at 18-19.

[39] https://www.avanci.com.

[40] Avanci Vehicle 4G, https://www.avanci.com/vehicle/4g.

[41] Victoria Waldersee & Supantha Mukherjee, Automakers Tackle Patent Hurdle in Quest for In-Car Tech, Reuters (21 Sep. 2021), available at: https://www.reuters.com/business/autos-transportation/automakers-tackle-patent-hurdle-quest-in-car-tech-2022-09-21.

[42] Igor Nikolic, Injunctions Facilitate Patent Licensing Deals: Evidence from the Automotive Sector, CPI Columns Intellectual Property (Jun. 2022).

[43] LIFT: Accelerating Market Penetration and Levelling the Playing Fields, Sisvel (18 Jul. 2022), available at: https://www.sisvel.com/blog/wireless-communications/lift-levelling-the-playing-field-for-early-licensees.

[44] Impact Assessment, supra note 3, at 17.

[45] Id. at 63, 68.

[46] Impact Assessment, supra note 3, at 67; Another study found that only one out of 12 surveyed SMEs had a licence, see Joachim Henkel, Licensing Standard-Essential Patents in the IoT – A Value Chain Perspective on the Markets for Technology, 51 Research Policy 104600 (2022).

[47] Bowman Heiden & Justus Baron, A Policy Governance Framework for SEP Licensing: Assessing Private Versus Public Market Interventions (2021) available at: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3872493.

[48] Auer & Morris, supra note 30.

[49] Harold Demsetz, Information and Efficiency: Another Viewpoint, 12(1) The Journal of Law and Economics 1 (1969).

[50] Impact Assessment, supra note 3, at 58.

[51] Id.

[52] Id. at 50.

[53] Article 1(2) of the SEP Regulation.

[54] Impact Assessment, supra note 3, at 8.

[55] Brad Biddle, Andrew White, & Sean Woods, How Many Standards in a Laptop? (And Other Empirical Questions) (2013) available at: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1619440.

[56] Article 1(4) of the SEP Regulation.

[57] Article 1(3) of the SEP Regulation

[58] Impact Assessment, supra note 3, at 101.

[59] Impact Assessment, supra note 3, at 84-85.

[60] Unwired Planet v Huawei [2017] EWHC 711 (Pat).

[61] TCL v Ericsson, Case No. 8:14-cv-003410JVS-DFM (C.D. Cal. 2018); TCL v Ericsson, 943 F.3d 1360 (Fed. Cir. 2019)

[62] Interdigital v Lenovo [2023] EWHC 539 (Pat) 733.

[63] The Regulation requires that patent owners register SEPs if they want to litigate them against infringers in the courts of Member States (Article 20(1)). Patent owners may simply decide to litigate outside the EU. As a result, they do not register SEPs and completely avoid conducting essentiality checks or going into mandatory FRAND determinations.

[64] Rory O’Neil, Breaking: UPC Chief Urges EU to Rethink SEP Plan, ManagingIP (30 May 2023), available at: https://www.managingip.com/article/2bqbfr0uyrki1fniy9ou8/breaking-upc-chief-urges-eu-to-rethink-sep-plan.

[65] Baron et al., supra note 2, at 110.

[66] Florian Mueller, EU-Only SEP Register Can’t Serve as a Basis for Global FRAND Determinations: Proposed EU Regulation on Standard-Essential Patents Suffers from Incongruent Provisions, FossPatents (4 Jun. 2023), available at: http://www.fosspatents.com/2023/06/eu-only-sep-register-cant-serve-as.html.

[67] Impact Assessment, supra note 3, at 8.

[68] Jonathan Barnett, Antitrust Mercantilism: The Strategic Devaluation of Intellectual Property Right in Wireless Markets, Berkeley Journal of Law & Technology (forthcoming); see also Jeanne Suchodolski, Suzanne Harrison, & Bowman Heiden, Innovation Warfare, 22 North Carolina Journal of Law & Technology 175 (2020).

[69] DS611: China-Enforcement of Intellectual Property Rights, World Trade Organization (2022), available at: https://www.wto.org/english/tratop_e/dispu_e/cases_e/ds611_e.htm.

[70] Impact Assessment, supra note 3, at 11 (84% of EU-based standard implementers are SMEs).

[71] Impact Assessment, supra note 3, at 67.

[72] European Commission, Recommendation of 6 May 2003 Concerning the Definition of Micro, Small and Medium-Sized Enterprises (2003) C 1422.

[73] Ruud Peters, Igor Nikolic, & Bowman Heiden, Designing SEP Licensing Negotiation Groups to Reduce Patent Holdout in 5G/IoT Markets in Jonathan Barnett & Sean O’Connor (eds), 5G and Beyond: Intellectual Property and Competition Policy in the Internet of Things (Cambridge University Press 2023).

[74] Contribution to the Debate on SEPs, Group of Experts on Licensing and Valuation of Standard Essential Patents (2021), available at: https://ec.europa.eu/docsroom/documents/45217; for commentary, see Nikolic, supra note 59.

[75] Michael Mattioli & Robert P. Merges, Measuring the Costs and Benefits of Patent Pools, 78(2) Ohio State Law Journal 281 (2017).

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Intellectual Property & Licensing

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.

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Intellectual Property & Licensing

European Commission Undermines Western Innovators, Boosts Chinese Dominance of Telecom Sector

Popular Media On Thursday, the day after World Intellectual Property Day, the European Commission—the self-proclaimed world regulatory superpower—officially proposed a massive regulatory regime of patents that will benefit China and undermine . . .

On Thursday, the day after World Intellectual Property Day, the European Commission—the self-proclaimed world regulatory superpower—officially proposed a massive regulatory regime of patents that will benefit China and undermine Western innovators in both Europe and the United States.

Led by the Gaullist technocrat Thierry Breton, head of the Internal Markets Ministry, the European Commission released a new regulatory program to impose rate-setting of patents on standardized technologies like Wi-Fi and 5G, called “standard essential patents” by policy wonks in the EU Intellectual Property Office.

Read the full piece here.

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Intellectual Property & Licensing

If Necessity Is the Mother of Invention, New EU SEP Rules Are Decidedly Unnecessary

TOTM An unofficial version of the EU’s anticipated regulatory proposal on standard essential patents (SEPs), along with a related impact assessment, was leaked earlier this month, generating reactions that . . .

An unofficial version of the EU’s anticipated regulatory proposal on standard essential patents (SEPs), along with a related impact assessment, was leaked earlier this month, generating reactions that range from disquiet to disbelief (but mostly disbelief).

Our friend Igor Nikolic wrote about it here on Truth on the Market, and we share his his concern that…

Read the full piece here.

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Intellectual Property & Licensing

Antitrust Mercantilism: The Strategic Devaluation of Intellectual Property Rights in Wireless Markets

Scholarship Abstract Policy approaches to the enforcement and licensing of standard-essential patents in wireless communications markets reflect the competing interests of entities that specialize in the . . .

Abstract

Policy approaches to the enforcement and licensing of standard-essential patents in wireless communications markets reflect the competing interests of entities that specialize in the innovation or implementation segments of the technology supply chain. This same principle can anticipate the policy preferences of national jurisdictions that specialize in the chip-design or device-production segments of the global technology supply chain. Consistent with this principle, legal treatment of the licensing and enforcement of standard-essential patents by courts and regulators in the People’s Republic of China reflects a strategic effort to deploy competition and patent law to reduce input costs for domestic device producers that rely on wireless communications technology held by foreign chip suppliers. This mercantilist use of antitrust law has derived its intellectual foundation from patent holdup and royalty stacking models of market failure adopted by EU and US competition regulators and has borrowed excessive pricing, essential facility, and other doctrines from EU and US competition law, which have then been applied expansively by China’s regulators and courts to weaken intellectual property rights over wireless communications technologies in service of industrial trade and geopolitical policy objectives. These legal actions can in turn distort the pricing of wireless technologies in global supply chains in communications, computing, automotive and other wireless-enabled markets.

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Antitrust & Consumer Protection

New EU Regulatory Regime for SEPs Will Upend Mobile Telecommunications Sector

Popular Media The European Union is considering a new regulatory regime for the licensing and litigation of standard essential patents (SEPs) that will destabilize the global telecommunications . . .

The European Union is considering a new regulatory regime for the licensing and litigation of standard essential patents (SEPs) that will destabilize the global telecommunications market. This proposed regulatory regime is unbalanced in favoring implementers over innovators, and thus it threatens to hamstring the explosive technological and economic growth in this vital sector of the modern innovation economy. Although the EU has finally awoken to the competitive and geopolitical threat posed by China, this regulatory proposal undermines efforts by the EU and the United States to sustain their global technological leadership.

Read the full piece here.

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Intellectual Property & Licensing

European Commission’s Leaked SEP Regulation Would Increase Costs for Innovators, Hurt EU Competitiveness, and Fail to Reduce Litigation

TOTM The European Commission is working on a legislative proposal that would regulate the licensing framework for standard-essential patents (SEPs). A regulatory proposal leaked to the press has already been . . .

The European Commission is working on a legislative proposal that would regulate the licensing framework for standard-essential patents (SEPs). A regulatory proposal leaked to the press has already been the subject of extensive commentary (see herehere, and here). The proposed regulation apparently will include a complete overhaul of the current SEP-licensing system and will insert a new layer of bureaucracy in this area.

Read the full piece here.

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Innovation & the New Economy

Europe’s New SEP Regulation: All Quiet on the Patent Front?

TL;DR Background: The European Commission is about to unveil draft regulation that will more tightly regulate how patents are incorporated into technology standards. The Commission’s expert . . .

Background: The European Commission is about to unveil draft regulation that will more tightly regulate how patents are incorporated into technology standards. The Commission’s expert report and call for comments suggest that it wants to create a regime of third-party checks that would verify whether inventors’ patents are truly essential to a technology standard (i.e., “essentiality checks”). The goal ultimately is to ensure that standard-essential patents (SEPs) are adequately disclosed to would-be licensees. There are thousands of SEPs that underpin the technologies powering the digital economy, thus making it essential that firms coordinate to develop and implement these technologies.

However… It is unclear that such regulation would improve upon the status quo. While it might not be perfect, the existing approach to essentially checks has seen SEP-reliant industries provide countless technological breakthroughs. This has led industries where SEPs are particularly relevant to occupy key geostrategic positions. By contrast, imposing heavy-handed regulation risks not only that there will be harm to consumers, but the potential that the West’s strategic position relative to adversarial foreign powers like China or Russia may be weakened.

THE ROLE OF ESSENTIALITY CHECKS

Technical standards (e.g., 5G, WiFi, USB-C, etc.) often rely on hundreds—sometimes thousands—of distinct inventions that can each be covered by multiple patents. 

Firms that commercialize goods incorporating these technologies need to know which patents are essential to those standards—thus avoiding situations where license fees are paid for technologies that are not necessary to practice a given standard.

Essentiality checks can potentially streamline this process, thereby limiting the over- and/or under-disclosure of SEPs. But this is a complex and costly endeavor. The benefits of achieving perfect disclosure of SEPs—be it via market forces or regulation—are thus unlikely to outweigh the costs.

WHO SHOULD ASSESS ESSENTIALITY?

As things stand, a patent’s essentiality is determined in various ways. These include the use of patent pools, self-assessments by inventors, and evaluations outsourced to third-party experts. 

Whatever one thinks of that heterogeneous approach, it is clear that the SEP industry has thrived under this laissez-faire paradigm, and that competition among the various inventors, implementers, and standards-development organizations (who bring inventors and implementers together) has played a useful role in optimizing these processes. Regulators should thus be wary not to upset the apple cart.

In contrast, the Commission’s expert report and its call for comments both suggest that it favors a more centralized system in which government institutions, such as patent offices, would act as backstops for essentiality checks. 

Such a system would not be without risks. Indeed, there is little evidence that SEP-heavy industries are underperforming. Any reform thus risks creating more friction than it removes.

WHAT ABOUT SANCTIONS?

There are fears that excessive sanctions for failing to adequately disclose essential patents could tilt the bargaining power in SEP-reliant industries toward implementers. In turn, this could undermine inventors’ incentive to produce new technologies.

In recent years, courts around the world have sought to strike an appropriate balance between the interests of inventors and implementers. In doing so, they have foiled attempts by several regulators to limit the royalties that inventors can extract; to prevent them from obtaining injunctions against infringers of their patents; and to determine the level of the value chain at which royalties are to be calculated. 

One concern is that the draft regulation may seek to forward those goals by assessing penalties for failing to comply with its provisions. For instance, inventors may lose the ability to bring injunctions against infringers if a third party deems their patent to be non-essential. Given the vital role that these injunctions play, such a policy would be misguided.

GEOSTRATEGIC IMPACT 

Finally, overburdening firms that are active in the SEP space could erode the West’s technological leadership relative to states with manufacturing-reliant economies whose political leaders routinely undermine the intellectual property rights of foreign firms.

Many SEPs, particularly those relevant to the telecommunications sector, are held by companies in the West and specifically in the United States. The lion’s share of implementers, by contrast, are based in China. Policies that impose significant costs on inventors and benefit implementers may thus amount to a subsidy to Chinese firms and a tax on Western innovation.

These harmful consequences are magnified in light of China’s strategic effort to shape international technology standards. With European firms systematically deterred from participating in the development of open technology standards, Chinese firms—directed by their government authorities—will gain significant control of the technologies that underpin tomorrow’s digital goods and services. The consequences are potentially catastrophic.

For more on this issue, see ICLE’s academic output on standard essential patents here and here, and our response to the Commission’s recent consultation here

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Intellectual Property & Licensing

Fairness and Ambiguity in EU Competition Policy

ICLE White Paper Abstract The concept of fairness is not foreign to competition law, nor are considerations of fairness new to it. Persistent uncertainty regarding what constitutes fairness . . .

Abstract

The concept of fairness is not foreign to competition law, nor are considerations of fairness new to it. Persistent uncertainty regarding what constitutes fairness has, however, traditionally counseled against its application as a standalone legal standard. Indeed, antitrust enforcers often have been reluctant to define even what constitutes unfair terms and conditions. Nonetheless, amid a swell of accusations of undue corporate power and market concentration in the digital economy, debates about fairness have recently taken center stage in the policy debate—particularly in Europe, where several recent regulatory interventions have been touted as promoting fairness in digital markets. This paper argues that policymakers are attracted to “fairness” remedies precisely because the term’s meaning is so ambiguous, thus granting them more discretion and room for intervention.

Introduction

In public debates over the emerging ubiquity of digital markets and platform-business models, the concept of “fairness” has been elevated into a guiding principle of competition-law enforcement. Dissatisfied with the ways that profits are allocated in digital-services markets and decrying what they see as undue corporate power and market concentration, interlocutors in such debates have invoked fairness as the cure for bigness.

This is particularly apparent in the European Union (EU), where several recent legislative initiatives have been adopted with the stated goal of promoting fairness in the digital economy. A central focus of such initiatives is the “gatekeeping” position enjoyed by a few large online platforms, which purportedly allows them to exert intermediation power over whether and under what terms the platform’s business users can reach their end users. As such, critics of so-called “Big Tech” assert, these platforms represent unavoidable trading partners who can exploit their superior bargaining power by imposing unfair contract terms and conditions. Moreover, since they often occupy a dual role—acting simultaneously as intermediaries and as competitors on their own platforms—they may have incentive to discriminate in favor of their own services or subsidiaries (so-called self-preferencing).[1]

In response to the perceived risks generated by these conflicts of interest and imbalances of bargaining power, policymakers in various jurisdictions around the world have proposed or enacted provisions intended to ensure a level playing field and to neutralize the competitive advantages of large intermediator platforms. According to this line of reasoning, Big Tech firms must be compelled to treat both their rivals and their guests on the platform fairly.

Fairness has therefore become part of the larger debate on the role of competition law in the digital economy, with some militating for more aggressive intervention to ensure fairness and questioning whether the consumer welfare standard should remain the lodestar of antitrust law. Because it eschews many other potential goals of competition law, the argument goes, the consumer welfare standard systematically biases antitrust toward underenforcement,[2] with some even labeling it a “distraction” or a “catch phrase.”[3] Rather than the efficiency-oriented approach favored by the Chicago School, the ostensibly holistic approach that has earned support among progressives would combine competition law with other fields of law in order to take into account such broad social interests and ethical goals as labor protection, wealth inequality, and environmental sustainability.[4]

Considerations of fairness are not, however, new to competition law.[5] The history of antitrust law in the United States, for example, demonstrates that U.S. lawmakers and jurists have long had a profound concern for economic liberty as a notion embedded in the nation’s conception of freedom.[6] After all, “[i]f efficiency is so important in antitrust, then why doesn’t that word, ‘efficiency,’ appear anywhere in the antitrust statutes?”[7] Indeed, antitrust has been described as a body of law designed to promote economic justice, fairness, and opportunity.[8] Therefore, the purpose of antitrust law is to protect the competitive process in service of both prosperity and freedom. Rather than a myopic focus on promoting efficiency, antitrust economics should be concerned with ensuring that competition may flourish among a significant number of rivals in free and open markets.[9] And at the heart of the competitive process is the guarantee that “everyone participating in the open market—consumers, farmers, workers, or anyone else” has the opportunity to choose freely among alternative offers.[10]

This is also evident in the EU, where competition law has always reflected various social, political, and ethical objectives, even as the so-called “more economic approach” was adopted in the late 1990s.[11] Moreover, the goal of ensuring equal opportunity in the marketplace by guaranteeing a level playing field among firms has been incorporated in EU antitrust law, reflecting the influence of the philosophy of Ordoliberalism and the Freiburg School of economic thought.[12] From this perspective, fairness would include the protection of economic freedom, rivalry, the competitive process, and small- and medium-size firms.[13]

Nonetheless, it should not be overlooked that the rise of the Chicago School approach, which affirms the need to anchor antitrust enforcement in objective criteria, was itself a response to the limitations and drawbacks of prioritizing various noneconomic goals in competition law. Precisely because “fairness” is so difficult to both define and delineate, it has traditionally proven unsuitable as a standalone legal standard.[14] The same doubts are raised today by some U.S. scholars regarding the possibility of replacing the consumer welfare standard with what has been called the “competitive process test.”[15]

Like considerations of distribution or justice, debates about fairness are inevitably bedeviled by the existence of many differing and sometimes contradictory definitions, rendering the term’s content undefined and incomplete.[16] Despite its many appealing features in the abstract, fairness is a subjective and vague moral concept and, hence, essentially useless as a decision-making tool. Behavioral economics has provided evidence that fairness motives do affect many people’s behavior and can restrict the actions of profit-seeking firms, while simultaneously confirming that notions of fairness can vary widely among individuals.[17] As a result, it is inherently unclear what benchmark should be applied to measure fairness. This poses a serious challenge for legal certainty, as actors cannot predict ex ante whether a practice will be sanctioned for having trespassed the unfairness threshold. Accordingly, policymakers have been invited to give no weight to fairness in choosing legal rules, but rather to assess policies entirely on the basis of their effects on individuals’ well-being.[18]

As notions of fairness have taken a central place in recent EU regulatory interventions, it is worth investigating whether a clear and enforceable definition has been provided (and, in this case, whether the content of fairness has been specified as a rule or as a standard) or whether the vagueness and ambiguity associated with the term’s meaning can be exploited to grant policymakers convenient procedural shortcuts. Indeed, an unmeasurable goal will tend to be irresistibly attractive to enforcement agencies, as it can mean anything they want it to. This paper aims to demonstrate that the revival of fairness considerations in competition law functions primarily to offer policymakers greater latitude to intervene, relieving them of the burden of economic analysis and allowing them to pursue political ends. Chief among the latter is restoring what the U.S. neo-Brandeisian movement considers the original mission of antitrust law: namely, to ensure a more democratic distribution of power and to protect “small dealers and worthy men.”[19] Rather than being used to assess whether practices are anti-competitive, fairness is used to correct market outcomes.

Similar concerns have been raised about a new policy statement issued recently by the U.S. Federal Trade Commission (FTC) regarding the scope of the agency’s authority to prohibit unfair methods of competition (UMC) under the Section 5 of the FTC Act.[20] The FTC points to the legislative record to argue that Section 5 was enacted to protect “smaller, weaker business organizations from the oppressive and unfair competition of their more powerful rivals.”[21] Against the declared aim of “reactivating Section 5,”[22] Commissioner Christine S. Wilson noted in her dissent that, by preferring a “near-per se approach” that discounts or ignores both the business rationales that may underly challenged conduct and the potential efficiencies that such conduct may generate, the policy statement reflects a “repudiation of the consumer welfare standard and the rule of reason” and resembles the work of an academic or a think tank fellow who “dreams of banning unpopular conduct and remaking the economy.”[23]

This paper is structured as follows. Section I describes how fairness considerations lie at the core of European Commissioner for Competition Margrethe Vestager’s political mandate. Section II examines how the notion of unfairness has been applied in EU antitrust case law. Section III analyzes the use of fairness as a rationale for recent EU legislative initiatives in the digital economy. Section IV illustrates that these initiatives do not provide a meaningful contribution to the application of fairness, either as a standard or as a rule. Section V concludes.

I.        The Vestager Mandate: Fairness as Political Signaling

As has been widely noted, fairness has emerged as a guiding principle of EU competition policy during Commissioner Vestager’s previous and current terms.[24] She has referred to fairness in numerous speeches, characterizing her political mandate as one of advocating vigorously for antitrust rules to uphold notions of fairness. But rather than articulate a substantive standard of fairness that could be applied consistently in antitrust enforcement, Vestager has weaponized the notion of fairness as political signaling.

Among Vestager’s pronouncements on the subject are that “competition policy also reflects an idea of what society should be like” and that this is “the idea of a Europe that works fairly for everyone.”[25] She has contended that “when competition works, we end up with a market that treats people more fairly.”[26] Moreover, Vestager concludes that “fair markets are just what competition is about”[27] and “we all have a responsibility to help build a fairer society.”[28]  As the power of digital platforms has grown, Vestager says, “it’s become increasingly clear that we need something more, to keep that power in check, and to keep our digital world open and fair.”[29]

The Europe envisaged by the founders of the Treaty of Rome is, she argues, “one that would bring prosperity and fairness, not just to a few, but to all Europeans.”[30] While some of the commissioner’s speeches invoke fairness primarily in the context of competition giving consumers the power to demand a “fair deal”[31] by ensuring that “their choices and preferences count,”[32] others imply that firms have a responsibility to run their businesses “in a way that is fair to your competitors, fair to your business partners.”[33]

Taken as a whole, her various invocations of fairness frame antitrust law not as economic policy, but as a kind of morality play.[34] Addressing her speeches to the “people,” Vestager emphasizes competition law’s fundamental role in building a fair society. [35]

People don’t just want to be told that open markets make us better off. They want to know that they benefit everyone, not just the powerful few. And that is exactly what competition enforcement is about … public authorities are here to defend the interests of individuals, not just to take care of big corporations. And that everyone, however rich or powerful, has to play by the rules.[36]

II.      EU Antitrust Enforcement: Fairness as a Standard

The notion of fairness is not foreign to EU competition law. The Preamble to the Treaty on the Functioning of the European Union (TFEU) includes a reference to “fair competition.” Its antitrust provisions, while prohibiting restrictive agreements and practices, creates an exception for those that grant consumers a “fair share” of procompetitive benefits (Article 101). The provisions also prohibit abuses of dominant position that impose “unfair purchase or selling prices” or other “unfair trading conditions” (Article 102). Moreover, Vestager has argued that state-aid rules, which prevent member states from granting companies a selective advantage, likewise reflect the notion of fairness within “the ordinary meaning of the word.”[37]

In general, these provisions endorse a standard-based approach to fairness that specifies the content of the law ex post, rather than a rule-based approach that introduces more specific legal commands ex ante.[38] Because fairness remains undefined and its meaning is disputed, the standard is hard to operationalize.

A.      Unfair Terms and Excessive Pricing

While only a handful of judgments and decisions by the European Court of Justice (CJEU) and the European Commission analyze the notion of unfairness, what these typically share is a focus on clauses that either were not functional to achieve the purpose of the agreement or that unjustifiably restricted the freedom of the parties.[39] The relationship between unfairness and the absence of a functional relationship between the contract’s purpose and challenged contractual clauses was highlighted in Tetra Pak II[40] and Duales System Deutschland (DSD).[41] It can be inferred from some of the Commission’s other decisions that unfairness may been associated with opaque contractual conditions that render a dominant firm’s counterparties weaker, particularly when those counterparties are unable to understand the terms of the commercial offer in question.[42]

Recent years have seen a revival of cases concerning “unfair prices,” particularly in cases concerned with drug pricing or the collection of  royalties.[43] But rather than establish the meaning of fairness, courts and competition authorities have tended toward a rule-based approach to identify unfair prices, developing alternative measures rooted in economic reasoning.[44] Indeed, since United Brands, the CJEU has evaluated whether a price is unfair by  determining whether it has a reasonable relation to the economic value of the product.[45] For example, in SABAM, the CJEU confirmed that the royalty rate requested by a collective society should bear relation to the economic value of the copyright work.[46] But courts and antitrust authorities have also struggled to apply the test set out by the CJEU in United Brands to assess whether prices are unfair.[47] As acknowledged in AKKA-LAA, “there is no single adequate method” to evaluate unfair-pricing cases.[48] Given this, Advocate General Nils Wahl has argued that a price charged by a dominant undertaking should be deemed abusive only when no rational economic explanation (other than a firm possessing the capacity and willingness to use its market power) can be found for why it is so high.[49]

B.      Margin Squeeze

Unfair-pricing practices have also been investigated in the context of the margin-squeeze strategy, which is a standalone abuse under EU competition law on grounds that it undermines equality of opportunity between economic operators.[50] Rather than refusing to supply, a vertically integrated dominant firm may instead charge a price for a product on the upstream market that would not allow an equally efficient competitor to compete profitably on a lasting basis with the price the dominant firm charges on the downstream market. A margin squeeze exists if the difference between the retail prices charged by a dominant undertaking and the wholesale prices it charges its competitors for comparable services is negative, or insufficient to cover the product-specific costs to the dominant operator of providing its own retail services to end-users.[51] Accordingly, the unfair spread between the upstream price and the retail price is deemed exclusionary when it squeezes rivals’ margins on the retail market, thereby undermining their ability to compete on equal terms. The dominant player is therefore required to leave its rivals a fair margin between the wholesale and retail prices.[52]

C.      FRAND-Encumbered SEPs

The notion of fairness has also been raised in the context of standard-essential patents (SEPs), whose holders are subject to fair, reasonable, and non-discriminatory (FRAND) licensing obligations.[53] The process of developing standards can create opportunities for companies to engage in anticompetitive behavior where such standards give rise to holdup problems involving the strategic use of patents. The claim is that SEPs confer market power because the standardization process leads to the exclusion of alternative technologies. As a consequence, SEP owners enjoy ex post monopoly power that could enable them to charge excessively high royalty rates in their licensing agreements or to constructively refuse to license their patents.

To address these concerns, standard-setting organizations (SSOs) typically require SEPs holders to submit FRAND commitments. The goal is to make SEPs available at a price equivalent to what patents would have been worth in the market prior to the time they were declared essential.

It is a matter of debate, however, whether FRAND commitments can effectively prevent SEP owners from imposing excessive royalty obligations on licensees. In fact, there are no generally agreed-upon tests to determine whether a particular license does or does not satisfy a FRAND commitment. There is also little consensus regarding the legal effects of FRAND commitments, such as whether they imply a waiver of the general law of remedies (more precisely, injunctive relief and other extraordinary remedies). Such broad uncertainty has prompted a wave of litigation around the globe in recent decades.

While some SSOs and courts have moved toward a rule-based approach to define fair/reasonable rates and to develop methods for the valuation of FRAND royalties, the CJEU in Huawei[54] endorsed a hybrid approach.[55] Indeed, rather than define the meaning of FRAND (which remains left to a standard-based approach), the CJEU imposed a procedural framework for good-faith SEP-licensing negotiations. The framework identifies the steps that patent holders and implementers must follow in negotiating FRAND royalties, with the threats of antitrust liability and patent enforcement as levers to steer the parties toward a mutually agreeable level. Nonetheless, none of these approaches has thus far proven effective in reducing either uncertainty or litigation.

D.     Abuse of Economic Dependence

Over the years, several EU member states have adopted provisions related to the abuse of economic dependence (also known as relative market power or superior bargaining power), creating yet another context in which the unfairness of terms and conditions may be implicated.[56] Rules forbidding the abuse of economic dependence reflect concerns about the asymmetry of economic power in business-to-business relationships, which is considered a potential source of unfair-trading practices.

Although abuse of economic dependence is not regulated at the EU level, national-level legislation is authorized by Article 3(2) of the Regulation 1/2003 on the implementation of competition rules, which allows member states to adopt and apply stricter laws prohibiting or sanctioning unilateral conduct.[57] Recital 8 of the regulation refers specifically to national provisions that prohibit or impose sanctions on abusive behavior toward economically dependent undertakings.

Economic dependence is typically the result of significant switching costs that may lock a party into a business relationship and prevent it from finding equivalent alternative solutions. Therefore, evaluations of economic dependence include examining the amount of relationship-specific investment the dependent firm has undertaken (i.e., investments required to support its trading relationship), which may expose weak parties to holdup, as well as whether the counterparty should be considered an unavoidable trading partner because of its exclusive control over an essential input.

It is worth noting that recent legislative initiatives signal a willingness by EU member states to rely on abuse-of-economic-dependence claims to tackle digital platforms’ purportedly unfair conduct and trading relationship with business users. In 2020, Belgium approved an amendment to its Code of Economic Law to insert a provision on abuse of economic dependence,[58] with lawmakers making specific reference to the perceived legislative gap concerning digital platforms. In 2021, alongside its new antitrust tool focused on firms of “paramount significance for competition across markets,” the German Bundestag extended its economic-dependence provision to target firms acting as “intermediaries on multi-sided markets,” insofar as business users are significantly dependent on their intermediary services to access supply and sales markets such that sufficient and reasonable alternatives do not exist.[59] Finally, in 2022, the Italian Annual Competition Law included a specific provision introducing a rebuttable presumption of economic dependence when a firm uses intermediation services provided by a digital platform that play a “key role” in reaching end users or suppliers due to network effects or the availability of data.[60]

E.      Summary of Findings

There are two primary takeaways from this brief overview of fairness in EU antitrust law. First, despite some references in the TFEU, antitrust enforcers have traditionally been reluctant to engage with the unfairness of terms and conditions. Uncertainty regarding the definition and legal boundaries of fairness make it challenging to use as an actionable standard for the evaluation of anticompetitive behavior. Second, if recent case law is suggestive of how attitudes about the use of fairness in antitrust are evolving, courts and competition authorities likely will continue to prefer that fairness be anchored in specific economic values or a detailed code of conduct (i.e., switching to a rule-based approach), rather than relying on political or moral considerations. The ongoing disputes over how to assess whether prices are excessive, as well as determining “fair” royalties for SEPs, suggest that questions about the scope and nature of unfair conduct cannot be usefully resolved by references to “the ordinary meaning of the word.”

Moreover, while fairness is explicitly mentioned in exploitative-abuse cases, Article 102 TFEU makes no reference to fairness as a benchmark for such cases. In this regard, the CJEU’s Servizio Elettrico Nazionale ruling affirmed the effects-based approach the court would take to assessing the abusive nature of unfair practices.[61] Notably, the CJEU definitively stated that competition law is not intended to protect the existing structure of the market, but rather that the ultimate goal of antitrust intervention is the protection of consumer welfare.[62] Accordingly, as the court previously found in Intel, not every exclusionary effect is necessarily detrimental to competition.[63] Competition on the merits may, by definition, mean that less-efficient competitors who are less attractive to consumers in terms of price, choice, quality, or innovation may be marginalized or forced to exit the market.[64]

III.    EU Competition Policy in Digital Markets: Fairness as a Rule?

The preceding overview of EU antitrust enforcement demonstrates that, despite recent political interest in the subject of fairness, authorities and courts continue to struggle to apply it as a substantive standard. Commissioner Vestager’s fairness agenda nonetheless permeates several recent legislative initiatives to regulate the digital economy through specific rules, rather than a general standard.

A common feature of these interventions is their preoccupation with the intermediation (or bottleneck) power that some large online platforms may wield vis-à-vis business users, to the extent that they may be unavoidable trading partners in a wide range of contexts. As a result, proponents argue, the interventions are needed to ensure a level playing field and to prevent unfair behavior to the detriment of business users.

A.      Platform-to-Business Regulation

In 2019, the EU adopted the regulation on promoting fairness and transparency for business users of online intermediation services (P2B Regulation).[65] Its aim was to lay down rules to ensure that digital intermediation platforms and search engines grant appropriate transparency, fairness, and effective redress to business users and corporate websites, respectively.[66] According to the P2B Regulation, online intermediation services can be “crucial” for the commercial success of firms who use such services to reach consumers. Given that dependence, such platforms often have superior bargaining power that enables them to behave unilaterally in ways that can be unfair, harmful to the legitimate interests of their business users, and also, indirectly, to consumers.[67]

While fairness is referenced in the P2B Regulation’s formal title, its provisions are more concerned with enhanced transparency, rather than forbidding or prescribing specific conduct. Nonetheless,  the regulation left open the potential for further measures if its provisions proved insufficient to adequately address imbalances and unfair commercial practices in the sector.[68] A few months after the P2B Regulation was promulgated, the European Commission unveiled in a communication to the European Parliament its view for the circumstances under which further legislative intervention would be needed.[69] Since platforms that act as “private gatekeepers to markets, customers and information” may jeopardize the fairness and openness of markets, and “competition policy alone cannot address all the systemic problems that may arise in the platform economy,” the Commission noted that additional rules may still be needed to ensure contestability, fairness, and innovation in digital markets, as well as the possibility of market entry.[70] Notably, the Commission’s declared policy goal was to ensure “a level playing field for businesses,” which it argued “is more important than ever” in the digital era.[71]

B.      Digital Markets Act

It was against this backdrop that the European Commission proposed the Digital Markets Act (DMA),[72] with the goal of ensuring “contestability and fairness” for digital markets.[73] In the Commission’s view, the distinctive characteristics of digital services (i.e., the presence of strong economies of scale, indirect network effects, economies of scope due to the role of data as a critical input, and conglomerate effects, along with consumers’ behavioral biases and single-homing tendency) generate significant barriers to entry that confer gatekeeping power on certain large platforms.[74]

The Commission warned that this situation would lead to “serious imbalances in bargaining power and, consequently, to unfair practices and conditions” both for business users and for platforms’ end users, to the detriment of prices, quality, “fair competition,” choice, and innovation in the market.[75] Moreover, gatekeepers frequently play a dual role, being simultaneously operators of a marketplace and sellers of their own products and services in competition with rival sellers.[76] Therefore, the Commission contended, rules are needed to prevent gatekeepers from unfairly benefitting and to impose on them a special responsibility to ensure a level playing field, which de facto amounts to the introduction of a platform-neutrality regime.[77]

Implicit in the DMA is the presumption that market processes are often incapable of ensuring “fair economic outcomes” with regard to core platform services,[78] apparently requiring a rethinking of competition policy. Under this view, competition law is deemed unfit to effectively address challenges posed by gatekeepers that are not necessarily dominant in competition-law terms.[79] Indeed, antitrust is limited to certain examples of market power (e.g., dominance on specific markets) and of anti-competitive behavior.[80] Further, its enforcement occurs ex post and requires an extensive investigation on a case-by-case basis of what are often very complex facts.[81]

The DMA therefore aims to protect a different legal interest from antitrust rules. Rather than protect undistorted competition on any given market, as defined in competition law terms, the DMA seeks to ensure that markets where gatekeepers are present are and remain “contestable and fair,” independent of the actual, likely, or presumed effects of gatekeeper conduct.[82] As a result, it introduces a set of ex ante obligations for online platforms designated as gatekeepers, thereby effectively relieving enforcers of the responsibility to define relevant markets, prove dominance, and measure market effects.

Despite that proclaimed protection of a different legal interest, however, there is no indication that the DMA’s promotion of fairness and contestability differs from the substance and scope of competition law.[83] The draft DMA didn’t define either fairness or contestability, nor did it indicate how the obligations it would impose on digital gatekeepers was intended to deliver each objective. The final version fills part of this gap, including a definition of these goals. With regard to contestability, the DMA targets practices that increase barriers to entry or expansion in digital markets and imposes obligations that tend to lower these barriers.[84] Therefore, contestability relates to firms’ ability to “effectively overcome barriers to entry and expansion and challenge the gatekeeper on the merits of their products and services.”[85] With respect to fairness, the obligations seek to address the “imbalance between the rights and obligations of business users” that allows gatekeepers to obtain a “disproportionate advantage” by appropriating the benefits of market participants’ contributions.[86] Indeed, “[d]ue to their gateway position and superior bargaining power, it is possible that gatekeepers engage in behaviour that does not allow others to capture fully the benefits of their own contributions, and unilaterally set unbalanced conditions for the use of their core platform services or services provided together with, or in support of, their core platform services.”[87]

Nonetheless, the DMA also considers fairness to be “intertwined” with contestability.[88] “The lack of, or weak, contestability for a certain service can enable a gatekeeper to engage in unfair practices. Similarly, unfair practices by a gatekeeper can reduce the possibility for business users or others to contest the gatekeeper’s position.”[89] Therefore, an obligation may address both. Unfortunately, because the DMA does not index the obligations based on the specific goal they purportedly advance, it also does not clarify which obligations are intended to safeguard contestability and/or promote fairness. This is despite the fact that the title of the DMA’s Chapter III refers to practices of gatekeepers that limit contestability “or” are unfair.[90]

The confusion between the two policy goals is confirmed in several passages of the text, which refer indiscriminately to contestability “and” fairness.[91] In line with the definition of contestability and fairness provided in the DMA, the table below summarizes the obligations according to protected interests and principal beneficiaries.

The vast majority of the DMA’s provisions seek to promote contestability. Most are clearly described in this way, including explicit references to terms such as contestability, switching, multi-homing, and barriers to entry and expansion.[92] Two of the provisions instead introduce pure transparency obligations. Although they are described as functional to promote contestability and fairness,[93] they do not appear to either affect the imbalance of bargaining power or lower barriers to entry and expansion.

An interesting case is provided by the ban on “sherlocking” (i.e., the use of business users’ data to compete against them), which apparently does not belong to any of the proclaimed goals. Indeed, even if the prohibition is justified to prevent gatekeepers from unfairly benefitting from their dual role,[94] the characterization of the conduct in question does not match the definition of fairness provided in Recital 33.

The goal of fairness is almost always confused (rectius, “intertwined”) with contestability. Indeed, some provisions are justified on grounds that the imposition of contractual terms and conditions by gatekeepers may limit inter-platform contestability.[95] Other provisions are deemed necessary to promote multi-homing and to prevent reinforcing business users’ dependence on gatekeepers’ core platform services.[96] Further, to ensure a “fair commercial environment” and to protect the contestability of the digital sector, the DMA considers it important to safeguard the right to raise concerns about unfair practices by gatekeepers.[97] Moreover, the DMA contends that, since certain services are “crucial” for business users, gatekeepers should not be allowed to leverage their position against their dependent business users and therefore “the freedom of the business user to choose alternative services” should be protected.[98] Finally, the law suggests that some practices should be prohibited because they give gatekeepers a means to capture and lock in new business users and end users, thus raising barriers to entry.[99]

Thus, there is significant definitional overlap between contestability and fairness under the DMA. Further, while Recital 33 links the notion of fairness to the imbalance between business users’ rights and obligations, some provisions also protect end users against unfair practices.[100] The law also embraces fairness as a notion applicable to both contractual terms and market outcomes. Indeed, in order to justify intervention that exceeds traditional antitrust rules, the DMA states that market processes are often incapable of ensuring “fair economic outcomes” with regard to core platform services.[101] In other words, rather than concern itself with specific practices, the DMA’s approach to fairness starts with a presumption that the outcome is unfair and regulates some practices to redress this.

Article 6(12) represents the only provision clearly addressed at ensuring just fairness as defined in Recital 33. Indeed, describing the FRAND access obligation, Recital 62 includes several keywords from that definition, stating that pricing or other general-access conditions should be considered unfair if they lead to an “imbalance of rights and obligations” imposed on business users or confer a “disproportionate advantage” on the gatekeeper. But “fairness” in such circumstances acts as a standard rather than a rule. To avoid the scenario already illustrated with regard to SEPs, Recital 62 provides some benchmarks to determine the fairness of general-access conditions.

Article 5(3) forbids parity clauses, also known as most-favored nation (MFN) agreements or across-platform parity agreements (APPAs). The provision bans both the broad and narrow versions of such clauses, thereby prohibiting gatekeepers from restricting business users’ ability to offer products or services under more favorable conditions through other online intermediation services or through direct online sales channels. The DMA maintains that, while the broad version of the parity clause may limit inter-platform contestability, its narrow version would unfairly restrain business users’ freedom to use direct online sales channels.[102]

To the extent that the rationale for the ban is to protect weak business parties against the superior bargaining power exerted by digital intermediaries, the potential effects of broad and narrow MFNs differ significantly. While broad parity clauses are more likely to produce net anti-competitive effects, efficiency justifications related to the protection of platforms’ investments against the risk of free riding usually prevail in case of narrow parity clauses. Indeed, the original DMA proposal only forbade broad MFNs, as the European Commission has traditionally endorsed a case-by-case analysis of their effects under competition law.[103] The more lenient approach toward narrow MFNs is seen in the new guidelines on vertical restraints, where it is stated that narrow retail-parity obligations are more likely to fulfil the conditions of Article 101(3) TFEU than across-platform retail parity obligations “primarily because their restrictive effects are generally less severe and therefore more likely to be outweighed by efficiencies” and “[m]oreover, the risk of free riding by sellers of goods or services via their direct sales channels may be higher, in particular because the seller incurs no platform commission costs on its direct sales.”[104]

By banning narrow MFNs, the final version of the DMA disregards these efficiency justifications. A more fulsome notion of fairness would be concerned not only with gatekeepers’ disproportionate advantage, but also with the risk of free riding by business users, which may reduce the incentive to invest in platform development.[105] Indeed, relying on the definition provided in Recital 33, this could be a case where fairness may even be invoked by a gatekeeper against business users, because the former may be unable to fully capture the benefits of its own investment.

C.      Data Act

Ambiguity about the notion of fairness also characterizes the proposed Data Act.[106] On the one hand, the proposal pursues the goal of “fairness in the allocation of value from data” among actors in the data economy.[107] This concern stems from the observation that the value of data is concentrated in the hands of relatively few large companies, while the data produced by connected products or related services are an important input for aftermarket, ancillary, and other services.[108] Given this, the Data Act attempts to facilitate access to and use of data by consumers and businesses, while preserving incentives to invest in ways of generating value from data. On the other hand, to ensure fairness in the underpinning data-processing services and infrastructure, the proposal seeks “fairer and more competitive markets” for data-processing services, such as cloud-computing services.[109]

Moreover, such objectives include operationalizing rules to ensure “fairness in data sharing contracts.”[110] Notably, to prevent the exploitation of contractual imbalances that hinder fair data-access and use for small or medium-sized enterprises (SMEs),[111] Chapter IV of the Data Act addresses unfair contractual terms in data-sharing contracts in situations where a contractual term is imposed unilaterally by one party on a SME. The proposal justifies this requirement by assuming that SMEs will typically be in a weaker bargaining position, without meaningful ability to negotiate the conditions for access to data. They are thus often left with no other choice but to accept take-it-or-leave-it contractual terms.[112]

Terms imposed unilaterally on SMEs are subject to an unfairness test,[113] where a contractual term is considered unfair if it is of such a nature that its use grossly deviates from good commercial practice, contrary to good faith and fair dealing.[114] But given how vague and broad concepts such as “gross deviation from good commercial practices” or “contrary to good faith and fair dealing” are, the unfairness test may simply serve to generate further uncertainty, which could be heightened by potential differing interpretations at the national level.

Therefore, rather than outline specific rules, the proposed Data Act opts for a standard-based approach and provides a yardstick to interpret the unfairness test.[115] Article 13 includes a list of terms that are always considered unfair and another list of terms that are presumed to be unfair. If a contractual term is not included in these lists, the general unfairness provision applies. Moreover, model contractual terms recommended by the Commission may assist commercial parties in concluding contracts based on fair terms.

Some terms considered unfair by the Data Act are clearly inspired by the abuse-of-economic-dependence standard.[116] Given the implicit parallel between data dependence and economic dependence, the exclusion of SMEs from the scope of application of Article 13 is not justified.[117] Indeed, abuse-of-economic-dependence cases involve scrutinizing the unfairness of terms and conditions due to the imbalance of bargaining power between business parties, regardless of the size of the players involved. Moreover, in the case of data-sharing contracts, such imbalance would be generated by data dependence, which may also emerge when SMEs exert control over certain data.

In summary, to achieve a greater balance in the distribution of the economic value from data among actors, the fairness of both contractual terms and market outcomes are addressed in the Data Act. The creation of a cross-sectoral governance framework for data access and use aims to ensure contractual fairness by rebalancing the bargaining power of SMEs vis-à-vis large players in data sharing contracts.[118] As a result, fairer and more competitive market outcomes shall be promoted in aftermarkets and in data processing services.[119]

D.     Summary of Findings

Recent EU legislative efforts motivated by the objective of promoting fairness in digital markets have thus far appeared to confirm traditional doubts about the possibility of relying on it as a suitable tool to assess anti-competitiveness.

If fairness has proven to be unsuitable to serve as a substantive standard in EU competition-law enforcement, the shift towards a rule-based approach does not seem to provide a significant improvement. Fairness represents a vague overarching goal. The envisaged black and white rules do not plainly address fairness, which instead is still essentially treated according to a standard-based approach. Moreover, the lack of clarity about the meaning of the term and the boundaries of its scope remains a relevant and thorny issue.

Indeed, the recent initiatives apply fundamentally different concepts of fairness. While the P2B Regulation treats fairness as de facto equivalent to transparency rules, the DMA defines it as referring to an imbalance in bargaining power that prevents a fair share of value among all players that contribute to a platform ecosystem. That definition notwithstanding, almost all of the DMA’s obligations putatively intended to promote fairness are, in effect, addressed at promoting contestability. Furthermore, the only provision clearly aimed at ensuring fairness as defined in the DMA relies on a standard-based approach. In a similar vein, the proposed Data Act treats fairness as a standard, introducing contractual protections based solely on the size of the players (i.e., SMEs) and providing a yardstick to apply the unfairness test.

IV.    Fairness as a Blanket License for Regulatory Intervention

Alongside the apparent difficulties in operationalizing fairness as either a standard or a rule, in practice, the lines separating fairness in the process from the outcomes of competition are inevitably blurred.[120] After all, Commissioner Vestager has not hidden her dissatisfaction with current market outcomes, showing an inclination to evaluate market structure as a proxy for fairness. Despite the efforts to describe efficiency and fairness as converging objectives for competition-policy enforcers, she implicitly acknowledged the trade-off between these goals.[121] Notably, Vestager argued that “[i]t’s true that competition, by its very nature, involves winners and losers. But as long as the social market economy is working properly, the efficiency gains that accrue from this process can be fairly and justly shared across all stakeholders.”

It is hard to deny the fundamental contradiction between defending efficient markets and promoting distributive justice. It is also difficult to reconcile Vestager’s message with the CJEU’s well-established principle that exclusionary effects do not necessarily undermine competition.[122] Indeed, rather than interpret fairness as equality of initial opportunities, Vestager explicitly refers to the fairness of market outcomes.

From this perspective, it would be more coherent to state that the reason why there is no clash between efficiency and fairness is because they perform different functions. While the former acts as a substantive standard for antitrust enforcement, the latter is a mere aspiration that has proven useful for political signaling.

It is not surprising that the recent push to revive fairness considerations in digital markets has originated outside the competition-law framework. Such policy choices implicitly acknowledge the impossibility of using fairness as an alternative standard to competition on the merits in antitrust law. As recently recalled by the CJEU, the ultimate goal of antitrust intervention is the protection of consumer welfare, rather than any particular market structure. The exclusion of as-efficient competitors is key to triggering antitrust liability for competition foreclosure. Therefore, for those who pursue the political agenda of building a fairer society,[123] it is necessary to bypass competition law, arguing—as the DMA does—that it is unfit to address the new challenges posed by digital gatekeepers. Indeed, in the setting of per se regulation, fairness can be invoked to justify more discretion, disregarding economic analysis and demonstration of the anticompetitive effects of conduct.

Against this background, the definition of fairness envisaged by the DMA (as protection against the asymmetric negotiating power of digital gatekeepers vis-à-vis business users to ensure an adequate sharing of the surplus) appears insufficient to provide the much-needed limits to its scope of application. This particular flavor of distributive justice may, indeed, favor regulatory capture, justifying interventions that actually reflect rent-seeking strategies aimed at shielding some legacy players from competition at the expense of consumers.

This is apparently the case with some EU policy initiatives such as the directive on copyright in the Digital Single Market.[124] In line with the proclaimed purpose of achieving “a well-functioning and fair marketplace for copyright,”[125] the directive grants to publishers a right to control the reproduction of digital summaries of press publications, which currently are often offered by information-service providers.[126] The new right aims to address the value gap dispute between digital platforms and news publishers, as the former are accused of capturing a huge share of the advertising revenue that might otherwise go to the latter by free riding on the investments made in producing news content. The argument is that these platforms take advantage of the value created by publishers when they distribute content that they do not produce and for which they do not bear the costs.[127]

Notably, because of publishers’ reliance on some Big Tech platforms for traffic (i.e., Google and Facebook), the latter are deemed to exert substantial bargaining power, which makes it difficult for publishers to negotiate on an equal footing.[128] Accordingly, it has been argued that a harmonized legal protection is needed to put publishers in better negotiating position in their contractual relations with large online platforms.

The European reform has not, however, been guided by an evidence-led approach. Indeed, there is no empirical evidence to support the free-riding narrative.[129] It relies merely on evidence of the crisis in the newspaper industry, without proof of the claim that digital infomediaries negatively impact legacy publishers by displacing online traffic. Looking at the previous ancillary-rights solutions at the national level (i.e., in Germany and Spain), empirical results show no evidence of a substitution effect, but rather demonstrate the existence of a market-expansion effect. This therefore proves that online news aggregators complement newspaper websites and may benefit them in terms of increased traffic and more advertising revenue. Such aggregators allow consumers to discover news outlets’ content that they would not otherwise be aware of, while reducing search times and enabling readers to consume more news.[130]

In a similar vein, as part of the 2030 digital-policy program,[131] the Commission and other European institutions appear set to deliver another legislative initiative that would force some large online platforms to contribute to the cost of telecommunications infrastructure.[132] Indeed, telecom operators claim that internet-traffic markets are unbalanced, arguing that just a few large online companies generate a significant portion of all network traffic, but they do not adequately contribute to the development of such networks[133]. As the argument goes, while network operators bear massive investments to ensure connectivity, digital platforms free ride on the infrastructure that carries their services.

Moreover, strong competition in the retail telecommunications market and regulatory interventions on the wholesale level have contributed to declining profit margins for telecom firms’ traditional retail revenue streams. Therefore, telecom operators argue that their costs of capital are higher than their returns on capital. Finally, network operators complain that they are not in a position to negotiate fair terms with these platforms due to their strong market positions, asymmetric bargaining power, and the lack of a level regulatory playing field. Hence, they argue, a legislative intervention is needed to address such imbalances and ensure a fair share of network usage costs are financed by large online content providers.[134]

Following this path, the EU Council has recently supported the view expressed in the European Declaration on Digital Rights and Principles for the Digital Decade that it is necessary to develop adequate frameworks so that “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.”[135]

The arguments advanced by telecom operators to support introducing a network-fee payment scheme would amount to a sending-party-network-pays system. Such proposals are not new, and they have already been rejected. As the Body of European Regulators for Electronic Communications (BEREC) noted 10 years ago, such proposals overlook that it is the success of content providers that lies at the heart of increases in demand for broadband access.[136] Indeed, requests for data flows stem not from content providers. but from internet consumers, from whom internet service providers already derive revenues.[137] From this perspective, both sides of the market (content providers and end users) already contribute to paying for Internet connectivity.[138] Further, “[t]his 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.”[139]

Moreover, by charging Big Tech firms, the proposal may clash with the legal obligation of equal treatment that ensues from the Net Neutrality Regulation,[140] which has been justified under the opposite view that is it broadband providers who enjoy endemic market power as terminating-access monopolies, and hence should be precluded from discriminating against some traffic.[141] From this perspective, it would be difficult to justify an intervention intended 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 without repealing the Net Neutrality Regulation.

BEREC recently affirmed its view in a preliminary assessment of the mechanism of direct compensation to telecom operators.[142] Changes in the traffic patterns do not modify the underlying assumptions regarding the sending-party-network-pays charging regime, therefore “the 2012 conclusions are still valid.”[143] The sending-party-network-pays model, BEREC argues, would provide ISPs “the ability to exploit the termination monopoly” and such a significant change could be of “significant harm to the internet ecosystem.”[144] Further, BEREC questioned the assumption that an increase in traffic directly translates into higher costs, noting that the costs of internet-network upgrades necessary to handle an increased traffic volume are very low relative to total network costs, while upgrades come with a significant increase in capacity.[145] Moreover, BEREC once again found no evidence of free riding along the value chain[146]: the IP-interconnection ecosystem is still largely competitive and the costs of internet connectivity are typically covered and paid for by ISP customers.

V.      Conclusion

Like the sirens’ music in the Odyssey, fairness exerts an irresistible allure. By evoking principles of equity and justice, fairness makes it hard for anyone to disagree with the pursuit of a goal that would make not just markets, but the whole society better off. As Homer warned, however, the rhetoric may be deceptive and designed to distract from the proper path. We see such risk in the call for fairness to serve as the guiding principle of EU competition policy in digital markets.

The experience of EU competition-law enforcement is illustrative of the difficulties inherent in relying on fairness as an applicable standard. It also underscores why enforcers have traditionally been reluctant to do so. Indeed, attempts to evaluate the unfairness of prices have required courts and competition authorities to identify economic values, while the struggle in finding agreement on the economic definition of what is fair has generated a wave of litigation in the SEP-licensing scenario. Therefore, while seeking refuge in the “ordinary meaning of the word” is apparently useless, envisaging an economic proxy for fairness is particularly challenging.

Despite this background, the EU institutions have embarked on a mission to appoint fairness as the lodestar of policy in digital markets. The DMA offers one definition of fairness, while all the other initiatives (P2B Regulation, the proposed Data Act, the Copyright Directive, and the ongoing discussion on the cost of telecom infrastructure) are likewise moved to address imbalances in bargaining power that do not guarantee that surplus will be adequately shared among market participants. On closer inspection, however, the initiatives are not fully consistent with any particular definition. The notion of fairness is often merged with contestability and is invoked to protect a wide range of stakeholders (business users, end users, rivals, or just small players), even when there is no evidence of disproportionate advantage for large online companies. Moreover, rather than being translated into specific rules, fairness is still primarily promoted according to a standard-based approach.

The revival of fairness considerations appears motivated primarily by policymakers’ desire to be free of any significant procedural constraints. An analogous policy trend can be seen among U.S. authorities, who likewise question the role of efficiency in antitrust enforcement and call for a “return to fairness.”[147] In the name of fairness, various business practice, strategies, and contractual terms can be evaluated without incurring the burden of economic analysis. And even the market structure can be questioned.

Fairness has the power to transform policymakers into judges, deciding what is right and who is worthy, which is a temptation that would require the sagacious foresight of Ulysses.

[1] Giuseppe Colangelo, Antitrust Unchained: The EU’s Case Against Self-Preferencing, International Center for Law & Economics (Oct. 7, 2022) ICLE White Paper, https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4227839.

[2] Jonathan Kanter, Remarks at New York City Bar Association’s Milton Handler Lecture, U.S. Justice Department (May 18, 2022) https://www.justice.gov/opa/speech/assistant-attorney-general-jonathan-kanter-delivers-remarks-new-york-city-bar-association.

[3] Ibid.

[4] See, e.g., Amelia Miazad, Prosocial Antitrust, 73 Hastings Law J. 1637 (2022); Dina I. Waked, Antitrust as Public Interest Law: Redistribution, Equity and Social Justice, 65 Antitrust Bull. 87 (Feb. 28, 2020); Ioannis Lianos, Polycentric Competition Law, 71 Curr Leg Probl 161 (Dec. 1, 2018); Lina M. Khan & Sandeep Vaheesan, Market Power and Inequality: The Antitrust Counterrevolution and its Discontents, 11 Harv. L. & Pol’y Rev. 235 (2017). See also Margrethe Vestager, Fairness and Competition Policy, European Commission (Oct. 10, 2022), https://ec.europa.eu/commission/presscorner/detail/en/SPEECH_22_6067, arguing that properly functioning markets become an instrument of social change and progress as, e.g., “keeping markets open to smaller players and new entrants benefits female entrepreneurs and entrepreneurs with a migrant background.”

[5] Eleanor M. Fox, The Battle for the Soul of Antitrust, 75 Cal. L. Rev. 917 (May 1987).

[6] Kanter, supra note 2; See also Alvaro M. Bedoya, Returning to Fairness, Federal Trade Commission, 2 (Sep. 22, 2022), available at https://www.ftc.gov/system/files/ftc_gov/pdf/returning_to_fairness_prepared_remarks_commissioner_alvaro_bedoya.pdf, noting that “when Congress convened in 1890 to debate the Sherman Act, they did not talk about efficiency.”; See also Waked, supra note 4, framing antitrust as public-interest law and arguing that a sole focus on efficiency goals is inconsistent with the history of antitrust; For analysis of the conceptual links among competition, competition law, and democracy in the EU and the United States, see Elias Deutscher, The Competition-Democracy Nexus Unpacked—Competition Law, Republican Liberty, and Democracy, Yearbook of European Law (forthcoming), arguing that the idea of a competition-democracy nexus can only be explained through the republican conception of liberty as nondomination; In a similar vein, see Oisin Suttle, The Puzzle of Competitive Fairness, 21 PPE 190 (Mar. 7, 2022), distinguishing competitive fairness from equality of opportunity, sporting fairness (e.g., a level playing field), and economic efficiency, and arguing that competitive fairness is justified under the republican ideal of nondomination, namely the status of being a free agent protected from subjection to arbitrary interference.

[7] Bedoya, supra note 6, 8.

[8] See, e.g., Louis B. Schwartz, “Justice” and Other Non-Economic Goals of Antitrust, 127 Univ PA Law Rev 1076 (1979); John J. Flynn, Antitrust Jurisprudence: A Symposium on the Economic, Political and Social Goals of Antitrust Policy, 125 Univ PA Law Rev 1182 (1977).

[9] Eleanor M. Fox, Modernization of Antitrust: A New Equilibrium, 66 Cornell L. Rev. 1140 (August 1981).

[10] Kanter, supra note 2; See also Bedoya, supra note 6, 5, stating that “[w]hen antitrust was guided by fairness, these farmers’ families were part of a thriving middle class across rural America. After the shift to efficiency, their livelihoods began to disappear.”

[11] See Anu Bradford, Adam S. Chilton, & Filippo Maria Lancieri, The Chicago School’s Limited Influence on International Antitrust, 87 U Chi L Rev 297 (2020), arguing that the influence of the Chicago School has been more limited outside the United States.

[12] Niamh Dunne, Fairness and the Challenge of Making Markets Work Better, 84 Mod Law Rev 230, 236 (March 2021).

[13] Christian Ahlborn & Jorge Padilla, From Fairness to Welfare: Implications for the Assessment of Unilateral Conduct Under EC Competition Law, in Claus-Dieter Ehlermann & Mel Marquis (eds.), European Competition Law Annual 2007: A Reformed Approach to Article 82 EC (Hart Publishing, 2008), 55, 61-62; See also Vestager, supra note 4, stating that “[f]airness is what motivated us to take a look at the working conditions of the solo self-employed. … And fairness is what we considered first in our design of the Temporary Crisis Framework – avoiding subsidy races while ensuring those most affected by the crisis can receive the support they need.”

[14] See, e.g., Dunne, supra note 12, 237; Maurits Dolmans & Wanjie Lin, How to Avoid a Fairness Paradox in EU Competition Law, in Damien Gerard, Assimakis Komninos, & Denis Waelbroeck (eds.), Fairness in EU Competition Policy: Significance and Implications, GCLC Annual Conference Series, Bruylant (2020), 27-76; Francesco Ducci & Michael Trebilcock, The Revival of Fairness Discourse in Competition Policy, 64 Antitrust Bull. 79 (Feb. 12, 2019); Harri Kalimo & Klaudia Majcher, The Concept of Fairness: Linking EU Competition and Data Protection Law in the Digital Marketplace, 42 Eur. Law Rev. 210 (2017).

[15] See Einer Elhauge, Should The Competitive Process Test Replace The Consumer Welfare Standard?, ProMarket (May 24, 2022), https://www.promarket.org/2022/05/24/should-the-competitive-process-test-replace-the-consumer-welfare-standard; Herbert Hovenkamp, The Slogans and Goals of Antitrust Law, Faculty Scholarship at Penn Carey Law. 2853, (Jun. 2, 2022) https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4121866.

[16] See Bart J. Wilson, Contra Private Fairness, 71 Am J Econ Sociol 407 (April 2012), arguing that the understanding and use of the term “fair” in economics can be described as muddled, at best.

[17] Daniel Kahneman, Jack L. Knetsch, & Richard Thaler, Fairness as a Constraint on Profit Seeking: Entitlements in the Market, 76 Am Econ Rev 728 (September 1986); See also Ernst Fehr & Klaus M. Schmidt, A Theory of Fairness, Competition, and Cooperation, 114 Q J Econ 817 (August 1999).

[18] Louis Kaplow & Steven Shavell, Fairness Versus Welfare, Harvard University Press (2002).

[19] United States v. Trans-Mo. Freight Ass’n, 166 U.S. 290, 323 (1897); See Bedoya, supra note 6, 2, arguing that “today, it is axiomatic that antitrust does not protect small business. And that the lodestar of antitrust is not fairness, but efficiency” (emphasis in original); See also Margrethe Vestager, The Road to a Better Digital Future, European Commission (Sep. 22, 2022), https://ec.europa.eu/commission/presscorner/detail/en/SPEECH_22_5763, welcoming the Digital Markets Act because it will empower the EU “to make sure large digital platforms do not squeeze out small businesses.”

[20] Policy Statement Regarding the Scope of Unfair Methods of Competition Under Section 5 of the Federal Trade Commission Act, U.S. Federal Trade Commission (Nov. 10, 2022), https://www.ftc.gov/legal-library/browse/policy-statement-regarding-scope-unfair-methods-competition-under-section-5-federal-trade-commission.

[21] Ibid., footnotes 15, 18, and 21.

[22] Lina M. Khan, Rebecca Kelly Slaughter, Alvaro M. Bedoya, On the Adoption of the Statement of Enforcement Policy Regarding Unfair Methods of Competition Under Section 5 of the FTC Act, U.S. Federal Trade Commission (Nov. 10, 2022), 1, https://www.ftc.gov/legal-library/browse/cases-proceedings/public-statements/statement-of-chair-khan-commissioners-slaughter-bedoya-on-policy-statement-regarding-section-5.

[23] Christine S. Wilson, Dissenting Statement Regarding the Policy Statement Regarding the Scope of Unfair Methods of Competition Under Section 5 of the Federal Trade Commission Act, U.S. Federal Trade Commission (Nov. 10, 2022), 1-3,  https://www.ftc.gov/legal-library/browse/cases-proceedings/public-statements/dissenting-statement-of-commissioner-wilson-on-policy-statement-regarding-section-5, also arguing that “[t]he only crystal-clear aspect of the Policy Statement pertains to the process following invocation of an adjective: after labeling conduct ‘facially unfair,’ the Commission plans to skip an in-depth examination of the conduct, its justifications, and its potential consequences.”

[24] See, e.g., Konstantinos Stylianou & Marios Iacovides, The Goals of EU Competition Law: A Comprehensive Empirical Investigation, Leg Stud (forthcoming), reporting the various goals mentioned in speeches by EU commissioners during their terms in office; Dunne, supra note 12, 238, noting that Vestager invoked fairness in 85% of speeches in her first term in office.

[25] Margrethe Vestager, Fair Markets in a Digital World, European Commission (Mar. 9, 2018), https://wayback.archive-it.org/12090/20191129214609/https://ec.europa.eu/commission/commissioners/2014-2019/vestager/announcements/fair-markets-digital-world_en.

[26] Ibid.

[27] Ibid.

[28] Margrethe Vestager, Competition and Fairness in a Digital Society, European Commission (Nov. 22, 2018) https://perma.cc/VF53-2ULV.

[29] Margrethe Vestager, Competition in a Digital Age, European Commission (Mar. 17, 2021), https://ec.europa.eu/commission/commissioners/2019-2024/vestager/announcements/competition-digital-age_en.

[30] Margrethe Vestager, What Is Competition For?, European Commission (Nov. 4, 2021), https://ec.europa.eu/commission/commissioners/2019-2024/vestager/announcements/speech-evp-margrethe-vestager-danish-competition-and-consumer-authority-2021-competition-day-what_en.

[31] See, e.g., Margrethe Vestager, Fairness and Competition, European Commission (Jan. 25, 2018), https://perma.cc/XXC2-7P7J; Margrethe Vestager, Making the Decisions that Count for Consumers, European Commission (May 31, 2018) https://perma.cc/BU47-D95T.

[32] Vestager, supra note 25.

[33] Margrethe Vestager, A Responsibility to Be Fair, European Commission (Sep. 3, 2018), https://perma.cc/AC36-B4KS.

[34] Thibault Schrepel, Antitrust Without Romance, 13 N. Y. Univ. J. Law Lib. 326 (May 4, 2020); As noted by Dolmans & Lin, supra note 14, 38, fairness, “with its moral overtones, confers a rhetorical flourish and sense of intrinsic righteousness when used to describe an act or situation.”; However, see Sandra Marco Colino, The Antitrust F Word: Fairness Considerations in Competition Law, 5 J. Bus. Law 329, 343 (2019), arguing that “[i]t makes little sense to defend a competition policy that develops with its back purposefully turned to the attainment of moral and social justice.”; For a more balanced reading, see Johannes Laitenberger, Fairness in EU Competition Law Enforcement, European Commission (Jun. 20, 2018) https://ec.europa.eu/competition/speeches/text/sp2018_10_en.pdf, arguing that “while ‘fairness’ is a guiding principle, it is not an instrument that competition enforcers can use off the shelf to go about their work in detail. In each and every case the Commission looks into, it must dig for evidence; conduct rigorous economic analysis; and check findings against the law and the guidance provided by the European Courts.”

[35] Margrethe Vestager, Competition for a Fairer Society, European American Chamber of Commerce (Sep. 29, 2016) https://eaccny.com/news/chapternews/eu-commissioner-margrethe-vestager-competition-for-a-fairer-society; see also Margrethe Vestager, Antitrust for the Digital Age, European Commission (Sep. 16, 2022) https://ec.europa.eu/commission/presscorner/detail/en/SPEECH_22_5590, arguing that the power that large platforms wield “is not just an issue for fair competition; it is an issue for our very democracies” and that the most important goal of competition policy is to make markets work for people; Margrethe Vestager, Keynote at the Making Markets Work for People Conference, European Commission (Oct. 27, 2022) https://ec.europa.eu/commission/presscorner/detail/en/SPEECH_22_6445, stating that “[t]he only policy goal for markets is to serve the people.”; on the social rationale of competition law, see Damien Gerard, Fairness in EU Competition Policy: Significance and Implications, 9 J. Eur. Compet 211 (2018).

[36] Vestager, supra note 4, stating that “[w]e are on the side of the people, sometimes when no one else is.”; in a similar vein, on the U.S. side, see Bedoya, supra note 6, 9, describing antitrust as a way to protect “people living paycheck to paycheck” (“For me, that’s what antitrust is about: your groceries, your prescriptions, your paycheck. I want to make sure the Commission is helping the people who need it the most.”); see also Ariel Ezrachi & Maurice E. Stucke, The Fight over Antitrust’s Soul, 9 J. Eur. Compet 1 (2018), arguing that “[u]ltimately the divide is over the soul of antitrust: Is antitrust solely about promoting some form of economic efficiency (or as cynics argue, the interests of the powerful who hide behind a narrow utilitarian approach) or the welfare of the powerless (the majority of citizens who feel increasingly disenfranchised by big government and big business)?”; see also Adi Ayal, Fairness in Antitrust: Protecting the Strong from the Weak, Hart (2016).

[37] Vestager, supra note 28; see also @vestager, Twitter (Nov 8, 2022, 4:39 AM) https://twitter.com/vestager/status/1589915517833412610, featuring Vestager’s reaction to the European Court of Justice’s (CJEU) judgment annulling the Commission’s decision that found Luxembourg had granted selective tax advantages to Fiat in Fiat Chrysler Finance Europe v. Commission.

[38] There is an extensive literature devoted to investigating the tradeoffs between rules and standards: see, e.g., Daniel A. Crane, Rules Versus Standards in Antitrust Adjudication, 64 Wash. Lee Law Rev. 49 (2007); Louis Kaplow, Rules Versus Standards: An Economic Analysis, 42 Duke L.J. 557 (1992); Isaac Ehrlich & Richard A. Posner, An Economic Analysis Of Legal Rulemaking, 3 J. Leg. Stud. 257 (January 1974).

[39] See, e.g., CJEU, Case C-127/73, Belgische Radio en Televisie and Société Belge des Auteurs, Compositeurs et Editeurs v. SV SABAM and NV Fonior (Mar. 27, 1974), EU:C:1974:25, para. 15, holding that an exploitative abuse may occur when “the fact that an undertaking entrusted with the exploitation of copyrights and occupying a dominant position … imposes on its members obligations which are not absolutely necessary for the attainment of its object and which thus encroach unfairly upon a member’s freedom to exercise his copyright.”

[40] European Commission, Case IV/31.043, Tetra Pak II (Jul. 24, 1991), paras. 105-108, (1992) OJ L 72/1.

[41] European Commission, Case COMP D3/34493, DSD (Apr. 20, 2001), para. 112, (2001) OJ L 166/1; affirmed in GC, Case T-151/01, DerGrünePunkt – Duales System DeutschlandGmbH v. European Commission (May 24, 2007), EU:T:2007:154 and CJEU, Case C-385/07 P (Jul. 16, 2009), EU:C:2009:456.

[42] See European Commission, Case COMP/E-2/36.041/PO, Michelin (Michelin II) (Jun. 20, 2001), paras. 220-221 and 223-224, (2002) OJ L143/1, arguing that a discount program was unfair because it “placed [Michelin’s dealers] in a situation of uncertainty and insecurity,” because “it is difficult to see how [Michelin’s dealers] would of their own accord have opted to place themselves in such an unfavourable position in business terms,” and because Michelin’s retailers were not in a position to carry out “a reliable evaluation of their cost prices and therefore [could not] freely determine their commercial strategy.”

[43] Opinion of Advocate General Pitruzzella, Case C-372/19, Belgische Vereniging van Auteurs, Componisten en Uitgevers CVBA (SABAM) v. Weareone.World BVBA, Wecandance NV (Jul. 16, 2020), EU:C:2020:598, para. 21; see also Marco Botta, Sanctioning Unfair Pricing Under Art. 102(a) TFEU: Yes, We Can!, 17 Eur. Compet. J. 156 (2021); for an overview of recent case law, see Giovanni Pitruzzella, Recent CJEU Case Law on Excessive Pricing Cases, in The Interaction of Competition Law and Sector Regulation: Emerging Trends at the National and EU Level (Marco Botta, Giorgio Monti, and Pier Luigi Parcu, eds.), Elgar 2022, 169; Margherita Colangelo, Excessive Pricing In Pharmaceutical Markets: Recent Cases in Italy and in the EU, ibid., 210.

[44] Dolmans & Lin, supra note 14, 59-60; see also Botta, supra note 43, arguing that, since the imposition of excessive prices by a dominant firm directly harms consumer welfare, the resurgence of excessive-pricing cases is linked to the role of consumer’s welfare standard in EU competition policy.

[45] CJEU, Case C-27/76, United Brands Company and United Brands Continental BV v. Commission of the European Communities (Feb. 14, 1978) EU:C:1978:22.

[46] CJEU, Case C-372/19, Belgische Vereniging van Auteurs, Componisten en Uitgevers CVBA (SABAM) v. Weareone.World BVBA, Wecandance NV (Nov. 25, 2020), EU:C:2020:959.

[47] United Brands, supra note 45, para. 252, holding that the questions to be determined are “whether the differences between the costs actually incurred and the price actually charged is excessive, and, if the answer to this question is in the affirmative, whether a price has been imposed which is either unfair in itself or when compared to competing products.”

[48] CJEU, Case C-177/16, Autortiesi?bu un Komunice?s?ana?s Konsulta?ciju Ag?entu?ra v. Latvijas Autoru Apvieni?ba v Konkurences Padome (Sep. 14, 2017), EU:C:2017:689, para. 49.

[49] Opinion of Advocate General Wahl, Case C-177/16 (Apr. 6, 2017), EU:C:2017:286, para. 131.

[50] See European Commission, Guidance on the Commission’s enforcement priorities in applying Article 82 of the EC Treaty to abusive exclusionary conduct by dominant undertakings, (2009) OJ C 45/7, para. 80; CJEU, 14 October 2010, Case C-280/08 P, Deutsche Telekom AG v. European Commission, EU:C:2010:603; CJEU, 17 February 2011, Case C-52/09, Konkurrensverket v. TeliaSonera Sverige AB, EU:C:2011:83; CJEU, 10 July 2014, Case C?295/12 P, Telefónica SA and Telefónica de España SAU v. European Commission, EU:C:2014:2062; CJEU, 25 March 2021, Case C-165/19 P, Slovak Telekom a.s. v. Commission, EU:C:2021:239.

[51] However, in Teliasonera (supra note 50), the CJEU found that there can be an exclusionary abuse even where the margin level of input purchasers is positive (so-called positive margin squeeze theory), being enough that rivals’ margins are insufficient, for instance because they must operate at artificially reduced levels of profitability.

[52] On the US side, rejecting margin squeeze as a stand-alone offense, the Supreme Court in Pacific Bell Tel. Co. v. linkLine, 555 U.S. 438 (2009) argued that it is nearly impossible for courts to determine the fairness of rivals’ margins and quoted Town of Concord v. Boston Edison Co., 915 F. 2d 17, 25 (1st Cir. 1990) asking “how is a judge or jury to determine a ‘fair price?’ Is it the price charged by other suppliers of the primary product? None exist. Is it the price that competition ‘would have set’ were the primary level not monopo­lized? How can the court determine this price without examining costs and demands, indeed without acting like a rate-setting regulatory agency, the rate-setting proceedings of which often last for several years? Further, how is the court to decide the proper size of the price ‘gap?’ Must it be large enough for all inde­pendent competing firms to make a ‘living profit,’ no matter how inefficient they may be? . . . And how should the court respond when costs or demands change over time, as they inevitably will?”

[53] For an overview, see Oscar Borgogno & Giuseppe Colangelo, Disentangling the FRAND Conundrum, DEEP-IN Research Paper (2019), https://ssrn.com/abstract=3498995.

[54] CJEU, Case C-170/13, Huawei Technologies Ltd. v. ZTE Corp. (Jul. 16, 2015), EU:C:2015:477.

[55] Nicolas Petit & Amandine Le?onard, FRAND Royalties: Relus v Standards? Chi.-Kent J. Intell. Prop. (forthcoming).

[56] For an overview, see Giuseppe Colangelo, The European Digital Markets Act and Antitrust Enforcement: A Liaison Dangereuse, 47Eur. Law Rev. 597 (July 2022); see also Inge Graef, Differentiated Treatment in Platform-to-Business Relations: EU Competition Law and Economic Dependence, 38 Yearbook of European Law 448 (2019), suggesting giving a stronger role to economic dependence both within and outside EU competition law.

[57] Council Regulation (EC) No. 1/2003 of 16 December 2002 on the implementation of the rules on competition laid down in Articles 81 and 82 of the Treaty, [2003] OJ L 1/1.

[58] Belgian Royal Decree of 31 July 2020 amending books I and IV of the Code of economic law as concerns the abuse of economic dependence, Article 4.

[59] GWB Digitalization Act, 18 January 2021, Section 20.

[60] Italian Annual Competition Law, 5 August 2022, No. 118, Article 33.

[61] CJEU, Case C-377/20, Servizio Elettrico Nazionale SpA v. Autorità Garante della Concorrenza e del Mercato (May 12, 2022), EU:C:2022:379.

[62] Ibid., para. 46.

[63] CJEU, Case C-413/14 P, Intel v. Commission (Sep. 6, 2017), EU:C:2017:632, paras. 133-134. The same principle has been affirmed in discrimination and margin-squeeze cases, such as CJEU, C?525/16, MEO v. Autoridade da Concorrência (Apr. 19, 2018), EU:C:2018:270 and CJEU, Case C-209/10, Post Danmark A/S v. Konkurrencerådet (Mar. 27, 2012), EU:C:2012:172, respectively.

[64] CJEU, Intel, supra note 63, para. 73; see Alfonso Lamadrid de Pablo, Competition Law as Fairness, 8 J. Eur. Compet 147 (Feb. 15, 2017), arguing that the notion of merit-based competition implicitly carries in it a sense of fairness, understood as equality of opportunity; see also Alberto Pera, Fairness, Competition on the Merits and Article 102, 18 Eur. Compet. J. 229 (April 2022).

[65] Regulation (EU) 2019/1150 of the European Parliament and of the Council of 20 June 2019 on promoting fairness and transparency for business users of online intermediation services, [2019] OJ L 186/57.

[66] Ibid., Article 1(1).

[67] Ibid., Recital 2.

[68] Ibid., Recital 49.

[69] European Commission, Shaping Europe’s Digital Future, COM(2020) 67 final.

[70] Ibid., 8-9.

[71] Ibid., 8.

[72] 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.

[73] Ibid., Recital 7.

[74] Ibid., Recital 2.

[75] Ibid., Recitals 2 and 4.

[76] Ibid., Recitals 46, 47, 51, 56, and 57.

[77] Colangelo, supra note 60; see also Oscar Borgogno & Giuseppe Colangelo, Platform and Device Neutrality Regime: The New Competition Rulebook for App Stores?, 67 Antitrust Bull. 451 (2022).

[78] DMA, supra note 72, Recital 5.

[79] Ibid.

[80] Ibid.

[81] Ibid.

[82] Ibid., Recital 11.

[83] Pinar Akman, Regulating Competition in Digital Platform Markets: A Critical Assessment of the Framework and Approach of the EU Digital Markets Act, 47 Eur. Law Rev. 85 (Mar. 30, 2022); Colangelo, supra note 60; Heike Schweitzer, The Art to Make Gatekeeper Positions Contestable and the Challenge to Know What Is Fair: A Discussion of the Digital Markets Act Proposal, 3 ZEuP 503 (May 7, 2021).

[84] DMA, supra note 72, Recital 32. See also Article 12(5).

[85] Ibid..

[86] Ibid., Recital 33 and Article 12(5); see also Recital 62 providing some benchmarks that can serve as a yardstick to determine the fairness of general access conditions (i.e., prices charged or conditions imposed for the same or similar services by other providers of software application stores; prices charged or conditions imposed by the provider of the software application store for different related or similar services or to different types of end users; prices charged or conditions imposed by the provider of the software application store for the same service in different geographic regions; prices charged or conditions imposed by the provider of the software application store for the same service the gatekeeper provides to itself).

[87] Ibid.; see also Monopolkomission, Recommendations for an Effective and Efficient Digital Markets Act, (2021) 15, https://www.monopolkommission.de/en/reports/special-reports/special-reports-on-own-initiative/372-sr-82-dma.html, recommending that the DMA objective of fairness should address the economic dependence of business users vis-a?-vis a gatekeeper, and hence the asymmetric negotiating power favoring the gatekeeper; see also Gregory S. Crawford, Jacques Cre?mer, David Dinielli, Amelia Fletcher, Paul Heidhues, Monika Schnitzer, Fiona M. Scott Morton, & Katja Seim, Fairness and Contestability in the Digital Markets Act, Yale Digital Regulation Project, Policy Discussion Paper No. 3 (2021), 4-10, https://tobin.yale.edu/sites/default/files/Digital%20Regulation%20Project%20Papers/Digital%20Regulation%20Project%20-%20Fairness%20and%20Contestability%20-%20Discussion%20Paper%20No%203.pdf, supporting the interpretation of fairness with respect to surplus sharing. According to the authors, since a platform ecosystem is a co-creation of the platform itself and its users, regulation should correct the distortion related to unfair outcomes when users are not rewarded for their contribution to the success of the platform.

[88] DMA, supra note 72, Recital 34.

[89] Ibid.; see also Recital 16 referring to “unfair practices weaking contestability.”; see, instead, Monopolkomission, supra note 87, 16, suggesting to clearly distinguish the objectives pursued by the DMA, which should be understood such that only ecosystem-related questions of contestability are addressed by the DMA when it comes to the intersection of exclusion and fairness with exploitation of business users.

[90] See also DMA, supra note 72, Articles 12(1, 3, 4, and 5), 19(1), 41(3 and 4), and Recitals 15, 69, 77, 79, 93.

[91] Ibid., Articles 1(1 and 5), 18(2), 40(7), 53 (2 and 3), and Recitals 8, 11, 28, 31, 42, 45, 50, 58, 67, 73, 75, 97, 104, 106.

[92] Ibid., Recital 36 regarding Article 5(2), Recital 50 regarding Article 6(4), Recital 51 regarding Article 6(5), Recital 53 regarding Article 6(6), Recital 59 regarding Article 6(9), Recital 61 regarding Article 6(11), Recital 64 regarding Article 7.

[93] Ibid., Recital 45 regarding Article 5(9-10) and Recital 58 regarding Article 6(8).

[94] Ibid., Recital 46; see also European Commission, 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 (Nov. 10, 2020), https://ec.europa.eu/commission/presscorner/detail/en/ip_20_2077.

[95] DMA, supra note 72, Recital 39 regarding Article 5(3).

[96] Ibid., Recital 40 regarding Article 5(4).

[97] Ibid., Recital 42 regarding Article 5(6).

[98] Ibid., Recital 43 regarding Article 5(7).

[99] Ibid., Recital 44 regarding Article 5(8).

[100] Ibid., Articles 5(6), 5(8), and 6(13); see also Recital 2 referring to the impact on “the fairness of the commercial relationship between [gatekeepers] and their business users and end users.”

[101] Ibid., Recital 5; see also Recital 42 referring to “fair commercial environment.”

[102] Ibid., Recital 39.

[103] Commission Staff Working Document accompanying the Report from the Commission to the Council and the European Parliament Final Report on the E-commerce Sector Inquiry, SWD(2017) 154 final. Conversely, in Germany, the Federal Supreme Court has supported the Bundeskartellamt’s strict approach against narrow price parity clauses used. See Bundesgerichtshof, Case KVR 54/20, Booking.com (May 18, 2021).

[104] European Commission, Guidelines on Vertical Restraints (2022) OJ C 248/1, para. 374.

[105] Ibid., para. 372.

[106] European Commission, Proposal for a Regulation of the European Parliament and of the Council on Harmonised Rules on Fair Access and Use of Data (Data Act), COM(2022) 68 final; see also Giuseppe Colangelo, European Proposal for a Data Act – A First Assessment, CERRE Assessment Paper (Aug. 30, 2022) https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4199565.

[107] Data Act, supra note 106, Explanatory Memorandum, 2.

[108] Ibid., Recital 6 and Explanatory Memorandum, 1.

[109] European Commission, Inception Impact Assessment – Data Act, Ares (2021) 3527151, 1, https://ec.europa.eu/info/law/better-regulation/have-your-say/initiatives/13045-Data-Act-amended-rules-on-the-legal-protection-of-databases_en,1-2.

[110] Data Act, supra note 106, Explanatory Memorandum, 3.

[111] Ibid., Recital 5.

[112] Ibid., Recital 51 and Explanatory Memorandum, 13

[113] Ibid., Recital 52

[114] Ibid., Article 13(2).

[115] Ibid., Recital 55.

[116] See, e.g., ibid., Article 13(4)(e), according to which a contractual term is presumed unfair if its object or effect is to enable the party that unilaterally imposed the term to terminate the contract with unreasonably short notice, taking into consideration the reasonable possibilities of the other contracting party to switch to an alternative and comparable service and the financial detriment caused by such termination.

[117] Colangelo, supra note 106.

[118] European Commission, supra note 109, 2.

[119] Ibid..

[120] Dunne, supra note 12, 239; see also Massimo Motta, Competition Policy: Theory and Practice, Cambridge University Press, 2004, 26, distinguishing between ex ante equity, which is consistent with competition policy and implies equal initial opportunities of firms in the marketplace, and ex post equity representing equal outcomes of market competition.

[121] Vestager, supra note 4.

[122] CJEU, supra notes 61 and 63; see also Opinion of Advocate General Rantos, Case C?377/20, Servizio Elettrico Nazionale SpA v. Autorità Garante della Concorrenza e del Mercato (Dec. 9, 2021), EU:C:2021:998, para. 45, arguing that if any conduct having an exclusionary effect were automatically classed as anticompetitive, antitrust would become a means for protecting less-capable, less-efficient undertakings and would in no way protect more meritorious undertakings that can serve as a stimulus to a market’s competitiveness.

[123] Vestager, supra note 28.

[124] 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.

[125] Ibid., Recital 3.

[126] Ibid., Article 15.

[127] See Giuseppe Colangelo, Enforcing Copyright Through Antitrust? The Strange Case of News Publishers Against Digital Platforms, 10 J. Antitrust Enforc 133 (Jun. 22, 2022).

[128] Directive 2019/790, supra note 124, Recitals 54 and 55; see also European Commission, Impact Assessment on the Modernisation of EU Copyright Rules, SWD(2016) 301 final, §5.3.1, arguing that the gap in the current EU rules “further weakens the bargaining power of publishers in relation to large online service providers.”

[129] Ibid.; see also Lionel Bently, Martin Kretschmer, Tobias Dudenbostel, Maria Del Carmen Calatrava Moreno, & Alfred Radauer, Strengthening the Position of Press Publishers and Authors and Performers in the Copyright Directive, European Parliament (September 2017) http://www.europarl.europa.eu/RegData/etudes/STUD/2017/596810/IPOL_STU(2017)596810_EN.pdf.

[130] See, e.g., Susan Athey, Markus Mobius, & Jeno Pal, The Impact of Aggregators on Internet News Consumption, NBER Working Paper No. 28746 (2021), http://www.nber.org/papers/w28746; Joan Calzada & Ricard Gil, What Do News Aggregators Do?, 39 Mark. Sci. 134 (2020); Joint Research Centre for the European Commission, Online News Aggregation and Neighbouring Rights for News Publishers, (2017) https://www.asktheeu.org/en/request/4776/response/15356/attach/6/Doc1.pdf.

[131] See European Commission, 2030 Digital Compass: the European Way for the Digital Decade, COM/2021/118 final; and European Commission, Proposal for a Decision of the European Parliament  and of the Council Establishing the 2030 Policy Programme “Path to the Digital Decade,” (2021) https://data.consilium.europa.eu/doc/document/ST-11900-2021-INIT/en/pdf.

[132] See the public statements released in May 2022 by Commissioners Margrethe Vestager (https://www.reuters.com/business/media-telecom/eus-vestager-assessing-if-tech-giants-should-share-telecoms-network-costs-2022-05-02) and Thierry Breton (https://www.euractiv.com/section/digital/news/commission-to-make-online-platforms-contribute-to-digital-infrastructure).

[133] Axon Partners Group Consulting, Europe’s Internet Ecosystem: Socio-Economic Benefits of a Fairer Balance Between Tech Giants and Telecom Operators, (2022) Report prepared for the European Telecommunications Network Operators’ Association (ETNO), https://etno.eu/downloads/reports/europes%20internet%20ecosystem.%20socio-economic%20benefits%20of%20a%20fairer%20balance%20between%20tech%20giants%20and%20telecom%20operators%20by%20axon%20for%20etno.pdf; see also Frontier Economics, Estimating OTT Traffic-Related Costs on European Telecommunications Networks, (2022) A report for Deutsche Telekom, Orange, Telefonica, & Vodafone, https://www.telekom.com/resource/blob/1003588/384180d6e69de08dd368cb0a9febf646/dl-frontier- g4-ott-report-stc-data.pdf.

[134] See also the appeal published by the CEOs of Telefo?nica, Deutsche Telekom, Vodafone and Orange, United Appeal of the Four Major European Telecommunications Companies (2022), https://www.telekom.com/en/company/details/united-appeal-of-the-four-major-european-telecommunications-companies-646166; and, more recently, the statement released by several CEOs, CEO Statement on the Role of Connectivity in Addressing Current EU Challenges (2022), https://etno.eu//downloads/news/ceo%20statement_sept.2022_26.9.pdf.

[135] European Commission, European Declaration on Digital Rights and Principles for the Digital Decade, COM(2022) 28 final, 3; see also European Council, 2030 Policy Programme ‘Path to the Digital Decade’: The Council Adopts Its Position (2022), https://www.consilium.europa.eu/en/press/press-releases/2022/05/11/programme-d-action-a-l-horizon-2030-la-voie-a-suivre-pour-la-decennie-numerique-le-conseil-adopte-sa-position.

[136] Body of European Regulators for Electronic Communications, BEREC’s Comments on the ETNO Proposal for ITU/WCIT or Similar Initiatives Along These Lines, BoR(12) 120 (2012), 3, https://www.berec.europa.eu/en/document-categories/berec/others/berecs-comments-on-the-etno-proposal-for-ituwcit-or-similar-initiatives-along-these-lines; see also Body of European Regulators for Electronic Communications, Report on IP-Interconnection practices in the Context of Net Neutrality, BoR (17) 184 (2017), https://www.berec.europa.eu/en/document-categories/berec/reports/berec-report-on-ip-interconnection-practices-in-the-context-of-net-neutrality, finding the internet-protocol-interconnection market to be competitive.

[137] See former Commissioner Neelie Kroes, Adapt or Die: What I Would Do if I Ran a Telecom Company (2014), https://ec.europa.eu/commission/presscorner/detail/de/SPEECH_14_647, arguing that the current situation of European telcos is not the fault of OTTs, given that the latter are the ones 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?”

[138] Body of European Regulators for Electronic Communications, supra note 136, 4. Concerns about side effects on consumers of the possible introduction of a network infrastructure fee have been raised  by the European consumer organisation BEUC, Connectivity Infrastructure and the Open Internet, (2022) https://www.beuc.eu/sites/default/files/2022-09/BEUC-X-2022-096_Connectivity_Infrastructure-and-the_open_internet.pdf; see also the open letter signed by 34 civil-society organisations from 17 countries (https://epicenter.works/sites/default/files/2022_06-nn-open_letter_cso_0.pdf) arguing that nothing has changed that would merit a different response to the proposals that have been already discussed over the past 10 years and that charging content and application providers for the use of internet infrastructure would undermine and conflict with core net-neutrality protections; see also David Abecassis, Michael Kende, & Guniz Kama, IP Interconnection on the Internet: A European Perspective for 2022, (2022) https://www.analysysmason.com/consulting-redirect/reports/ip-interconnection-european-perspective-2022, finding no evidence for significant changes to the way interconnection works on the internet and arguing that the approach advocated by proponents of network-usage fees would involve complexity and regulatory costs, and risks being detrimental to consumers and businesses in Europe; futhermore, see David Abecassis, Michael Kende, Shahan Osman, Ryan Spence, & Natalie Choi, The Impact of Tech Companies’ Network Investment on the Economics of Broadband ISPs (2022), https://www.analysysmason.com/internet-content-application-providers-infrastructure-investment-2022, reporting significant investments undertaken by content and application providers in Internet infrastructure.

[139] Body of European Regulators for Electronic Communications, supra note 136, 4. In the next months, the BEREC is expected to assess again the impact of the potential sending party network pays principle the on Internet ecosystem: see Body of European Regulators for Electronic Communications, Work Programme 2023, BoR (22) 143 (2022), 26-27, https://www.berec.europa.eu/en/document-categories/berec/berec-strategies-and-work-programmes/draft-berec-work-programme-2023.

[140] 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.

[141] For a summary of the net-neutrality debate, see Giuseppe Colangelo & Valerio Torti, Offering Zero-Rated Content in the Shadow of Net Neutrality, 5 M&CLR 41 (2021); see also Tobias Kretschmer, In Pursuit of Fairness? Infrastructure Investment in Digital Markets, (2022) https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4230863, arguing that the policy solution at issue would fall short of the principles of efficient risk allocation, time consistency, and net neutrality, and might seem like arbitrarily targeting 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. Indeed, the author notes that a transfer from Big Tech to telecom-infrastructure providers would be equivalent to a tax on success, since it would be based on ex post estimates of benefits from prior investments. Further, a direct and unrestricted transfer may not ensure sufficient infrastructure investment in the future, as it is not conditional on future behavior, but rather it would serve as a windfall profit for past (imprudent) behavior that can finance any kind of activity by telecom-infrastructure providers. Finally, a fair distribution of investment financing would require all complementors to the basic service to pay a share of future investments proportional to the expected benefit from the investments to be undertaken.

[142] Body of European Regulators for Electronic Communications, BEREC preliminary assessment of the underlying assumptions of payments from large CAPs to ISPs, BoR (22) 137 (2022).

[143] Ibid., 4-5.

[144] Ibid., 5.

[145] Ibid., 7-8.

[146] Ibid., 11-14.

[147] Bedoya, supra note 6, 8.

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