Competition Law for the Digital Single Market

The New Competition Tool and Proposed Changes to German Competition Law

It is the goal of the European Union to realise the single market objective and to ensure the smooth functioning of the internal market. In the absence of specific provisions to that effect, there was a risk that the single market objective would not be fulfilled in respect of the digital economy. Therefore, the European Commission launched its Digital Single Market initiatives. For example, the Geo-Blocking Regulation No. 2018/302 is designed to overcome unjustified on-line sales restrictions based on customers’ nationality and residence.

In this context, two proposed reforms of EU and national competition law are of major importance:

The EU Commission’s New Competition Tool

First, the European Commission has proposed a so-called New Competition Tool (“NCT”):

  • Under the NCT, the European Commission would be given additional powers, in particular to avoid market tipping. The NCT could be of special practical importance in the context of the digital economy, with its multi-sided markets. These markets have special features such as positive direct and indirect network effects as well as the importance of access to data, which might make them prone to monopolization and abusive behaviour.
  • When applying the NCT, the European Commission would not find an infringement of Article 101 or Article 102 TFEU, no fines would be imposed and the intervention as such would not give rise to cartel damage claims. Instead, the European Commission could impose structural or behavioural remedies if it finds competitive deficiencies in a market. An infringement of such remedies, however, can be fined and might lead to cartel damage claims. The proposed NCT would be similar to the UK market investigations regime. The Competition and Markets Authority at present has comparable powers to investigate problematic market features, and exercises discretion to remedy structural competition problems.
  • The NCT’s exact scope is still being considered by the European Commission. The Commission is currently holding a public consultation and asking inter alia whether the NCT should constitute a limited sector-specific or a broader cross-industry tool. Hence, the NCT could be either limited to certain identified sectors, with particular structural competition risks, such as digital (platform) markets, or applied more widely across all markets. The NCT could also be limited to dominant undertakings, or apply more generally to all undertakings.

As the NCT would form part of a uniform and consistent competition law regime for the whole of the EU, the NCT legislative project fits in well with the Digital Single Market Strategy. Given that the significant market players in the digital economy rely on pan-European or even global business models, and in light of the cross-border nature of digital products and services, EU-legislative action seems helpful.

The ARC Digitisation Act (10th amendment of the ARC)

In addition, on a national level, an initiative is underway for a 10th amendment to the German ARC (Act against Restraints of Competition), the so-called ARC Digitisation Act:

  • The ARC Digitisation Act focuses on the application of competition law in the realm of the digital economy. The draft bill contains a number of provisions, relevant to companies operating in the digital economy. For instance, the proposed bill envisages introducing a concept of ‘intermediary power’ to assess dominance. It would also clearly define a refusal to grant access to platforms, interfaces and data as possible forms of abusive practices.
  • Another provision – Sec. 19a draft ARC (DARC) – would give rise to separate national legislation regulating internet platforms. We discussed Sec. 19a DARC in two episodes of our podcast Competition Cast.
    • Sec. 19a DARC has no equivalent at EU level.
    • Undertakings with significant activities on multi-sided markets or network markets and of paramount significance for competition across markets would be subject to Sec. 19a DARC. Based on the wording of Sec. 19a DARC, an undertaking need not necessarily hold a dominant position for the provision to apply. Dominance is only one of several criteria used to determine whether an undertaking is of paramount significance for competition across markets. Other criteria are in particular (i) its financial strength or its access to other resources, (ii) its vertical integration and its activities on otherwise related markets, (iii) its access to data relevant for competition and (iv) the importance of its activities for third parties’ access to sales and procurement markets and its related influence on third parties’ business activities.
    • If the German Federal Cartel Office (Bundeskartellamt) determines that an undertaking is subject to Sec. 19a DARC, it may prohibit various practices, which are exhaustively listed:
      • Treating competitors’ offers differently from its own when providing access to markets. The explanatory notes for the draft bill refer as an example to the European Commission’s ‘Google Shopping’ decision.
      • Directly or indirectly impeding competitors (e.g. by means of bundling practices) in a market on which the respective undertaking can rapidly expand its position, even without being dominant, provided that the impediment is likely to significantly obstruct the competitive process (so-called “enveloping”).
      • Creating or raising barriers to market entry or impeding other undertakings in another way by using data relevant for competition that has been collected from the other market side on a dominated market, also in combination with other data relevant for competition from sources beyond the dominated market, or demanding terms and conditions that permit such use. In this context, the draft legislation explanatory notes refer to the decision of the Bundeskartellamt in the Facebook case. In that decision, the Bundeskartellamt prohibited Facebook from making the use of its social network in Germany conditional on the collection of user data from other sources. The German Federal Supreme Court recently upheld this decision in a procedure for interim legal protection. See our comment to this decision.
      • Making the interoperability of products or services or data portability more difficult and thereby impeding competition.
      • Informing other companies insufficiently about scope, quality or success of the service provided or commissioned, or otherwise making it difficult for other companies to assess the value of this service.

Like the envisaged NCT, Sec. 19a DARC as such is not a so-called “prohibition norm” (Verbotsgesetz) that can serve as a basis for fines or cartel damage claims. It rather empowers the Bundeskartellamt to impose remedies on the undertakings concerned. However, an infringement of the Bundeskartellamt’s decisions based on Sec. 19a DARC can be fined and lead to cartel damage claims.

As opposed to the NCT, Sec. 19a DARC aims to tackle the competition issues of digitisation at national level. Legislative intervention at national level, however, would likely lead to undesirable inconsistencies and divergent rules in the EU, thereby creating legal uncertainty for companies. It could therefore contravene the objective of a Digital Single Market.

The Federal Government agreed to the draft law submitted by the Federal Ministry for Economic Affairs and Energy. The draft law is now presented to the Bundestag and Bundesrat.