Ex-ante competition law enforcement and online platforms – a tool with no (clear) instructions

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The interest of national competition authorities in the matter of online platforms and competition law is becoming increasingly visible. In the case of the Dutch competition authority this growing interest has recently resulted in a call for introducing ex-ante enforcement tools in the context of online platforms. Although the idea may indeed be constructive for the adaption of the current legal framework to the challenges posed by online platforms, it will remain unusable if not coupled with a corresponding legal benchmark that would justify intervention. Finding such a benchmark as will be discussed is however far less simple than it appears.

The envisaged tool and the rational behind it

According to the Dutch competition authority (ACM) the current legal framework of Art. 101 and 102 TFEU is sufficient to deal with most of the main anti-competitive concerns raised by online platforms. Nonetheless, the ACM is concerned the ex-post enforcement may be too slow for the highly dynamic and innovation driven market in which online platforms operate. Accordingly there is a risk that ex-post enforcement is not sufficient in order to guarantee that such markets remain competitive and contestable.  Therefore the ACM welcomes the introduction of an ex-ante enforcement tool that would allow doing exactly that. The initiative to design and introduce such a tool comes however from the Netherlands’ Secretary of state for economic affairs.

In the ACM’s short note concerning this matter the envisaged tool is described as a tool that is intended to prevent ‘competition problems’. The note indicates that the remedies that would be imposed are behavioral ones that will be imposed in accordance to the proportionality principle and will concern for example matters of platform access, data portability, data-sharing and non-discriminatory ranking. The ex-ante tool should be designed in a manner that closely follows the interpretation of dominance and abuse in the context of Art. 102 TFEU. Such an approach, according to the ACM, would reduce the risk of lengthy legal procedures that would be involved in the introduction of new legal concepts. In essence, the purpose of the tool is then to prevent undertakings from abusing their dominant position rather than penalizing them after doing so and has thus a non-punitive nature. According to the ACM such a non-punitive character should also be welcomed by the concerned dominant undertakings in each case as they will not be accused of any wrongdoing nor face fines or (follow-on) damages claims.  In this regard, the ex-ante tool is different that the existing effacement tools in Regulation 1/2003 as there no need to provide evidence  of a (prima facie) infringement as would otherwise be required under the procedures of Art. 7,8 or 9 of Regulation 1/2003.

In the initial proposal made in a letter by the Netherlands’ Secretary of state for economic affairs, the discussion on competition among online platforms is broader and indicates that certain platforms have managed to obtain the role of ‘online gatekeepers’. The term refers to a situation where a platform is necessary for business to reach consumers or for consumers to get access to certain products or services that are subject to a competitive bottleneck. In such scenarios the refusal to deal or the imposition of unreasonable conditions by such ‘online gatekeepers’ is likely to disturb competition. Therefore in order to prevent such situations from occurring it is important that an ex-ante tool is introduced as it is most adequate and flexible to tackle such matters issues in and expedited and effective manner. With regard to the imposition of any measures it should be noted that the proposal repeatedly refers to the principle of proportionality which will serve as a guiding principle in the process of application.  Unlike the ACM note the proposal from the ministry provides an initial jurisdictional threshold – the ex-ante tool can only be used with respect to ‘gatekeeper’ platforms. The measures that can be imposed in such cases are not yet specified but appear for now to focus on access to data, non-discriminatory ranking and interoperability that were also mentioned by the ACM.

Although the proposition of ex-ante enforcement in the case of online platforms can certainly be defended, introducing such a tool is entails a far more complex matter that is not discussed by either the ACM or the Netherlands’ Secretary of state for economic affairs – namely the normative framework for intervention.

A tool in search of instructions?

The major issue with the introduction of any new type of enforcement tools for online platforms (or any other undertakings) is determining when some form of legal intervention can take place. In the case of a standard Art. 102 TFEU case the process is rather clear by now and entails finding: (i) a dominant undertaking (ii) an abuse of dominance displaying some type of foreclosure effects (iii) and absence of any objective justification. In the case of ex-ante tools the procedure is far less clear since following the same procedure as Art. 102 TFEU would not add anything but deviating from it is not easy either.

If ex-ante enforcement is targeted at preventing future abuses of dominance scenarios then the first question should be – do undertakings (in this case online platforms) need to be dominant in the sense of Art. 102 TFEU in order to fall under the scope of such an enforcement mechanism? If the answer is yes (which seems to be the case according to the ACM) then a great part of the difficulty of Art. 102 TFEU cases has not been resolved. If the answer is no – there is the risk of creating new obligations for undertakings that would normally be subject to competition law scrutiny under Art. 102 TFEU. Furthermore in such a scenario a new legal threshold for market power would have to be introduced. This may occur for instance if the term ‘gatekeeper’ as suggested by the Dutch ministry would replace the threshold of dominance. If such a choice is made than the legal meaning of this term will have to be defined while keeping in mind the inherent power imbalance between platforms and their customers (either consumers or trading partners). Accordingly in a rather concentrated market with main 3-4 players and limited multi-homing patterns (even when these are no caused by questionable consumer lock-in strategies), it can be easily be said that all the parties can constitute ‘gatekeepers’ with respect to their single-homing customers. Consequently in the case of platforms, which often operate on concentrated markets, a less strict jurisdictional threshold than dominance may easily result in an (almost) absolute scope of coverage similar to sector specific regulation but without the legal certainty thereof.

Beyond this first challenge a second difficulty that needs to be addressed is one of effects – what kind of anti-competitive effects will trigger such ex-ante intervention. Again if the same type of effects are required in such cases as in the case of a standard Art. 102 TFEU procedure – then such a tool would not add much to the current system except for potential additional burdens for non-dominant undertakings. If other (likely less detrimental) effects are sufficient – then intervention is problematic. Competition on the merits can and will often result in competitors exiting the market without displaying business practices that can be considered abusive in the sense of Art. 102 TFEU. However intervening in such situations is undesirable and may in itself constitute a distortion of competition. Applying a different benchmark for intervention would entail in fact the expansion of the ‘special responsibility’ that dominant undertakings have under Art. 102 TFEU and perhaps even the imposition of such a responsibility on non-dominant undertakings. Accordingly it is unclear what kind of behavior benchmark would be suitable for such ex-ante enforcement tools since it seems to require a type of behavior that is in the grey zone somewhere between abusive and competition on the merits.

Finally, it is also not clear what the consequences of non-compliance would be given the non-punitive nature of such an enforcement mechanism. If the concerned undertakings are not dominant ones – meaning their behavior will not be prohibited under Art. 102 TFEU (or the national equivalent thereof) then what happens if they refuse to comply with the remedies imposed by the ex-ante enforcement tools? Similarly, if the online platforms are dominant but their practices are not abusive under Art. 102 TFEU – why should these comply with a (potential) stricter standard of intervention ?

Conclusion

The introduction of an ex-ante tool for interventions in competition among online platforms may appear to be a sensible idea given the dynamics and characteristics of the markets on which they operate. However, the introduction of such a new enforcement possibility requires coming up with a  new normative framework which in itself seems to bring about significant difficulties. Accordingly if such initiatives are indeed intended to be discussed in Brussels as indicated by the Netherlands’ Secretary of state for economic affairs, it is perhaps worthwhile considering whether this process would indeed be more effective and efficient than coming up it sector specific regulation.

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Daniel Mandrescu

Blog editor

Ph.D. Fellow, Europa Institute, Leiden University

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