The lifecycle of big tech EU competition cases
The European Commission has a growing list of tech-related competition cases. What are they about? What happens in these cases? What are the outcomes? A&L Goodbody's Dr Vincent Power unpacks the "who, what, when, why and how" of EU tech cases generally. He is not examining any one case but rather giving a toolkit to decipher almost any case now and in the future.
The Brussels-based European Commission is the "guardian" of EU law. This isn't some Hollywood allusion – it is the Commission's role under the EU treaties. The institution must spot, scrutinise and sanction anyone who breaches EU law including competition law.
The Competition Commissioner is always one of the most prominent among the 27 Commissioners – one from each member state. But the incumbent, Denmark's Margrethe Vestager, is a second term Competition Commissioner who is now also, in practical terms, the digital policy Commissioner. No one has ever held both portfolios. She is the most powerful politician in Europe in this space. While decisions are formally made by the College of 27, this Competition Commissioner "drives the competition bus" in the digital space in Europe.
The Commission is enforcing EU "competition law" – i.e., the set of legal rules designed to ensure rivalry and innovation in the market.
The theory is simple: have a race or competition and everyone's performance improves. Competition usually gives consumers lower prices, more choice, greater innovation and better service. But the rules of the conventional economy are not easily applied to tech where some products have no apparent price – when did you last pay money for an internet search?
Curiously, the debate now in Europe is similar to what happened in the US in the late 1800s. Railroads were the "superhighways". Some companies operated key routes – they brought innovation and unimagined opportunities but some also formed cartels and misbehaved by abusing their market power. The US rules were born in 1890 to curb those miscreant railroad and oil trusts hence the rules became known as the "antitrust" rules. Ironically, those same basic US rules transferred to Europe, were translated into EU law and are now being used against some of America's own tech companies.
The tech companies always have to deal with the US antitrust rules but the EU competition rules are wider.
There are four main EU rules.
The first two rules are also found in US law.
- The first prohibits businesses combining to form anti-competitive arrangements (e.g., cartels) – even informal ones. This is "article 101" of the Treaty on the Functioning of the European Union. It has proven less relevant in modern EU tech cases because many providers are near-dominant rather than competing in crowded markets. There is no need to form cartels.
- The second rule prohibits any business abusing a dominant position. The rule is central to most of these cases. Article 102 does not prohibit dominance in a market – that would kill innovation. Instead, it outlaws the "abuse" of the dominance. However, there is no finite list of "abuses" – it expands like an amoeba. An objectively unjustifiable refusal to supply is normally an abuse. An illegitimate coupling of products – "if you want X from me then you must also buy Y from me" – would be a probable abuse where the seller was dominant in the "X" market. Excessive or predatory pricing is usually problematical. What is particularly challenging for tech is that the EU is now using the more nebulous "unfairness" concept. A regulator's "unfairness" could simply be an executive's "business plan". The EU rule is therefore more embracive than the US "monopolisation" rule.
The third and fourth EU rules are not replicated in US law.
- The third curbs EU member states from interfering improperly in the market but that rule – Article 106 – is hardly ever mentioned in the tech sector.
- The final rule – Article 107 – prevents EU member states giving improper and discriminatory State aid. This last rule has been important in the tech sector but it will not be as prominent as the rule on abuse of dominance.
The EU becomes involved for different reasons. It often starts with a complaint from a frustrated competitor or customer – the EU has to evaluate the complainant's motivation (e.g., "is it a poorly run business sniping at the winner in the race?"). Sometimes the EU comes across an issue in one case which sparks a new EU investigation. Or cases by other regulators internationally spark interest by the EU. The origins of the case ultimately rarely matter.
The Commission has a plethora of investigative powers. It may "dawn raid" businesses. It may copy documents and electronic communications. It may summon evidence on pain of fines. Ultimately, it may interrogate witnesses.
If it believes there is a case against the business then the Commission issues a "statement of objections". It is like a charge sheet in a criminal case.
The tech company responds to the Commission with its defences. It may even ask for a hearing. The curiosity is that the company is laying out its defences and having the hearing in front of the same Commission which could ultimately adopt a final decision after hearing the company's defences! There are some procedural safeguards (e.g., a hearing officer) but the respondent is defending itself to the investigator and not an independent third party.
There are several possible outcomes. There can be a finding of no breach and the file is closed but this is unusual in big cases.
If there is State aid then the beneficiary may be ordered to repay the value of the "aid" with interest to the EU member state which provided the assistance to the company.
There are even harsher penalties in the cartel and abuse of dominance cases. The Commission may order businesses to supply others, price differently or change their behaviour. But the most searing outcome is a fine of up to 10% of worldwide sales/turnover. These fines have ranged from hundreds of millions of euro to the billions of euro. As tech companies get bigger (through organic growth or acquisition), these fines will get bigger because their turnovers are growing. The fines go to meeting the EU's day to day expenses thereby saving EU taxpayers having to contribute to the EU budget. For some companies in the IT sector, the possibility of an EU fine is among their biggest contingent risks.
Commission decisions may be appealed to the EU's General Court with a further appeal to the Court of Justice. Some of the Commission decisions in this area have been overturned or narrowed. Hence the Commission is cautious about how it decides cases.
Most of the EU cases are against US companies. Is this an anti-American bias? No. It's a simple fact that the biggest tech players are American.
Curiously, over time, some of the most prominent tech defendants have become complainants as the tech cycle evolves and their market leading positions have been taken by others. As defendants, they criticised the EU system. But when they become complainants, they start to appreciate the EU's tough balancing act but find the pace of EU investigations frustrating – these case last years.
Tech giants are increasingly seen as 'gatekeepers' - limiting access by consumers to novel technology but those companies defend their actions by saying they protect consumers from bugs and viruses. The EU is adopting new rules but there could be different rules even within Europe – post-Brexit, the UK's Competition and Markets Authority is becoming a rival to the European Commission. The fights are getting longer, larger and both sides are even better resourced.
Technology is getting more pervasive and complex. These cases are therefore going to become more numerous and more complicated. Technology is moving a lot faster than the legal processes in this area. The EU has to investigate whenever there is a suspicion of anti-competitive behaviour. But in the fast-moving tech world, intervening in cases is as challenging as painting a fast moving train.
For more information on this topic please contact Dr Vincent Power, Partner or any member of A&L Goodbody's EU, Competition & Procurement team.
Date published: 15 June 2021