Next Level Competition Law: The Study that will serve as a basis for the reform of abusive practices in Germany (and Europe?)

Next Level Competition Law: The Study that will serve as a basis for the reform of abusive practices in Germany (and Europe?)

Germany is starting to prepare the next reform of its competition law. The first step in the process (expected to take up to two years) was to commission a study by renowned professors on the need to reform the norms on abusive practices. The study was presented to Peter Altmaier, Minister of Economic Affairs in Germany, on 4 September 2018. Rupprecht Podszun flipped through the 173 pages and gives a first impression of what lies ahead.

 

Whenever I think of Freiburg, that do-gooder city in the very South-West of Germany, I have to think of the story a friend of mine from Schwerin in North-Eastern Germany told me when she first went to Freiburg. “We had brunch in a nice shared flat with some students”, so she said, “they were, of course, all greenish. When I asked whether they had any Wurst to go with the bread they all fell dead silent! OMG, I didn’t know that it was a sacrilege not to be a vegan down there.”

I am not yet sure how to relate this little insight into the Freiburg biotope with what I have to report today, but competition folks usually think of the ordoliberals first when they hear of Freiburg. The Freiburg School of thought includes the founding fathers of the German approach to competition law from the 1950s, with Walter Eucken, Franz Böhm and other heroes of common-sense-antitrust policy. Their approach, so to say, was the bread-and-butter of the Wirtschaftswunder. Today, the ideas of these sincere, whole-hearted liberals who believed that a free economy needed a social angle and a strong state-guaranteed framework (the „Ordo”) would probably be called “hipster antitrust”. Over the past decades, many scholars who grew up with Chicago economics ridiculed or denounced the Freiburg approach. This has stopped, and it may be time for a Freiburg revival: Ever since the critics of the German approach realised that their laissez-faire led to a decline of U.S. antitrust law and to the large-scale rise of concentration, they fell silent as if they had asked for Wurst in a Freiburg student residence. In Germany, the Freiburg School always enjoyed the admiration of politicians and scholars, and so it does not come as a surprise that Freiburg was the chosen setting for presenting fresh input for competition law. Here, during a conference of the Verein für Socialpolitik, the German Economic Association, the study on a modernisation of abuse control was presented.

 

The Study

Heike Schweitzer, Justus Haucap and Wolfgang Kerber plus Schweitzer’s assistant Robert Welker authored the study. Schweitzer is a competition law professor from Humboldt University Berlin and currently advising Margrethe Vestager,  Haucap is – of course – our economist colleague in Düsseldorf and Kerber is an economist, specialising in innovation, at Marburg University. The study was commissioned by the German Ministry of Economic Affairs. The idea of the Ministry is to prepare the next reform of the German Act against Restraints of Competition (Gesetz gegen Wettbewerbsbeschränkungen, GWB). This 10th amendment will be a long shot: The ECN directive needs to be implemented, and there are plans to make the Bundeskartellamt competent for some consumer law issues. On top, it is the ambition of the Germans to come up with new tools for the digital economy. The study, available in German here, gives some ideas for this.

Next to analysing Art. 102 TFEU and the German equivalent in § 19 GWB a focus is on the tougher German provision in § 20 GWB (see the English version of the current version here). This special feature of German competition law allows an intervention not just in cases of abuse of dominance, but also in cases where the company in question merely has relative or superior market power.

 

Filling the Gaps

The study starts with describing the shifts in the economy, with data, platforms and all that stuff. Probably not new to many, but nice to have, and so is the overview of cases and initiatives. I find it quite interesting that there is one outstanding case that is often cited in the study on important issues – and it is not Google Shopping. Instead, it is CTS Eventim, an abuse case analysed by the Bundeskartellamt, dealing with the racketeering doings of the dominant ticketing agency for concerts and other events. The case is really inspiring since it provides a rigorous analysis of digital phenomena with state-of-the-art competition law, and I have the impression that the authors of this study share my assessment.

They also choose the right setting with introducing European initiatives in related fields. I have always advocated that competition lawyers take off their blinkers – we tend to ignore that problems we cannot solve with our norms will be solved by others, most probably people with less commitment to free competition. Thus, I cherish the whole endeavour of the study: If we do not take care of adapting the tools for antitrust, others will shoulder their shovels and start filling the gaps.

So, where exactly are the gaps?

 

Generally… Yet…

First of all, good news to all those who did not have a hearty enough breakfast for revolution: The authors in principle recommend to stick with the traditional structure of abuse control. They neither recommend getting rid of market definition as the starting step nor do they recommend to lower the filter of the abuse provisions in general. Regarding market definition and the problems associated with it, it is a bit odd that the authors name all the problems identified with market definition nowadays. Yet they conclude that competition authorities will be able to handle that and that courts will prove to be flexible enough. Throughout the study, at least, they encourage the authorities to show more flexibility in abuse cases.

It is hard to achieve such an easing without any significant change in the law, and thus a major shift is proposed for § 20 GWB, the norm that protects from abuses in situations of dependency. At present, the norm only applies when the dependent undertaking is a small or medium sized enterprise (SME). The SME-criterion is to go. This means: If a leading media house depends on YouTube, if Nestlé needs food retailer Edeka or Amazon, they may now rely on § 20 GWB. The norm would no longer be a David vs Goliath-story, but remedy many more situations. (Unfortunately, illustrative examples are largely missing in the study, so it is hard to discern what cases the authors had in mind when drawing up proposals. Interestingly, btw, they relied heavily on a 2015-study by Bundeskartellamt’s Chief Lawyer Jörg Nothdurft who counselled a Swiss initiative on the very issue. If you do not know his opinion, here it is (in German).)

With the SME-criterion out of the way, § 20 GWB will no longer be a somewhat ordoliberal provision in favour of the good old German Mittelstand, but will be turned into a norm for the early protection against “aggressive competitive strategies with hindering effects against innovative, potentially disruptive undertakings” (p. 90 of the study). This kills two birds with one stone: The norm applies to more cases at an earlier stage and still is better in line with international competition theory.

 

Two new abuse constellations

Watch for what comes next (and I can only give a first impression here). The wording in German is cautious, yet it becomes clear that the experts recommend a much tougher stance against MAGAF and the like. One core idea is to have tools not only when companies are dominant but when they are on their way to build monopolies that are hard to contest. This is the lesson drawn from the rise of Google, Amazon and Facebook: Either you stop them at an earlier stage or you have to live with monopolists for a while.

The first constellation relates to platform markets with a tendency for tipping, i.e. strong positive network effects. A new norm shall provide that the abusive hindering of competitors is prohibited if this may foster tipping. Examples would be the thwarting of multi-homing and switching to other platforms.

With such a provision, proceedings against Google would have been a lot easier, I think. Americans will not like that. (I guess the authors refrained from providing an English translation of the study to avoid Trump tweets even before he had breakfast.)

The second constellation of “early abuse” refers to markets that are not characterised by power in demand or supply, but by “power in intermediation”. “Power in intermediation” is a concept that the authors see as a clarification. They point out that dominance may not just result from a strong position in supply or demand, but also from the privileged position as a strong intermediator. This would even open up the field for showing abuses regarding information. Manipulating information could become a major issue for abuse control. Eat this, Facebook!

 

Shoot-out acquisitions

Even though merger control is merger control and abuse control is abuse control, we all learned from the 1973 ECJ case Continental Can that, really, merger control is just the control of structural abuses. Thus, the study rightly does not fall short off looking at improvements for merger control to “tame the tech titans”, as the Economist once put it. The issue is: If MAGAF with their deep pockets buy up all promising start-ups, MAGAF will never be challenged.

I guess that case handlers at Brussels still feel guilty for not having stopped Facebook from buying WhatsApp. The 110 million Euro fine for misleading information later probably soothed the remorse only slightly. Facebook/WhatsApp was one of the very few cases DG COMP checked at all out of all MAGAF acquisitions. Germany introduced a transaction-value based merger rule in 2017 (with a 400 million Euro threshold that could be lowered in my view). (Austria also introduced such a rule.) Facebook/WhatsApp would have to be notified nowadays with the Bundeskartellamt. Brussels still lacks such a rule.

But what if you get the case on your desk?

The idea put forward in the study is to have an additional interpretation of what is an SIEC: If a dominant company acquires an undertaking that could become a potential rival in the future and if this is part of a larger identifiable strategy to fight off competition through acquisitions, such an acquisition may constitute an SIEC. Charming! Google’s Hal Varian is reported to have criticised particularly this idea (which some may take as proof that there may be some good to it).

 

Data issues

One distinct chapter is dedicated to the question what constitutes an abuse in matters of access to data. There is little doubt these days that access to data is key for participating in the economy, but what if you do not have access to data? The study could be called explorative in this regard, considering options.i

Essential facility doctrine: It already can help, so the authors say, but courts and authorities should be more flexible in trying the rather tough criteria for an essential facility in data cases. No modification by legislation recommended.

Control of data in aftermarkets: Think of all the smart connections, be it in cars or machines, where different players may claim access to data once they are generated. Some owner of smart products may find themselves in lock-in-situations where they produce data but do not own them. § 20 GWB may help in this regard.

Third parties: In such situations, it is not just the user of a smart machine or car, but also third parties who may be in need of access to data. Again, § 20 GWB may help, in particular with a view to rulings of the Federal Supreme Court, Bundesgerichtshof, in Germany on the rights of workshops for cars needing access to information.

The elements for free data access are there, in particular after the 9th amendment of the GWB, yet practice may find it difficult to get there in time. Some clarification in the law still seems advisable, in particular since others are pressing ahead like Andreas Nahles, head of Social Democrats in Germany, who proposed a “data for all”-statute. A first step could be to introduce an example in the law that there is an abusive hindering if an undertaking needs access to automatically generated machine- or service-data for a substantial value creation in a value creating network. This is the interesting wording in the study. Let’s wait for the exciting cases to come up. The authors strongly encourage to think more about data-sharing obligations.

 

No gaps

It may be heart-warming for conservatives and policy-makers in the Silicon Valley that there are also some aspects where no gaps are identified. There is neither a need for lowering the threshold regarding non-coordinated behaviour in tight oligopolies nor with a view to conglomerate power. The professors have a strong belief in the flexibility of the general clauses and the decisional practice of Bundeskartellamt and DG COMP, even though these institutions did not really stop the situation we are in right now (and in time). They also point at consumer law, contract law and other fields – a statement that is a bit in conflict with the approach that competition law should play a more active role in identifying deficits in markets.

 

The missing link

The study does not deal with enforcement issues. This is despite of the fact that this may be the most pressing problem: What do all substantial provisions help – if they are not enforced in court?

The key criticism of Google Shopping was that it took the Commission far too long. The burden of proof in abuse cases (for dominance as well as for abuse) seems unsatisfyingly high. Private enforcement is incredibly difficult in matters of abuse, not least for the inherent asymmetry of powers. Interim measures that quickly remedy a problematic development have never been tried. Picking cases for public enforcement seems more or less arbitrary. The handful of abuse proceedings against Google, Facebook and Amazon (is it a handful at all?) is just too little to make Art. 102 TFEU a considerable factor. This is the missing link. § 20 GWB is an interesting norm for private enforcement. Strengthening may help a bit. But you still need the guts the money to take Amazon to court if you want to rely on this.

 

The way forward

What I like about the study is its strong focus on the contestability of markets. When we learn the lessons from our concerns with GAFA or MAGAF or the tech titans You-Know-Who, we should set our eyes on keeping markets open. The study is not about heavy-handed regulation but about a gentle development of competition law, strongly adhering to well-established principles so as to keep competition law as the defining basis for an economy under change. Having said that, it may be doubted whether the tools proposed – even if implemented some day – will suffice. The study is a strong statement, but I would have wished for even more radical proposals. The watering down will start anyway once lobbying sets in.

Heike Schweitzer, Justus Haucap, Wolfgang Kerber and Robert Welker have done their deed, and they have provided an excellent basis for the discussion. It is now in the hands of Minister Altmaier and his team. It is expected that Altmaier soon mandates a National Commission of Experts who review these proposals and other issues so that the 10th reform of the German Act against Restraints of Competition can be completed before the next regular election in Germany in 2021.

Peter Altmaier – is he not…? Exactly. Altmaier is one of Chancellor Merkel’s closest allies, and he has been tipped as next president of the EU Commission. The German activities may be just the national prelude to European antitrust reform. Maybe we do not need to wait till 2021, but will see some of the ideas presented here in the briefing for the next Competition Commissioner in 2019.

You are still waiting for the Wurst for breakfast analogy in the Freiburg shared flat? Try something new even if it looks strange at first sight.

 

Cover picture: Federal Ministry of Economic Affairs and Energy (showing from left to right: Justus Haucap, Peter Altmaier, Heike Schweitzer, Robert Welker, Wolfgang Kerber)

5 Gedanken zu „Next Level Competition Law: The Study that will serve as a basis for the reform of abusive practices in Germany (and Europe?)

  1. Excellent summary and I like the „Wurst“ analogy – of course German competition law has made its own special experiences with a „sausage gap“…

    Little detail to add: You rightly mention that Heike Schweitzer is advising Commissioner Vestager – in fact she is advising her on „future challenges of digitisation for competition policy“, so some ideas of the study might make their way to Brussels even without Peter Altmaier’s (who btw is a Commission official on leave) help.

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