Focus Areas:    Antitrust | Barrier to Entry | Competition | DG Comp | Google Android | monopolization | Technology

The European Commission Is Undermining R&D and Innovation: Here’s How to Change It

Abstract

On July 18, 2018, the European Commission fined Alphabet (Google) 4.34 billion euros. This decision confirms the Commission’s willingness to deter companies from engaging in anticompetitive practices. It also confirms that the European competition authority is missing the big picture by imposing disproportionate fines with regard to the specifics of the digital economy.

According to Article 23(2) of Regulation No 1/2003, the fines imposed by competition authorities cannot exceed 10% of the overall annual turnover of the concerned company. This limit is intended to avoid disproportionate sanctions that would jeopardize the company’s future. In fact, however, while this turnover threshold is useful, it is insufficient. The digital economy requires companies to compete by innovating. R&D investments have become the lifeblood of the digital economy and the very essence of competition. The specific competitive dynamics of the industry should also be taken into account in considering the extent to which fines imposed by competition authorities can disrupt the investment capacity of companies.

This article introduces an empirical study conducted over the period 2004 to 2018 (Android included) on all the fines imposed by the European Commission on the basis of Article 102 TFEU. We show that the European Commission’s decisions may have the effect of slowing down R&D for numerous sanctioned companies. For this reason, an innovation protection mechanism should be incorporated into the calculation of the fine. We propose doing so by introducing a new limit that caps Article 102 fines at a certain percentage of companies’ investment in R&D.

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