Big data is a hot topic, also for competition authorities. In 2016, it became clear that competition authorities were trying to get a grip on how to deal with big data. Interestingly, there still appear to be more questions than answers. We list the main developments of 2016 and look forward to 2017.
Cartel prohibition and big data
The cartel prohibition forbids companies to conclude anti-competitive agreements. This prohibition dates back to a time when cartels were formed in smoke-filled backrooms. In the digital age, it is not necessary to meet competitors in person to make price-fixing agreements or counter price erosion. What if companies are able to leave this to algorithms? It may sound rather futuristic, but the first cases have arisen already. For example, in 2015 the American Department of Justice prosecuted a price-fixing cartel in connection with the online sale of posters. The companies involved would have used algorithms to implement their agreement and fix certain price levels in the online sale of posters. In that case, the algorithms constituted an instrument to carry out the underlying cartel agreement. More sophisticated use of software is also conceivable, see the article Artificial Intelligence & Collusion. What if competitors unilaterally decide to use (comparable) algorithms aimed at maximising profit? It is very difficult, if not impossible, to punish such behaviour as a cartel if the companies only unilaterally opted to use the algorithm. After all, parallel market behaviour is not prohibited, according to settled case law. The use of algorithms can nevertheless have the effect that competitors agree on common price levels (more quickly). This and other developments in an increasingly digitised society are posing challenges to competition authorities given that instant solutions do not appear to be present. The German competition authority (the “BkA”) and the French competition authority (“AdlC”) published a joint report on this topic in May 2016: Competition Law and Data. Subsequently, in October 2016 the Organisation for Economic Co-operation and Development (“OECD’”) published a report concerning this subject as well: Big data: Bringing competition policy to the digital era. Shortly before, the Dutch Authority for Consumers & Markets (“ACM”) addressed the subject in its paper Grote platforms, grote problemen? In this paper, ACM analysed online platforms from a competition perspective (for more information please read this blog). Interestingly, although the cartel prohibition is mentioned in these publications, the focus of competition authorities is on (preventing) market power.
Mergers and acquisitions and big data
The emergence of market power is assessed in the context of merger control. The joint market shares of the companies involved in a concentration are a first strong indication in deciding whether a transaction can significantly impede competition. An Important question in merger cases in the technology sector is also whether obtaining big data can significantly impede competition. Access to a data set in a competitive environment can be of great value, for example when a data set facilitates more targeted advertising (behavioural targeting). The fact that companies see potential in a transaction in which they obtain access to big data follows inter alia from the takeover prices that are being paid. Some cases which have been notified to the European Commission (the “Commission”) illustrate this: Google / Double Click: takeover price 3.1 billion dollar, Facebook / WhatsApp: takeover price 19 billion dollar and Microsoft / LinkedIn: takeover price 26 billion dollar). The Commission’s Horizontal Mergers Guidelines and Non-Horizontal Mergers Guidelines dating from 2004 respectively 2008, do not address the role of big data in merger control. Nor can any clarity be discerned from the abovementioned cases regarding the exact criteria to weigh the acquisition of big data in order to decide whether or not to clear a concentration. Remarkably, however, the Commission did not find any problems in Facebook/WhatsApp and Microsoft/LinkedIn in relation to the data that WhatsApp and LinkedIn respectively (could) have had at their disposal. The reason was that, according to the Commission, a large amount of valuable data would not come under exclusive control of Facebook respectively Microsoft as a result of the notified transaction, and therefore would remain available to third parties.
Transactions in which obtaining big data plays a significant role do not need to exceed the relevant turnover thresholds and are therefore not always subjected to merger control by one or more competition authorities. For instance, the BkA could not investigate the Facebook/WhatsApp takeover because the relevant turnover thresholds were not exceeded in Germany (due to WhatsApp's low turnover in Germany). Partly as a result of this development, a legislative act was introduced in Germany in 2016, to set certain transaction values as merger filing thresholds. You can read more about this development in this blog.
Abuse of a dominant position and big data
The combination of market power and big data can also appear on the competition authorities’ radar as abuse of a dominant position. The BkA and AdlC referred to some classic forms of abuse of a dominant position in the context of big data in their report Competition Law and Data. Examples mentioned in this report include the conclusion of exclusive contracts for the use of data or otherwise denying competitors access to certain data. In 2015, the British Competition & Markets Authority described similar behaviour in its report Commercial use of consumer data. Interestingly, the BkA and AdlC also discussed in their report the topic of limiting privacy protection. On 2 March 2016, the BkA put this into practice when it launched an investigation into Facebook for abuse of dominant position. The BkA investigated whether Facebook is abusing its dominant position by breaching privacy legislation, but it very recently announced that it would not impose a fine on Facebook. Even so, this is an extraordinary development. First of all, European case law (Asnef v Equifax) makes clear that questions relating to data protection are not, as such, part of competition law. Secondly, not all European competition authorities are (as yet) following the BkA's approach. For example, ACM remarked in Grote platforms, grote problemen? that ACM can probably only provide a limited contribution to privacy protection. European commissioner Vestager also appears – for the time being – to be unwilling to address this problem by taking competition law related enforcement measures (see here and here). She also referred to the General Data Protection Regulation that is due to enter into force on 25 May 2018. This Regulation will set many new requirements in the area of privacy, subject to substantial fines. It would indeed seem that specific regulation rather than traditional competition law is better able to safeguard privacy interests. Nevertheless dominant companies are warned that: big data is on the radar of various European competition authorities and it cannot be excluded that they be requested to solve alleged privacy issues by means of competition law.
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