Globally, competition regulators have increased their attention to digital companies since big tech firms and dual platforms have the capabilities to gain disproportional advantages. Competition and antitrust laws aim to protect the integrity of competition in a particular market by creating and enforcing regulations geared towards anti-competitive behavior.

Recently, there has been a trend of larger, tech-backed companies using their data intelligence and superior resources to dominate digital markets.The competition problem grows bigger yearly as new technologies continue to emerge. Such dominance in the marketplace keeps smaller suppliers from having a fighting chance. Competition regulators throughout Europe, including the European Commission, have been highly critical of this anti-competitive behavior and have taken steps to implement changes in enforcement of competition laws. The changes specifically target the tendency for tech giants to overpower the digital markets sector.

What New Legislation is in the Works?

The Directorate-General for Competition (DG Competition) is the part of the European Commission that enforces current EU competition rules. Yet their enforcement capabilities are only as strong as the competition rules set out in the Treaty on the Functioning of the European Union (TFEU). For example, the current rules in the TFEU do not account for how fast digital markets can evolve. Policy enforcement ends up being too slow to address issues and effect change.

In June 2020, the European Commission opened for public consultation to its proposed new competition tool (NCT) in order to help address concerns about structural competition problems in several markets. The goal was to enhance current regulations and address gaps pertaining to enforcing competition law in digital markets as well as other markets with similar, rapidly evolving competitive landscapes. However, it will be 2021 or later before this law passes and takes effect. The European Commission is due to publish a first draft of the law by the beginning of December 2020 that requires sign off by European Parliament and all EU member states.

Additionally, the Digital Services Act (DSA) is another proposed regulation that more broadly addresses digital services operations. In addition to competition, it covers liability, employment, and advertising. Regarding competition, the DSA proposes to list both allowed and prohibited conduct for dominant digital platforms. The regulation is expected to provide clearer notice to companies about how they should conduct digital marketplace activities, and leave enforcement of the “grey area” conduct to the DG Competition. The NCT and DSA are expected to be combined into a single law called the ‘Digital Markets Act.’

How Does the EU Want to Change Competition in Digital Markets?

Creation of the NCT has two simple purposes. First, the tool will deal with the structural competition risks present in digital markets. The continuous advancement of technology can provide larger organizations with marketplace advantages which lead to anti-competitive behavior. The new tool would be aimed at reducing the risk of tech giants abusing their power to achieve market dominance. But how can the European Commission address this? One thing they will consider is how big companies use their data. While it is reasonable to use data sets as business intelligence, it is inappropriate to leverage such data to promote anti-competitive behavior. For example, a search engine could employ user data to tailor ads that unfairly promote their products over other market players. One idea circulating is to require digital gatekeepers to grant other providers access to their data. As one can imagine, this idea will likely be met with push back.

The DSA contemplates how to regulate digital platforms with gatekeeper powers. A primary challenge is defining these platforms. The usual suspects come to mind – Amazon for marketplace transactions, Google for search engines, Facebook for social media, and Apple for big tech devices and app stores. These providers have the power to dominate their markets and shut out competition. For goods and services, digital giants can self-select their own products. This highly prevents competition from occurring; consider scenarios where applications are being pre-installed on devices or third-party sellers being buried on a platform’s search results, despite their popularity.

The second component of the NCT is to investigate markets where there is apparent, structural lack of competition. To decrease risk, the DG Commission will use new enforcement powers to investigate actual suspect behavior. It is important to closely monitor how the new tool addresses the issues associated with digital market gatekeepers. Will it single out a few big companies that are likely to dominate a certain market? Will it focus more on structure alone and broadly apply to anti-competitive behaviors, no matter where it is coming from? Once this is hashed out, the NCT will need to ensure that proceedings do not drag on for years. This tool is pre-emptive in nature, and address the fundamental problems present in digital markets, without needing to go through lengthy processes aimed at determining whether a company acted in an illegal manner, which is the current protocol.

As the NCT proposal pushes forward, some competition lawyers have expressed criticism. These individuals believe a new tool is unnecessary and that the current regulations already sufficiently address competition concerns within the digital market sector. Support for this argument is backed by the fact that the European Commission is already vigorously enforcing competition rules and issuing steep fines for violations. NCT critics believe that instead of creating a whole new tool at this point, regulators should see how they can sharpen the tools in the existing regulation toolbox to address the new competition issues popping up in digital markets. Another concern is the notion that the European Commission is deploying a new tool before having a strong grip on the complex issues big data presents for competition. The conflict between NCT proponents and opponents will definitely play out as the draft moves forward for review and approval.

Moves to Monitor

Creation of an NCT and a comprehensive digital markets law will undoubtedly have a global impact, as many digital companies engaging EU consumers are based in the United States. Big tech giants need to monitor what happens with this in December and beyond. If any new laws pass, then they will need to heavily review and prepare just as they did when the European Commission passed the GDPR to address longstanding data privacy concerns, which also had global repercussions. U.S. based digital market companies are not unfamiliar with EU competition laws as there have been several probes into anti-competitive behavior of US-based companies like Amazon, Google, and Apple.

For example, the European Commission is currently investigating Amazon’s practice of using hidden data about their third-party sellers to tailor their own product offerings. The EU does not believe this behavior promotes fairness and gives Amazon an unfair advantage with sales as a dual platform. Using business intelligence from their competitors to directly compete on the same platform and preferring sellers that use their delivery or other services is the exact type of anti-competitive behavior the NCT will want to prevent and quickly stop. As such, companies like Amazon (and others who have faced EU competition probes) that possess the ability to dominate a digital market should monitor closely how this case plays out and what happens next with the NCT and DSA. The time to create a game plan is now, in order for them to avoid future fines related to competition violations and reduce the risk of engaging in anti-competitive behaviors. However, NCT critics could hold up this process and the concerns about creating a new tool could block or change the outcome of this proposed regulation change.

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