Monopolization/Dominant Firm Conduct

Illumina vs European Commission: the EU General Court endorses the Commission’s new approach to Article 22 EUMR allowing the capture of mergers below the thresholds

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In a judgment dated 13 July 2022 (T-227/21), the General Court of the European Union (the “General Court” or the “Court”) upheld the decision of the European Commission (the “Commission”) whereby the latter accepted to assert its (merger control) jurisdiction over the “below-the-thresholds” acquisition of Grail by Illumina (the “Transaction”), following referrals from EU and EFTA member states based on Article 22 of the EU Merger Regulation (“EUMR”)[1].

In addition to its direct and almost immediate implications for Illumina and Grail (see below), this judgment paves the way for new cases that capture concentrations below the thresholds (i.e., not triggering merger control requirements based on the numerical thresholds) while leaving a few questions open.

It was indeed the first time, since the announcement by Margrethe Vestager of the Commission’s willingness to use Article 22 EUMR to tackle potentially problematic “below the thresholds” mergers, that the General Court was given the opportunity to have its say on this new approach.

Background

Pursuant to Article 22 EUMR, national competition authorities (“NCAs”) may refer to the Commission any concentration that does not have a European dimension, but (i) which affects trade between Member States and (ii) threatens to significantly affect competition in the territory of the Member State concerned (see our previous Blog post on the Commission’s guidance published on 26 March 2021).

This provision was long conceived as a tool designed for EU Member States lacking national merger control regimes. Over recent years, however, there had been increasingly clear messages that the Commission wanted to use it for other purposes, namely to extend its jurisdiction to catch the so-called killer acquisitions, or more generally potentially problematic concentrations below the thresholds. But, before the issuance of the Commission’s guidance regarding the application of Article 22 EUMR on 26 March 2021, the rules of the game were not clear at all.

Made public in September 2020, before the release of the aforementioned guidance, the Illumina/Grail Transaction was not notified to any NCAs within the EU or to the Commission, as it did not cross any relevant thresholds. However, a complainant, as well as the Commission, has considered it a textbook case of a “killer acquisition.”

In this case, Grail is a start-up, not yet generating any turnover, developing innovative blood-based cancer tests based on genomic sequencing and data science tools. Reportedly, the alleged concern would be that the purchaser, Illumina, a U.S. major biotechnology company supplying sequencing and array-based solutions for genetic and genomic analysis, could post-transaction restrict access to or increase prices of next generation sequencers and reagents to the detriment of Grail’s rivals active in genomic cancer tests.

Likely informed of the Transaction by the complaint, the Commission reached the preliminary conclusion that the Transaction satisfied the necessary conditions for a referral. In accordance with Article 22(5) EUMR, the Commission informed the EU and EFTA Member States of the Transaction and invited them to request a referral (through a so-called “Invitation Letter”), and on 9 March 2021, the French competition authority sent a request (joined by the Dutch, Belgian, Norwegian, and Icelandic competition authorities). By decisions of 19 April 2021, the Commission accepted the referral request and associated requests to join (the “Decisions”).

Subsequently, Illumina, supported by Grail, initiated an action for annulment against both the Invitation Letter and the Decisions before the General Court of the EU, competent to rule on such annulments for acts of the institutions of the European Union that are contrary to European Union law.

The judgment at hand was much awaited as, by contrast with traditional guidelines which build upon a long decisional practice, the Commission’s guidance develops a new untested approach to Article 22 EUMR and has generated much debate amongst academics and practitioners about its legality.

Findings of the General Court

First ruling on the admissibility of the case, the General Court confirmed that the Commission’s Decisions constituted challengeable acts within the meaning of Article 263 of the Treaty on the Functioning of the European Union (“TFEU”), notably as each were considered to produce binding legal effects vis-à-vis Illumina and were thus capable of affecting its interests by bringing about a distinct change in its legal situation.

The Court thus rejected the European Commission’s position that its Decisions were merely preparatory acts, the illegalities of which could be raised in an action brought against the final decision on the concentration at issue. On the contrary, the Invitation Letter was considered to constitute only an intermediate step in the context of the referral procedure so that the Court held Illumina’s action against such letter to be inadmissible.

On the substance of the case, Illumina challenged the Commission’s Decisions on three points, essentially alleging: 1) a lack of competence on the part of the Commission, 2) that the referral request of France was late and 3) that the Decisions violated the principle of protection of legitimate expectations.

1° Article 22 EUMR is an adequate legal basis for the Commission to exercise its jurisdiction over the Transaction

Illumina argued that the Commission did not have a valid legal basis to review the transaction at issue, since the referral request was made by a competition authority which was not itself competent, under its own national legislation, to review the transaction. For Illumina, the residual purpose of Article 22 EUMR only enables a Member State that does not have a merger control legislation to submit a referral request in order to prevent a concentration affecting its territory from not being subject to any scrutiny.

Following a holistic review, through a literal, contextual, teleological and historical interpretation of the provision at issue, the Court concluded that the Commission was right to accept the referral request and the requests to join under Article 22 EUMR, thus confirming with a particular strength, the validity of this recent and major change in the Commission’s merger control policy.

Relying on the wording of Article 22(1) EUMR, and in particular the use of the expression “any concentration,” the Court took the view that a concentration could be the subject of a referral, regardless of the existence or scope of national merger control rule. Interpreting Article 22(1) EUMR otherwise, as Illumina and Grail advocated, would in fact add a condition for a referral that is not apparent from its wording, the Court added.

It also considered that although the referral mechanism was originally conceived, under the previous merger regulation 4064/89, primarily for Member States which did not have their own merger control system (in practice, the Kingdom of the Netherlands), it did not, however, preclude other Member States from also having recourse to that mechanism. For the Court, nothing in that regulation indicates that the EU legislature intended at the time to reserve that mechanism for those aforementioned States.

For the Court, while the scope of the EUMR depends primarily on the exceeding of the turnover thresholds defining the European dimension, it also depends, alternatively, on the referral mechanisms provided for in Article 4(5) and Article 22 of that regulation, which supplement those thresholds by authorising the examination, by the Commission, of certain concentrations that do not have such a European dimension. It further emphasized the distinction that was operated between the referral mechanism set forth under Article 4(5) EUMR, the “one-stop shop” threshold, which specifically requires 3 Member States having competence to review a transaction for it to be referred to the Commission, and the referral mechanism of Article 22, which does not provide such a condition.

Eventually, the Court found that referral mechanisms are an instrument necessary to remedy the control gaps inherent to a rigid system solely based on turnover thresholds. It considered that the use of the expression “effective corrective mechanism” in recital 11 of the EUMR, to describe referrals, shows that such mechanisms create a subsidiary power of the Commission which confers on it the flexibility necessary to achieve the objective of the regulation, namely, to allow for the control of concentrations that are likely to significantly impede effective competition in the internal market.

Accordingly, the General Court concluded that the Commission was right to accept the referral request at issue and that neither a legislative amendment nor a revision of the EU thresholds were necessary, contrary to what Illumina claimed.

2° The Transaction was lawfully referred to the Commission as the referral request was not late

Beyond the much-anticipated conclusion on the overall lawfulness of the referral request made by a non-competent NCA, the General Court’s judgment also provides clarifications as regards the deadline to be complied with by Member States to submit such a referral request, which, if helpful, still leaves open a number of questions.

As a reminder, the second subparagraph of Article 22(1) EUMR provides that a referral request “shall be made at most within 15 working days of the date on which the concentration was notified, or if no notification is required, otherwise made known to the Member State concerned.”

Illumina, supported by Grail, argued that the referral request was submitted after the expiry of the time limit, since the Transaction was announced publicly through a press release and the CMA and the FTC had already started investigating the deal, which therefore was necessarily known to the French NCA.

The General Court rejected the argument and held that the concept of a concentration being “made known” within the meaning of the second subparagraph of Article 22(1) EUMR must, as regards its form, consist of the active transmission of relevant information to the Member State concerned and, as regards its content, contain sufficient information to enable that Member State to carry out a preliminary assessment.

According to that interpretation, the Court followed, the period of 15 working days laid down in that provision starts to run from the time when that information was transmitted, and in the present case, the information was transmitted through the Invitation Letter sent by the Commission, which eventually enabled the NCAs concerned to carry out a preliminary assessment of the required conditions. In consequence, the Court found that the referral request at issue was made on time since it was rightly made within 15 working days from receipt of the Invitation Letter.

The Court did note, however, that the Invitation Letter itself was sent within an unreasonable period of time as a period of 47 working days elapsed between receipt of the original complaint by the Commission and the sending of the Invitation Letter to the NCAs, a delay which the Court found to be unjustified. Nevertheless, the Court ruled that such an infringement of the reasonable time principle could not in the present situation justify the annulment of the Commission’s Decisions as it did not adversely affect the ability of Illumina or Grail to defend themselves effectively, such adverse effect being the legal standard to call into question the validity of an administrative procedure.

3° The recent shift in the Commission’s approach towards Article 22 EUMR does not violate the principle of protection of legitimate expectation

Finally, Illumina argued that the recent shift in the commission’s guidance on Article 22 violated its legitimate expectations since, at the time it agreed on the concentration with Grail, the Commission did not accept referral requests for concentrations that did not fall within the scope of national merger control rules. To that end, it pointed out to a specific speech made by Margrethe Vestager in September 2020 in which she confirmed that, at the time, the Commission was discouraging Member States to make use of such referral requests and that a change of approach would take place in the future. Illumina and Grail emphasized the clear and unconditional nature of that speech, as regards the process and timing of the implementation of the new referral policy. They also reminded that the Commission’s guidance on the application of the referral mechanism of Article 22 was adopted after the Invitation Letter was sent, without public consultation.

However, the Court dismissed such argumentation, reminding that a party’s right to rely on the principle of the protection of legitimate expectations presupposes the fulfilment of certain conditions set by the case law, notably that “precise, unconditional and consistent assurances originating from authorised, reliable sources have been given to the person concerned by the competent authorities of the European Union” and “has led him or her to entertain well-founded expectations.” In the present case, the Court held that Illumina failed to demonstrate the existence of such assurances. In particular, with regard to Margrethe Vestager’s speech that Illumina relied upon, the Court found that the Vice-President of the Commission simply stated in her general policy speech that it was time to change that past practice but did not make any commentary on the transaction. And since the speech occurred months before the transaction was even publicly announced, that speech could not contain precise, unconditional and consistent assurances in relation to the treatment of that specific concentration.

Furthermore, the Court noted that the fact that the Commission has a practice of discouraging NCAs from referring cases to it that they do not have the power to review themselves does not, in itself, precluded such referrals.

The Court added that because the contested Decisions were based on a correct interpretation of the scope of Article 22 EUMR (as developed supra in section 1°), Illumina could not rely on the reorientation of the Commission’s decision-making practice to claim any violation of the principle of legitimate expectation.

The General Court thus concluded by dismissing Illumina’s action in its entirety.

Conclusion

Given the novelty of the Article 22 doctrine and the absence of guidance thereof at the time of the contemplated Transaction, this is arguably a particularly harsh ruling against Illumina, with serious consequences. The Commission, which had temporarily halted its in-depth probe into the Transaction last February while waiting for the General Court’s ruling, may now resume its work. As for now, Illumina and Grail remain subject to the interim measures imposed by the Commission in October 2021 requiring, in particular, that Grail be kept separate, be run by independent managers and that the parties implement Chinese walls in order to avoid sharing confidential and strategic information. In parallel of the in-depth review and the interim measures, the Commission, just six days after the judgment, sent a statement of objections to Illumina alleging unlawful gun-jumping (i.e., violation of the standstill obligation). The latter had indeed publicly announced that it had completed its acquisition of Grail while the Commission’s in-depth investigation was still ongoing. What’s next? Illumina made public its intention to appeal the judgment almost immediately after its issuance. It may hence not be the end of the story.

About the impact of the ruling beyond the Illumina/Grail transaction, it vigorously reinforces the Commission’s expansion of jurisdiction over mergers below the thresholds and confirms the need, for companies, whatever the activities concerned, to adapt to this new legal framework and take into account the clear uncertainty that derives from a potential Article 22 referral.

This is even truer as Margrethe Vestager, commenting upon the judgment, declared “We have a few acquisitions within our sights that might be relevant candidates.” So, there are clearly more cases to come.

In this context, our recommendations made a few months back (see here) remain all the more relevant after this confirmation’s judgment.

Finally, one can only hope that in the future the Commission and the NCAs will use this new Article 22 approach sparingly, focusing on the highest risks’ cases.

[1] Article 22 EUMR provides that « one or more Member States may request the Commission to examine any concentration as defined in Article 3 that does not have a Community dimension within the meaning of Article 1 but affects trade between Member States and threatens to significantly affect competition within the territory of the Member State or States making the request. »

No more ‘flying under the radar’: capturing transactions below the jurisdictional thresholds of national and EU merger control regimes

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The European Commission (“Commission”) is expanding its jurisdiction over transactions by encouraging national competition authorities (“NCAs”) of the EU Member States to ‘refer’ certain transactions to it that fall below the thresholds for mandatory notification at the EU and the national level. On 26 March 2021, the Commission published guidance (“Guidance”) setting out referrals that are ‘encouraged’ and how and when it will accept such referrals. This development has not required legislative changes (which would have taken some time and also required unanimity among EU Member States) but rather the Commission is resuscitating an existing provision, the so-called “Dutch clause”, namely Article 22 of the EU Merger Regulation (“EUMR”).

The Commission hopes to remedy what it perceives as an enforcement gap under the turnover-based thresholds for notification. In particular, this change in policy aims to catch transactions that would otherwise fall outside its jurisdiction as the turnover thresholds would not be met, but the parties otherwise have an important competitive position that is not reflected in their turnover, including so-called “killer acquisitions”. The Commission considers this to be a particular issue in the digital economy, pharmaceutical sector and other ‘innovation-driven’ sectors.

Only a couple of Member States (Austria and Germany) have implemented transaction value-based thresholds to catch acquisitions of companies with low turnover and high valuation. The Guidance allows the Commission to enable a more systematic EU-wide response.

The substantive test remains unchanged: the Commission will continue to assess whether there is a risk of significant impediment to effective competition (the “SIEC test”).

Transactions falling within the new policy

According to the Guidance, Article 22 referrals will be encouraged for transactions where the turnover of at least one party does not reflect its actual or future “competitive potential.” A non-exhaustive list of examples includes acquisitions of: (i) promising start-ups, (ii) “important innovators,” (iii) an “actual or potential important competitive force,” (iv) companies having access to key raw materials, infrastructure, data or IP rights, and (v) companies providing key inputs for other industries.

Whether a transaction is eligible for an Article 22 referral depends on two legal requirements: the transaction must (i) affect trade between Member States, and (ii) threaten to significantly affect competition within the territory of the Member State(s) making the request. The Commission provides examples of the relevant factors for the assessment of these criteria:

  • Trade between Member States could be considered affected, for example, based on the location of potential customers, data collection, or likely future commercialisation of IP rights.
  • The requirement of a threat to “significantly affect competition” within the relevant territory will be met if a preliminary assessment reveals a real risk that the transaction could result in the creation or strengthening of a dominant position, the elimination of an important competitive force (in particular, a new important innovator), the foreclosure from a market or supplies, and leveraging a strong market position from one market to another through exclusionary practices. The preliminary assessment conducted to verify this second criterion is without prejudice to the subsequent formal assessment of the transaction if the Commission accepts the referral.

Procedure/timing

The Commission intends to play an active role in the enforcement of the new policy. It is willing to “cooperate closely” with NCAs to identify transactions that would fall within the scope of this new policy, or even invite NCAs to invoke Article 22 in certain cases. Third parties are encouraged to contact the Commission or NCAs, if they consider a transaction appropriate for referral, provided they have sufficient evidence to enable a preliminary assessment.

The timing for referral is as follows:

  • In cases where there is no mandatory filing at a national level, NCAs have 15 working days to request referral, starting from the date on which the transaction is made known to them (according to the Guidance, this is when sufficient information is available to make a preliminary assessment);
  • The Commission will inform the other NCAs of the referral request “without delay”;
  • Other NCAs then have 15 working days to join the initial request (direct communication between NCAs is also encouraged by the Commission); and
  • After 10 additional working days, the Commission will be deemed to have adopted a decision to examine the transaction, if it has not already done so.

While the referral is subject to the deadlines set out above, the Commission is willing to accept Article 22 referrals up to six months after completion of the transaction or the transaction having become known in the EU (whichever is the later), or even later in “exceptional situations”.

Implications for parties to corporate transactions

Standstill effect and risk of gun jumping: The obligation not to close a transaction applies to transactions that have not completed at the date on which the Commission informs the parties that an Article 22 referral request has been made, after which the parties risk substantial gun jumping fines if they decide to close. The standstill obligation ceases if the Commission subsequently decides not to examine the concentration. The standstill obligation does not apply to transactions that have already completed before the Article 22 referral process is initiated such that no gun jumping fines can be incurred. The Commission will inform the parties as soon as possible if a referral is being considered to allow the parties to refrain from completing the transaction.

Duty to notify: Once the Commission has accepted Article 22 jurisdiction, the acquirer will be under a duty to notify the transaction under the standard notification procedure under the EUMR.

Potential effects on the transaction and risk of sanctions: Once the Commission has accepted jurisdiction, the transaction will be reviewed based on the standard substantive and procedural EUMR rules, which for transactions that raise concerns include the risk of remedies and in the worst-case scenario, a prohibition decision. If the transaction has not yet completed, there will be no real difference with the standard rules for notifiable transactions, although a decision to apply Article 22 adds to the timetable and may delay closing. However, effective remedies could prove difficult to implement for transactions that have already closed depending on the degree to which the acquired business has been integrated, particularly remedies requiring structural changes (e.g. full or partial divestment) to restore the situation pre-transaction.

The end of the “one stop shop” within the EU?: While under Article 22, the territorial jurisdiction is in theory limited to the EU Member States that have either referred the concentration to the Commission or joined the initial referral(s), the Commission takes into account the effects of a transaction in the rest of the EU whenever a relevant market has a geographic dimension larger than the referring Member State(s). This is likely to be the case in many digital and innovation markets potentially covered by the new policy and tech companies with global ambitions should assume that the Commission will investigate the effect of the transaction on an EU-wide basis.

The Guidance states that if a transaction has already been notified in one or more EU Member States that did not request a referral or join such referral request, this could be a factor against accepting a referral. However, for the purposes of legal certainty and considering potential for inconsistencies, in particular in relation to any remedies, we encourage the NCAs and the Commission to maintain a high level of cooperation to avoid overlapping investigations.

Our recommendations in light of the new policy

This is a major change to the Commission’s merger control policy. With this new policy, which is not limited to “Big Tech” or the digital economy (which has driven recent policy shifts or discourse relating to such shifts), EU merger control no longer provides for the legal certainty resulting from turnover-based notification thresholds. Several months of delay could be added between signing and closing, remedies could be imposed after the implementation of a transaction, and completed acquisitions might have to be unwound, all for transactions which prior to this policy change would not have faced any merger control review in the EU.

In light of this, transaction parties should consider:

Assessing the risk of falling within the scope of the new policy: Transaction parties should consider if a transaction falls within the categories of potential Article 22 referrals set out above. They should also consider if the transaction is likely to raise competition concerns – including through the strengthening of dominance/market power, access to advanced/innovative technology, R&D or data, or if the transaction involves a highly concentrated market, a target with a substantial user base or high projected growth, or meets merger control thresholds outside the EU. The rationale of the transaction and projected market developments will also be relevant factors in assessing if an Article 22 referral is likely.

Allocating risk and adapting transaction documents: Transaction agreements should be revised to take into account the risk of an Article 22 referral. In particular, agreements should allocate the risk of an Article 22 referral between buyers and sellers and include, or not include, as a condition precedent the absence of an Article 22 referral in the time period between signing and closing. If a transaction is likely to be referred, the acquirer may insist on having received from the Commission or NCAs confirmation that the transaction will not get referred under Article 22.

Strategically informing NCAs: At a national level, it might be beneficial to provide NCAs with enough information to allow a preliminary assessment of whether Article 22 referral is appropriate. Providing a sufficient level of detail should trigger the 15 working day deadline vis-à-vis the NCAs that have been provided with such information. It remains to be seen what level of cooperation will be achieved among NCAs; at this stage, it is not certain that informing one NCA would be regarded as informing all NCAs.

Reaching out to the Commission: While it is not yet clear what type of “comfort letter” the Commission is willing to provide, early communication with the Commission should help clarify whether a transaction is outside the scope of Article 22 referral, provided that sufficient information is made available to the Commission to make such assessment. This option should be particularly attractive in a competing bid scenario, or where competitors or other third parties otherwise may use the new Article 22 policy to scupper or delay a transaction.

New Enforcement Tool Against Abusive Market Conduct

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New enforcement tool for the German Federal Cartel Office in the control of abusive behavior of companies with a paramount cross-market significance for competition

 

 

 

 

 

In a nutshell:

  • What’s new?
    • Introduction of the Concept of Intermediation Power: A dominant position can as of now also result from intermediation services of a company that is active in multisided markets.
    • The German competition authority now has a new tool for intervention aiming at some types of large platforms’ conduct and other companies for which the authority established a so-called “paramount cross-market significance for competition”.
  • Action items for our clients
    • Follow the Federal Cartel Office’s approach with the new tool closely – we will keep you posted.

In detail:

The 10th amendment carries the name “Act amending the Act against Restraints of Competition for a focused, proactive and digital Competition Law 4.0 and other provisions (ARC Digitization Act)” and, as the name suggests, comprises the legislature’s intent to adapt German competition regulation to the new competitive environment in digital markets, in particular with respect to the controversial behavior of “gatekeeper” companies with superior market power like Google and Amazon. Hence, a core element of the amendment is the modernization of regulations on the control of abusive practices, in particular, the introduction of a new section 19a ARC (Act against Restraints of Competition) on abusive conduct of companies with a paramount cross-market significance for competition.

For the first time, section 19a ARC enables the Federal Cartel Office to intervene at an early stage in the event of threats to competition from certain large companies by determining that a company, which is active to a considerable extent in multisided markets, is of paramount importance for competition across markets, i.e., companies whose strategic position and resources make them particularly important for competition across markets. Under specific circumstances, the Federal Cartel Office can preventively prohibit such companies from certain practices, including:

1. Prohibition of “self-preferencing”, i.e., prohibition of giving preferential treatment to the company’s own offerings over those of competitors, in particular in terms of presentation and pre-installing exclusively the company’s own offerings on devices (a situation prominently discussed in the “Google-Shopping” case of the EU Commission);

2. Prohibition of measures of the company that impede third companies in their activities in a buyer’s or seller’s market if the company’s activity is important for the access to these markets;

3. Prohibition of impeding competitors in a market in which the company may quickly expand its market position;

4. Prohibition to erect or appreciably raise barriers to market entry or otherwise hinder other companies by processing competitively sensitive data collected by the company, or to impose business conditions that permit such processing;

5. Prohibition to impede or deny interoperability with other services and data portability, and thereby hinder competition;

6. Prohibition to inadequately inform other companies about the scope, quality or success of the service provided or commissioned or to make it difficult for them to assess the value of this service in another way; and

7. Prohibition to request advantages for treating offers of another company that are not appropriate in relation to the reason for the request.

The legislature also underpins the effectiveness of the new provision by accelerating the appeal proceedings. Appeals against decisions of the Federal Cartel Office made on the basis of section 19a ARC will be decided directly by the Federal Court of Justice. Skipping the first competent instance for all other antitrust proceedings, the Düsseldorf Higher Regional Court, will result in considerable time savings in these fast-moving markets.

In addition, the legislature has specified the provisions for the traditional control of abusive practices and expanded them to include internet-specific criteria. When measuring market power, the law now also provides that access to competition-relevant data and the question of whether a platform has so-called intermediation power are to be taken into account. Such a key position in the intermediation of services can establish a dependency relevant under antitrust law.

With regard to the regulations for companies with relative or superior market power, the scope of protection is no longer limited to small and medium-sized enterprises. Another important innovation is that the Federal Cartel Office can, under certain conditions, order that data access is granted for an appropriate fee in favor of dependent companies. In addition, special intervention options are provided for the event that a platform market threatens to “tip” in the direction of a large provider (so-called “tipping” of a market).

Take-Aways

The resources of the Federal Cartel Office, which are freed up by the increase of the merger thresholds (see our blog post on New merger control thresholds in Germany), will likely be used to initiate more sector inquiries and, subsequently, will lead to more decisions under the new sections in 19a GWB.

It remains to be seen how the concept of addressing abusive conduct of companies with a paramount cross-market significance under section 19a GWB will influence the legislative process of the Digital Markets Act on the EU level (see our blog post New obligations and sanctions for digital ‘gatekeepers’: European Commission proposes Digital Market Act).

New obligations and sanctions for digital ‘gatekeepers’: European Commission proposes Digital Markets Act

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The debate about competition issues and unfair practices specific to online platforms and the appropriate tools to tackle them was taken a step further by the European Commission (‘Commission’), which presented two legislative proposals on 15 December 2020: The Digital Services Act (‘DSA’) and the Digital Markets Act (‘DMA’). While the former is intended to regulate online content and increase transparency and accountability, the latter is intended to ensure contestable and fair markets in the digital sector by imposing limits (and potentially sanctions) on so-called ‘gatekeepers’. This post focuses on the latter. The DMA is the confirmation that, from the Commission’s point of view, the competition law toolbox does not perfectly address the new challenges encountered in the digital sector. Designed more specifically at tackling unfair practices and closing (what is perceived by the Commission as) an enforcement gap, the DMA complements the competition law toolbox with new obligations for market players and new control and enforcement tools for the Commission.

Identifying the gatekeepers

The first potentially contentious issue concerns the determination of the subject-matter of the DMA.

Digital platforms will have to assess whether the DMA applies to them. During the press presentation, the two commissioners in charge, Margrethe Vestager, Executive Vice-President for a Europe fit for the Digital Age (and continued head of DG Competition), and Thierry Breton, Commissioner for Internal Market, refrained from naming any specific platform.

The DMA establishes a concept of ‘gatekeeper’, which refers to providers of ‘core platform services’. These services include online intermediation, search engines, social networks, video-sharing platforms, online-communication, operating systems, cloud computing, as well as related advertising.

More specifically, the proposal sets out three cumulative criteria for defining ‘gatekeepers’: the provider must (i) have a significant impact, (ii) act as an ‘important gateway for business users to reach end users’ and (iii) enjoy an ‘entrenched and durable position’ or will foreseeably do so in the near future.

The Commission will presume that these criteria are fulfilled above the following quantitative thresholds:

a) for criterion (i) above, where the provider has an annual turnover in the EEA of at least EUR 6.5 billion in the last three financial years or market capitalization or market value of at least EUR 65 billion in the last financial year and it provides a core platform service in at least three Member States; or

b) for criterion (ii) above, where, in the last financial year, the core platform service had more than 45 million monthly active EU end users and 10,000 yearly active EU business users; or

c) for criterion (iii) above, where the provider meets the two thresholds mentioned in b) for each of the last three financial years.

The gatekeeper status will result from a Commission assessment and subsequent decision, but providers will have an obligation to self-assess and report themselves to the Commission when they meet the thresholds for the presumption to apply.

The presumption is rebuttable: a provider meeting the thresholds can argue that it does not fulfil the gatekeeper criteria. The Commission can also identify a gatekeeper even when not all the thresholds are met. A list of gatekeepers will be published and maintained to take into account market developments.

Specific duties and prohibitions

Regarding behavior, the DMA contains a list of Do’s and Don’ts for gatekeepers.

A first set listed in Article 5 of the DMA applies per se and needs no further details for the gatekeepers to fully comply with and be held responsible if they do not. For the second set listed in Article 6 of the DMA, the Commission may impose specific, more precise measures on a gatekeeper.

Do’s

Don’ts

Obligations for gatekeepers
(art. 5 DMA)
  • Allow business users to offer the same products or services to end users at different prices or conditions via other platforms;
  • Allow business users to do business with end users acquired on a platform also outside that platform, and allow end users to access content via the platform even if it was acquired outside the platform;
  • Upon request by a client of advertising services, provide it with pricing and remuneration information in relation to a specific ad and for each relevant advertising service.
  • Refrain from combining personal data sourced from these core platform services with other personal data;
  • Refrain from preventing or restricting business users from raising issues with any relevant public authority relating to any practice of gatekeepers;
  • Refrain from imposing its own identification service on end users that want to access business users’ services on the gatekeeper’s platform;
  • Refrain from tying core platform services.

Obligations for gatekeepers susceptible of being further specified
(art. 6 DMA)
  • Allow end users to uninstall any preinstalled software applications (unless it is essential for the functioning of the operating system or of the device and cannot technically be offered on a standalone basis by third parties);
  • Allow use of or interaction with third party software applications or software application stores on the gatekeeper’s operating systems, and allow access to these outside the gatekeeper’s core platform services (but the gatekeeper can take proportionate measures to ensure that the integrity of its hardware or operating system is not endangered);
  • Allow business users providing ancillary services access to and interoperability with the same operating system, hardware or software features used for the gatekeeper’s ancillary services;
  • Provide advertisers and publishers, upon their request and free of charge, with access to the performance measuring tools of the gatekeeper and the information necessary for advertisers and publishers to carry out their own independent verification of the ad inventory;
  • Provide effective portability of data generated through the activity of a business user or end user;
  • Provide business users (or third parties authorised by them), with free, effective, high-quality, continuous and real-time access and use of data provided for or generated in the context of end users engaging with the products or services provided by those business users; however, for personal data, the end user must have opted in for such access, and the access must be limited to the data directly connected with the use of the relevant platform in respect of the products or services offered by the relevant business user;
  • If the gatekeeper offers an online search engine, provide any third-party providers of online search engines (upon their request) with access on FRAND terms to ranking, query, click and view data generated by end users, subject to anonymisation of personal data;
  • Apply fair and nondiscriminatory general conditions of access for business users to the gatekeeper’s software application store.
  • When the gatekeeper competes with business users, refrain from using relevant data not publicly available and generated or provided in relation to the use of the core platform services by these business users or their end users;
  • Refrain from ranking more favourably its own products and services compared to those of third parties (fair and nondiscriminatory conditions should apply);
  • Refrain from technically restricting the ability of end users to switch between and subscribe to different software applications and services to be accessed using the operating system of the gatekeeper, including as regards the choice of Internet access provider for end users.

 

Regarding acquisitions, the DMA introduces an obligation for gatekeepers to inform the Commission of any intended concentrations in the digital sector, even for transactions falling outside the scope of EU or national merger control regimes.

Enforcement powers for the Commission (EU level intervention)

The Commission will have several tools to monitor gatekeepers and sanction lack of compliance: market investigations, investigative proceedings (including requests for information, interviews, on-site inspections), interim measures in case of emergency, noncompliance decisions, and ultimately fines up to 10% of the gatekeeper’s worldwide annual turnover and periodic penalty payments up to 5% of the average daily turnover. A provider will be able to make commitments to avoid a noncompliance decision and sanctions.

Limited intervention at national level

For the sake of a uniform and coherent response to unfair practices implemented by gatekeepers within the EU, the proposed legislation takes the form of a Regulation, directly enforceable within the EU, meaning that it will apply without the need for Member States to adopt national rules. The DMA lays down harmonized rules and Member States must not impose further obligations specific to gatekeepers, be it by way of national legislation, administrative action or else. The only way for Member States to intervene is when at least three of them jointly request the Commission to open an investigation. Regarding public enforcement, no specific role is foreseen for national competition authorities.

However, private damages are still handled at national level. The DMA leaves room for business users and end-users of core platform services provided by gatekeepers to claim damages for the unfair behaviour of gatekeepers before national courts.

Not yet a reality – the legislative process ahead

The current version of the DMA is still likely to change as it will undergo the normal EU legislative process involving the European Parliament and national governments via the European Council. According to the Commission, the search for a broad political consensus was already part of the preparatory phase, so that the final legislative act is anticipated to be adopted rather rapidly, in about one and a half years. Add the proposed six-month delay between entry into force and application, and the DMA could apply beginning of 2023. Yet, the real pressure against the proposal will probably come from providers likely to be identified as gatekeepers and that had already made their objections known during the public consultation launched by the European Commission prior to the drafting of the DMA.

 

SEP licensing in supply chains: ECJ gets opportunity for a major trend-setting decision

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Patent License agreement on a table Intellectual Ventures Wins Summary Judgment to Defeat Capital One’s Antitrust Counterclaims

In a decision of November 26, 2020 in a patent infringement case of Nokia Technologies Oy against Daimler AG, the Düsseldorf Regional Court (file number 4c O 17/19) referred several questions to the European Court of Justice (ECJ) regarding the licensing of standard essential patents (SEPs) within multi-level supply chains. The Düsseldorf Regional Court suspended the infringement action until the decision of the ECJ. These questions referred to the ECJ address whether SEP owners are obligated to make licenses available to upstream component suppliers and the implications for the failure to do so, which are some of the biggest unresolved disputes involving SEPs. The questions also seek clarification on some of the “safe harbour” requirements for seeking injunctions set forth in the ECJ’s decision in the Huawei./. ZTE case (judgment of July 16,2015, C170/13).

In the lawsuit, Nokia is seeking an injunction against Daimler for an infringement of the German part of its European patent EP 2 087 629 B1. The patent concerns a method for sending data in a telecommunications system, whereby the patent is essential for the LTE standard (4G). LTE-capable modules from various suppliers of automotive parts make use of this standard. These modules are installed in cars of the automobile manufacturer Daimler and enable mobile radio-based services such as music or data streaming and/or over-the-air updates of specific software in cars.

In September 2014, Nokia’s predecessor in title indicated that it considered its patent essential to the LTE standard and issued a statement committing to grant licenses to third parties on terms that are fair, reasonable and non-discriminatory (FRAND). Both Daimler and many of its suppliers have so far used the patent without paying royalties.

Nokia argues that, as the owner of an SEP, it is free to decide at which stage of a complex production and supply chain it grants licenses on FRAND terms.

In contrast, Daimler and its upstream component suppliers argue that, based on the rules of the EU internal market and the FRAND declaration of September 2014, Nokia, as the owner of the SEP, must offer every license seeker, who is willing to obtain a license for the SEP, an individual unlimited license for all patent-relevant types of use of the SEP. Therefore, priority should be given to the license-seeking suppliers, which would correspond to the standard procedure in the automotive industry.

In the referral decision, the Düsseldorf Regional Court assumed that Nokia has a claim for injunction against Daimler due to a patent infringement. However, the court raises the question whether Nokia’s assertion of its injunctive relief against Daimler can be regarded as an abuse of its undisputed dominant position in the licensing market. The decisive question would be whether and, if so, under which circumstances the owner of an SEP abuses his dominant position if he files an action for injunction on the grounds of a patent infringement against the seller of an end product without first having complied with the licensing request of the suppliers that use the SEP as well.

Specific questions referred to the ECJ

  1. May a company, that is active on a downstream economic level, raise the objection of an abuse of a dominant position within the meaning of Art. 102 TFEU against an action for injunction due to the infringement of an SEP, if the standard (or a part of the standard) is already implemented in an intermediate product purchased by the infringing party whose supplier are willing to obtain a license and the patent owner refuses to grant an unlimited license for all patent-relevant types of use under FRAND conditions for products implementing the standard?
  2. Does the prohibition of an abuse of a dominant position require that the supplier be granted its own unlimited license for all types of use on FRAND terms for products implementing the standard in the sense that the final seller (and possibly the upstream buyers) in turn no longer need a separate license from the SEP owner in order to avoid the infringement of the patent through the intended use of the relevant parts of the suppliers?
  3. If the question 1) is answered in the negative: Does Article 102 TFEU impose specific qualitative, quantitative and/or other requirements on the criteria according to which the owner of an SEP decides against which potential patent infringers at different levels of the same production and exploitation chain he takes action for injunction?
  4. Notwithstanding of the, fact that the duties of conduct to be performed by an SEP owner and an SEP user (notification of infringement, licensing request, FRAND license offer; license offer to the supplier to be licensed with priority) must be fulfilled prior to a court proceeding, is it possible to make up for duties of conduct that were missed prior to a court proceeding in the course of a court proceeding?
  5. Can a considerable licensing request by the patent user only be assumed if a comprehensive assessment of all accompanying circumstances clearly and unambiguously shows the intention and willingness of the SEP user to conclude a license agreement with the SEP owner on FRAND conditions, whatever these (in the absence of a license offer not foreseeable) FRAND conditions may look like?

Timing and Implications

It likely will take between one to two years until the questions are fully briefed and the ECJ rules on the questions.

Notwithstanding the delay, these questions will provide the ECJ with an important opportunity to make a decision that will have a major impact on supply chains around the globe. They also will reduce the likelihood, pending the ECJ’s decision, that courts in Europe will issue injunctions against automotive manufacturers for cellular SEPs when upstream telematic component manufacturers are willing to enter FRAND licenses. Finally, they likely will influence ongoing efforts by the European Commission to provide policy guidance to improve transparency and predictability in SEP licensing.

The answers of the ECJ will give guidance and can be expected to have a tremendous effect not only in the automotive industry, but for any industry that relies on SEPs. The further proceedings will, thus, need to be followed closely.

New Anti-Monopoly Regulations in Force in China

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September 1, 2019 may be seen as a new starting point for the enforcement of China’s antitrust and competition laws. On this date, three new sets of rules and regulations (the “Three New Regulations”) took effect, which were issued by China’s newly formed competition authority, the State Administration for Market Regulation (“SAMR”): [1]

  • the Interim Provisions on Prohibiting Monopoly Agreements (“IPP-MA”),
  • the Interim Provisions on Prohibiting Abuse of Dominant Market Positions (“IPP-AD”), and
  • the Interim Provisions on Prohibiting the Acts of Eliminating or Restricting Competition by Abuse of Administrative Power (“IPP-AAP”).[2]

The Three New Regulations are expected to provide clear guidance for the SAMR and the provincial market supervision departments in their enforcement of China’s Anti-Monopoly Law (“AML”).[3]

Main Contents of the Three New Regulations

The IPP-MA (36 Articles in total), the IPP-AD (39 Articles in total), and the IPP-AAP (25 Articles in total), are all for implementing the relevant sections of the AML (respectively, “Monopoly Agreements,” “Abuse of Dominant Market Position” and “Abuse of Administrative Power to Eliminate or Restrict Competition” sections), and have similar structures. Basically each of the Three New Regulations has the following main contents:

  1. Systematic provisions on AML enforcement mechanisms against relevant acts in violation of the AML. They are to:
    • Establish the two-level law enforcement system involving the national level and provincial level enforcement departments;
    • Set up working mechanisms, including general authorization to provincial level enforcement departments, designation of enforcement powers, commissioned investigations, and cooperation in investigations;
    • Set up the reporting system for the provincial enforcement department to initiate and handle an investigation into relevant AML violation acts; and
    • Urge the SAMR to strengthen guidance and supervision of provincial-level market regulation departments, and to unify the standards of law enforcement.
  2. Detailed provisions on law enforcement procedures:
    • The procedural regulations for each of the main stages of case handling, including whistleblowing, case-filing, investigation, case disposition, publicity, etc. are provided; the IPP-MA and the IPP-AD also clarify procedures regarding commitment proposal and handling.
    • The IPP-MA and the IPP-AD also incorporate by reference the procedural regulations promulgated by SAMR earlier this year in April, i.e. the Interim Provisions on the Procedures for Administrative Punishments for Market Supervision and Administration, and the Interim Measures for the Hearings for Administrative Punishments for Market Supervision and Administration.
  3. More details in implementing relevant sections of the AML:
    • Each of the Three New Regulations specifies the conditions or factors for finding violations of the AML, and clarifies the specific manifestations and constituent elements of violating acts. On one hand, they are expected to facilitate the implementation of the AML by not only providing guidance to AML enforcement agencies but also restricting those agencies’ discretions, and on the other hand, they may serve as clear guidelines for compliance by the parties subject to those regulations.
    • Each of the Three New Regulations provides details on how to deal with illegal acts. The IPP-MA and the IPP-AD specify the types of penalties, the factors to be considered for determining the amount of fines, and the content of administrative penalty decisions; they further clarify that a business operator shall still assume legal responsibility for reaching a monopoly agreement or abusing the dominant market position by passive compliance with administrative orders, but the responsibility can be lightened or mitigated according to law. The IPP-AAP distinguishes the action types in different case situations and clarifies the specific content of an administrative proposal after the investigation.
    • The IPP-MA also specifies the exemption and leniency system. For instance, it clarifies the conditions for applying for exemptions/leniency treatments, the consideration factors for the AML enforcement agencies to determine granting exemptions/leniency treatments, and the content of the exemptions/leniency treatments.

It is believed that the Three New Regulations will further enhance the fairness, standardization and transparency of AML enforcement.

The New Regime vs. the Old – A Comparison

  1. Each of the Three New Regulations is more comprehensive for including both substantive and procedural provisions. Before the institutional reform, the original AML enforcement agencies issued separate regulations respectively on substantive provisions and procedural provisions. Now each of the Three New Regulations combines substantive and procedural provisions to make the regulations more comprehensive and complete, which could be conducive to the implementation by AML enforcement agencies and compliance by the parties subject to the governance of those regulations.
  2. The Three New Regulations overall may improve the AML enforcement supervision mechanism: Each of the Three New Regulations clearly requires the provincial law enforcement departments to investigate and deal with illegal acts in accordance with the relevant provisions of the SAMR, and the SAMR shall strengthen the guidance and supervision of the provincial law enforcement departments. Moreover, the reporting system and a stricter supervision mechanism are to be established according to each of the Three New Regulations, which could be conducive to the AML enforcement and the formation of a new pattern of AML enforcement with the expectation of comprehensively unified standards and procedures and practice.
  3. Each of the Three New Regulations refines relevant provisions of the AML. The main highlights are:
    • The Interim Provisions on Prohibiting Monopoly Agreements[4]
      • Factors for identifying other monopoly agreements are provided. It clarifies the factors that need to be considered when applying the section “Monopoly Agreements” of the AML to identify other monopoly agreements. It is clarified that other monopoly agreements in the AML can be determined only by the SAMR, which reflects the prudential principle adopted by law enforcement agencies on this issue.
      • Prudence is attached to the application of the commitment system. Where an operator promises to correct his behavior and take the initiative to eliminate the consequences of his behavior, the AML enforcement agency may decide to suspend the investigation. The commitment system is conducive to saving law enforcement resources and improving law enforcement efficiency. At the same time, however, it is also prone to problems such as replacing punishment with suspension. It particularly stipulates that the commitment system shall not be applied to monopoly agreements for (i) fixing prices, (ii) restricting the number of goods produced or sold, or (iii) segmenting market; moreover, if the AML enforcement agency concludes after investigation that a monopoly agreement exists, it shall no longer accept an application for suspension of investigations, which is conducive to maintaining the authority of AML enforcement.
      • Adjustment is made to the leniency system. It sets different levels for the reduction and exemption of penalties, which may make the leniency system produce a better incentive effect, and encourage reporting and surrender. It also increases the number of operators entitled to lenient treatment up to three in a case, and at the same time it adjusts the extents of mitigation or exemption of punishments, which may make the leniency system work better.
    • The Interim Provisions on Prohibiting Abuse of Dominant Market Positions [5]
      • Factors for determining dominant market position of operators in new areas are provided. In recent years, the abuse of dominant market position in the Internet and intellectual property fields has received widespread attention. In response to the concerns of all sectors of society, and in order to strengthen the AML enforcement regarding dominant market position in the above two areas, the IPP-AD clearly clarifies the special factors that need to be considered in determining the dominant market position of operators in these two areas.
        • Prudence is attached to the determination of abuse of dominant market position. In law enforcement practice, it could be a complicated process to determine that the behavior of an operator constitutes such abuse. Although some acts may appear to constitute abuse of dominant market position, they may be actually commercially reasonable and should not be enjoined. The IPP-MD is believed to have fully considered the rationality of the behavior of operators, and clearly enumerates the typical abuse conducts; for instance, it stipulates that when a case involves sales of goods at a price lower than the cost, the analysis should be focused on whether the price is lower than the average variable costs; and in the case of free products provided in emerging areas such as the Internet, an overall consideration of free goods and related paid goods provided by the operator would be needed.
      • Circumstances of “justifiable reasons” are specified. Under AML, the question on whether “justifiable reasons” exist needs to be considered when determining whether a suspected act constitutes an abuse of dominant market position. The IPP-AD, based on enforcement authorities’ relevant experience, enumerates specific possible justifiable reasons for acts like selling goods at prices below cost, refusing to trade, restricting transactions, tying or attaching unreasonable trading conditions, differential treatment, etc. These provisions refine relevant provisions of the AML and are expected to enhance the law enforcement operability and increase the market predictability.
    • The Interim Provisions on Prohibiting the Acts of Eliminating or Restricting Competition by Abuse of Administrative Power [6]
      • Specific types of acts of abusing administrative power to eliminate or restrict competition are provided. As compared with the old regulations by NDRC and the former SAIC, the new regulations are expected to help accurately identify the violation acts and further enhance the operability in law enforcement practice.
      • Procedures of law enforcement and handling are improved as compared with the old regulations by NDRC and the former SAIC. For instance, it clarifies that the AML enforcement agencies may initiate investigations against suspected violation acts through performing their powers, whistleblowing, assignments by higher authorities, cases transferred by other organs, reports of lower-level organs, etc., and market-level regulatory authorities below the provincial level can also receive whistleblowing materials or discover case clues, which improves the case-filing procedure.

The Three New Regulations further clarify the standards for identifying violation acts and imposing penalties, grant the AML enforcement agencies relatively full power and authority to conduct investigations, collect evidence and sanction violating parties, which is expected to better guide and regulate enforcement activities and more effectively combat monopolistic behaviors.[7]

_____________

[1] Year 2018 is the 10th year of implementation of China’s Anti-Monopoly Law (“AML”), and it is also the year seeing China’s new round of administrative system reform. This round of reform directly led to a major change in China’s AML implementation mechanism, namely the establishment of SAMR, into which the duties of anti-monopoly law enforcement agencies originally dispersed throughout the National Development and Reform Commission (“NDRC”), the former State Administration for Industry and Commerce (“SAIC”) and the Ministry of Commerce (“MOFCOM”) were integrated. The SAMR now assumes the unified functions for AML enforcement.

[2] See the Interim Provisions on Prohibiting Monopoly Agreements, available at http://gkml.samr.gov.cn/nsjg/fgs/201907/t20190701_303056.html, the Interim Provisions on Prohibiting Abuse of Dominant Market Positions, available at http://gkml.samr.gov.cn/nsjg/fgs/201907/t20190701_303057.html, and the Interim Provisions on Prohibiting the Acts of Eliminating or Restricting Competition by Abuse of Administrative Power, available at http://gkml.samr.gov.cn/nsjg/fgs/201907/t20190701_303058.html.

[3] See Legal Daily, The Three Regulations for Implementing the Anti-Monopoly Law Implemented since September – The Anti-Monopoly Law Enforcement System Now Has “Steel and Sharp Teeth”, 2019-07-19, available at http://www.xinhuanet.com/2019-07/19/c_1124774162.htm.

[4] See Anti-monopoly Bureau, A Chart to Understand the Interim Provisions on Prohibiting Monopoly Agreements, August 30, 2019, available at http://gkml.samr.gov.cn/nsjg/xwxcs/201908/t20190830_306388.html.

[5] See Anti-monopoly Bureau, A Chart to Understand the Interim Provisions on Prohibiting Abuse of Dominant Market Positions, August 30, 2019, available at http://gkml.samr.gov.cn/nsjg/xwxcs/201908/t20190830_306387.html.

[6] See Anti-monopoly Bureau, A Chart to Understand the Interim Provisions on Prohibiting the Acts of Eliminating or Restricting Competition by Abuse of Administrative Power, August 30, 2019, available at http://gkml.samr.gov.cn/nsjg/xwxcs/201908/t20190830_306386.html.

[7] See Legal Daily, The Three Regulations for Implementing the Anti-Monopoly Law Implemented since September – The Anti-Monopoly Law enforcement system has “Steel and Sharp Teeth”, 2019-07-19, available at http://www.xinhuanet.com/2019-07/19/c_1124774162.htm.

 

No Signs of Slowing Down — Global Antitrust Agencies Focus on Big Tech

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Earlier this year, we covered the widespread interest in tech giants among international competition authorities, as well as the potential for divergence in intensity and type of enforcement across jurisdictions. We observed that while the U.S. enforcement agencies did not appear to support a regulatory approach to platforms and the digital economy, others like the Australian Competition and Consumer Commission (ACCC) and the UK Parliament’s Digital Culture, Media and Sport Committee may have a stronger appetite for proactive regulation.

Since that post, competition authorities, both U.S. and other, have intensified their focus, with activities ranging from sector-wide studies to investigations into individual tech companies.

For example, the U.S. Department of Justice Antitrust Division (DOJ) recently announced a broad review of whether online tech companies have harmed consumers or otherwise reduced competition. The probe will cover leading online platforms in “search, social media, and some retail services” and will focus on “practices that create or maintain structural impediments to greater competition and user benefits.”

That DOJ announcement is part of a broader effort by the U.S. antitrust enforcement agencies to address competition in the tech sector. Days later, the Attorney General met with eight State AGs who reportedly are considering opening their own investigations. The FTC launched a tech task force back in February (in addition to its recently concluded hearings on competition and consumer protection) and last month opened a formal antitrust investigation into Facebook (according to a recent press release accompanying Facebook’s Q2 earnings report). Reports also have emerged of FTC information requests to third-party resellers on Amazon. Even the Antitrust subcommittee of the U.S. House Committee on the Judiciary has held a hearing on online platforms and market power as part of its separate investigation.

The U.S. agencies’ overseas counterparts have remained just as active. In Australia, the ACCC just published the Final Report from its Digital Platforms inquiry. The inquiry focused on online search engines, social media platforms and other digital content aggregation platforms with an emphasis on Facebook and Google, and looked into the impact of digital platforms on competition in the advertising and media markets, and on advertisers, media content creators and consumers.

The final report found that Google has “substantial market power” in the supply of general search services and search advertising services in Australia, and that Facebook has “substantial market power” in the supply of social media services and display advertising services in Australia. Both companies were found to have “substantial bargaining power” in their dealings with news media businesses in Australia. The report cautioned that this market power could be used to damage the competitive process, though it did not look at whether these digital players have in fact misused their market power.

The report offered 23 recommendations “aimed at addressing some of the actual and potential negative impacts of digital platforms in the media and advertising markets, and also more broadly on consumers.” The recommendations most directly implicating competition include changing merger law to incorporate additional factors – such as the likelihood that the acquisition would result in the removal of a potential competitor from the market, and the nature and significance of assets, including data and technology, being acquired – and to require advance notice of acquisitions; and creating a new, specialist digital platforms branch within the ACCC to monitor and investigate proactively instances of potentially anticompetitive conduct by digital platforms and take action to enforce competition and consumer laws.

The report also recommended changes to Australia’s Privacy Act, including expanding the definition of “personal information” to include technical data, strengthening notification and consent requirements and pro-consumer defaults, enabling the erasure of personal information, and introducing direct rights of action and higher penalties for breach, as well as establishing an ombudsman scheme to resolve complaints and disputes with digital platform providers. Additional recommendations focused specifically on news media (e.g. creating a code of conduct to promote fair and transparent treatment of news media by digital platforms, improving digital media literacy in schools and the communities, and offering greater funding for public broadcasters and local journalism).

Similar undertakings are in the works around the globe. The ACCC report comes just as the UK Competition and Markets Authority (CMA) announced the start of a formal market study into online platforms and the UK market for digital advertising. The study will examine three potential sources of harm in digital advertising: (1) The market power of online platforms in consumer-facing markets – to what extent online platforms have market power and what impact this has on consumers; (2) Consumer control over data collection practices – whether consumers are able and willing to control how data about them is used and collected by online platforms; and (3) Competition in the supply of digital advertising in the UK – whether competition in digital advertising may be distorted by any market power held by platforms. Platforms not funded by digital advertising are expressly outside the scope of the study.

In keeping with what appears to be a greater openness toward proactive regulation than the U.S. agencies (at least historically), the discussion of potential remedies in the CMA’s Statement of Scope explains that the “current expectation is that any remedies are likely to focus on recommendations to Government for the development of an ex ante regulatory regime … and are likely to require legislative change.” The CMA does not believe that a “one-off” market investigation and intervention is “sufficient to provide a sustainable long-term framework for the sector.” The five main areas in which remedies may be required include: (1) increasing competition through data mobility, open standards, and open data; (2) giving consumers greater protection over data; (3) limiting platforms’ ability to exercise market power; (4) improving transparency and oversight for digital advertisers and content providers; and (5) institutional reform. The CMA plans to publish an interim report with initial findings in January 2020, with a final report to follow no later than July of next year.

Not to be outdone, the EU – which recently has been fairly active in the tech sector, including last year’s highly publicized Google Android decision – recently announced a formal investigation into Amazon. The investigation focuses on Amazon’s role as both a platform provider (through Amazon marketplace) and a participant on that platform (through its first-party retail offerings), asking whether Amazon’s use of sensitive data from independent retailers is in breach of EU competition rules. Specifically, the Commission will look into (1) the standard agreements between Amazon and marketplace sellers, which allow Amazon’s retail business to analyze and use third-party seller data; and (2) the role of data (including competitively sensitive marketplace seller data) in selecting the winners of the “Buy Box,” which allows customers to add items directly to their shopping carts and accounts for the majority of Amazon transactions.

As we cautioned previously, with so many competition authorities weighing in on how to assess tech competition, this confluence of inquiries and investigations can pose a challenge for global enterprises operating under an international patchwork of approaches. Technology-focused, data-intensive businesses should consider seeking antitrust counsel to monitor developing competition trends and implications across jurisdictions.

Dusting the Regulatory Framework – French Competition Authority Seeks to Liberalize Distribution of Drugs and Private Medical Biology

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On April 4, 2019, just three months after the publication of the European Commission (EC) report on “Competition enforcement in the pharmaceutical sector,” the French Competition Authority (FrCA) issued its report n°19-A-08 on “Distribution of drugs and private medical biology.” While the reports do not have much in common, except maybe the shared concern of excessive prices in the pharmaceutical sector, they both illustrate the keen interest of the European competition authorities in this sector. The focus of the EC report is the market players’ conducts and how they may impede competition. The FrCA report rather focuses on the obstacles to effective competition that may derive from the current legislative and regulatory framework and may translate in a competitiveness gap to the detriment of French-based operators and in higher prices for patients. It deals inter alia with a French “exception”: the monopoly of pharmacies and pharmacists over drug distribution. The report also covers a wide range of French-centric topics from online sales of drugs to capital ownership of private biology medical laboratories and pharmacies, and drug advertisement, as well as the situation of wholesalers-distributors.

Softening the pharmacies and pharmacists’ monopoly over drug distribution

16 of 28 EU Member States have softened the pharmacies’ and/or pharmacists’ monopoly over drug distribution. Among France’s neighboring countries, only Belgium, Luxembourg and Spain have a legislation as restrictive as France, where drugs, whether prescription-only or over-the-counter (OTC), may only be sold in pharmacies by qualified pharmacists.

After noticing the positive effects on prices of the enlargement of the distribution channels for certain medical devices, the FrCA advocates for a liberalization of pharmacies’ monopoly over the sale of OTC drugs, to allow drugstores and supermarkets to sell them as well. For the sake of public health, it is suggested to preserve the pharmacists’ monopoly over their sale, meaning that OTC drugs could be sold in drugstores or supermarkets but only by qualified pharmacists on whom no sales targets may be applied, and in delineated spaces with their own cash point.

Softening the regime applicable to advertising issued by pharmacists

The current regulations provide for a strict framework for advertising issued by pharmacies, be it done in favor of the pharmacies themselves or of any product, drug or other, marketed by them.

According to the FrCA, the way those regulations are currently being construed translates into excessive restrictions and prevents pharmacists from using any form of advertising, including when it does not pertain to medicinal products and therefore does not present any risk to public health.

One of the detrimental consequences thereof is the absence of any real competitive pressure between pharmacies and significant price disparities. For instance, the FrCA has found price disparities between pharmacies ranging from 103.4% to 431% for certain drugs.

The FrCA considers that softening the framework for advertising issued by pharmacists and increasing price transparency would contribute to boost competition between them, and between pharmacists and supermarkets and drugstores commercializing the same personal care products.

One of the recommendations issued by the FrCA in that respect would be to better distinguish between advertisement for drugs and for personal care products: by, for instance, allowing pharmacists to put in place rebates and loyalty programs for the latter.

Softening the rules applicable to online drug distribution

Directive 2011/62/EU obliges EU Member States to allow online sales of OTC drugs and permits online sales of prescription drugs. Implementation of the Directive has noticeably differed between countries. For instance, the UK and the Netherlands have allowed online sales for both OTC and prescription drugs by pure-players. Germany, Portugal, Sweden and Denmark have allowed the sale of any drug (OTC or prescription), but only by websites leaning on a physical pharmacy. Finally, France, Belgium, Spain, Italy and Ireland have limited online sales to OTC drugs and impose a physical pharmacy.

Questioning the effectiveness of the legal framework in France, the report points out that online sales of drugs are not very well developed in France. Most French patients still think the practice is illegal or non-existent. As a result, online sales of OTC represent only 1% of total sales in France vs 14.3% of total sales in Germany. Besides, the French offer of online sales is very limited compared to that of other European countries.

According to the FrCA, the development of online sales is impeded by the numerous legal constraints facing France-based players. In particular, the prohibition of joint websites between pharmacies is being challenged because it prevents them from pooling their resources. Furthermore, the FrCA points out the difficulty for pharmacies to get visibility since the law prohibits advertising of online sales websites, comparison price websites and paid referencing.

Here again, the FrCA considers that the solution would be to soften the applicable legal framework to provide patients with better information on the online sale of medicines, as well as on the actors authorized to do so. This enhanced information would promote the emergence of an economic model better suited to the development of competitive national operators capable of competing effectively with foreign players.

Other issues addressed

The report also points out several improvable aspects that could help balance the market. The FrCA points out the rules of capital ownership of pharmacies and private medical biology laboratories that could be softened to allow better access to financing and, regarding private biology medical laboratories, to put an end to an asymmetry existing as a result of a softening in the rules of capital ownership followed by a step backward, which has created an unjustified difference between laboratories that could benefit from the softening and the ones that were created after the step backward. Finally, the FrCA advocates for a revision of the method of remuneration of wholesalers-distributors, allowing for a fairer compensation of the heavy public service mission weighing on them.

Conclusion

This report is another illustration of what could start to become an interesting trend at the FrCA: using its power to deliver opinion to invite the legislator to tackle the inefficiencies and barriers to competition created by old and sometimes overly rigid rules in regulated sectors. In the same vein, one may mention its report of February 21, 2019, n° 19-A-04, on the broadcasting sector, where the FrCA advocates for a softened regulation of the sector to consider the development of new technologies and market entry of new players.

While this trend is welcome for France-based players and also for consumers in general, it remains to be seen how these recommendations will be used (or not) by the legislator.

 

Agree to Disagree: Competition Authorities Differ on Approach to Digital Platforms

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Tech giants have captured the attention of competition agencies around the world. As we have previously shared, the FTC is in the midst of a series of hearings on Competition and Consumer Protection in the 21st Century, including sessions on Big Data, Privacy, and Competition and the Antitrust Framework for Evaluating Acquisitions of Potential or Nascent Competitors in Digital Marketplaces. Multiple European regulators (the EU, Germany and now Austria) recently launched investigations into Amazon. Technology platforms are a priority for many other enforcers as well, from China to Australia to the UK.

With different competition authorities weighing in on how to assess tech competition, there is the potential for divergence in intensity of enforcement as well as whether existing competition doctrine suffices. Disparities are borne out by recent statements emanating from U.S., Australian, and UK competition agencies and officials.

Fresh remarks from the U.S. DOJ Antitrust Division indicate the agency does not support a regulatory approach to platforms and the digital economy. In a speech last week, agency head Makan Delrahim addressed Antitrust Enforcement in the Zero-Price Economy, noting that while zero-price strategies have “exploded” with the rise of digital platforms, “the strategy of selling a product or service at zero price is not new, nor is it unique to the digital economy.” Mr. Delrahim acknowledged the divergent views of how antitrust enforcement should treat such products and services, which range from exemption from antitrust scrutiny entirely to the creation of new, specially crafted rules and standards. Rejecting both of these “extreme views” as “misplaced,” he emphasized the ability of current antitrust doctrine – including the consumer welfare standard – to tackle the issue, stating: “[W]e do not need a wholesale revision of the antitrust laws to address competitive concerns in these contexts. . . . [O]ur antitrust laws and principles are flexible enough to adapt to the challenges of the digital economy.” Mr. Delrahim called for “careful case-by-case analysis” in enforcement. He touted the innovation and benefits that zero-price strategies have brought to consumers, crediting the country’s “pro-market economic and legal structures” and cautioning against “distortions of our antitrust standards” to address issues like privacy and data protection if they do not impede the functioning of the free market.

His speech echoes a view Mr. Delrahim and others at the Antitrust Division have expressed previously regarding the need (or lack thereof) for new rules to address the antitrust implications of “big data.” In an October 2018 speech regarding startups, innovation, and antitrust policy, Mr. Delrahim remarked that “accumulation of data drives innovation and benefits consumers” in many ways (including by enabling zero-price offerings), and that forced sharing risks undermining innovation by reducing incentives for both incumbents and new entrants. Invoking Trinko,[1] he stated that “free and competitive markets” – not antitrust agencies or courts – are best equipped to determine “how much data should be shared, with whom, and at what price.” Deputy Assistant Attorney General Bernard Nigro, Jr. has taken a similar position, stating that “forced sharing of critical assets reduces the incentive to invest in innovation” and that “where benefits to sharing exist, they can be best captured by the parties negotiating in a free and competitive market, not by government regulation.”

By contrast, other jurisdictions and industry observers considering the competitive implications of digital platforms have questioned the status quo. In their view, control of valuable data provides a competitive advantage and raises entry barriers that may entrench a platform’s dominant position and lead to competitive or consumer harm. At a higher level, France and Germany just announced an effort to overhaul competition rules to enable European companies to better develop technologies that compete on the global stage.

For example, last week the Australian Productivity Commission and the New Zealand Productivity Commission released a joint report that reviews how most effectively to address the challenges and harness the opportunities the digital economy creates (particularly for small- to medium-sized enterprises). In a section titled “Existing competition regulation may not be adequate for digital markets,” the report addressed the challenges of applying existing laws to the digital economy, including (among others) that zero-price goods and services complicate the analysis of market definition and market power, and that data “is an increasingly important business input and may be a source of market power” but is not adequately captured in traditional competition policy. Although the report acknowledged that in some cases technological developments might obviate the need for regulation (and in others the mere threat of regulation may be enough), it posited that new regulation might be necessary to maintain competitive markets: “[I]f ‘winner-take-most’ markets do end up prevailing, competition regulators may need to consider extending tools such as essential service access regimes to digital services.” An essential service (or “essential facilities”) regime would treat a digital platform’s data as an input essential to competition and require the platform to provide its competitors with reasonable access to it. In contrast to the Productivity Commissions’ suggestion, U.S. competition enforcers to date have been loath to treat digital platforms as essential facilities.

The Productivity Commissions’ report comes on the heels of the Australian Competition and Consumer Commission’s (ACCC) Digital Platforms Inquiry preliminary findings released in December. The ACCC expressed similar concerns about the rise of digital platforms and the threat they pose to consumers and the competitive process. Addressing what it found to be Google’s and Facebook’s market power in a number of markets,[2] the report encouraged governments to be “responsive, and indeed proactive, in reacting to and anticipating challenges and problems” posed by digital platforms. It offered eleven preliminary recommendations to address these concerns, including: amending merger law to expressly consider potential competition and the data at issue in the transaction, requiring advance notice of any acquisition by a large digital platform of a business with activities in Australia, and tasking a regulatory authority with monitoring the conduct of vertically integrated digital platforms. The report also proposed areas for further analysis, such as: a digital platforms ombudsman, the monitoring of intermediary pricing and opt-in targeted advertising. As such, indications from Australia suggest calls for more competition intervention have some teeth.

The UK may have a similar appetite, as indicated by a new Parliament publication addressing “Disinformation and ‘fake news.’” The statement calls for increased oversight and greater transparency into “how the big tech companies work and what happens to our data,” highlighting Facebook’s treatment and monetization of user data as an example of why intervention is needed. In addition to recommending a compulsory Code of Ethics overseen by an independent regulator with “statutory powers to monitor relevant tech companies,” the publication advocated for greater competition law scrutiny of and enforcement against digital platforms, including an investigation of Facebook and a “comprehensive audit” of the social media advertising market. Invoking existing “legislative tools” such as privacy laws, data protection legislation, and antitrust and competition law, the report cautioned: “The big tech companies must not be allowed to expand exponentially, without constraint or proper regulatory oversight.”

Operating under an international patchwork of competition approaches can present a challenge to global enterprises. Technology-focused, data-intensive businesses should consider seeking antitrust counsel to monitor developing competition trends and implications across jurisdictions.

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[1] Verizon Communic’ns, Inc. v. Law Offices of Curtis V. Trinko, LLP, 540 U.S. 398, 407-08 (2004).

[2] The preliminary report finds that Google has market power in online search, online search advertising and news media referral services, and that Facebook has market power in social media services, display advertising and news media referral services.

The New Madison Approach Goes to Court

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On January 11, 2019, the U.S. DOJ Antitrust Division (Division) filed a Notice of Intent to File a Statement of Interest in a lawsuit filed by u-blox against Interdigital in the U.S. District Court for the Southern District of California to obtain a license consistent with Interdigital’s voluntary commitment to license its 2G, 3G and 4G telephony Standard Essential Patents (SEPs) on fair, reasonable, and nondiscriminatory (FRAND) terms. Simultaneous with the filing of its Complaint, u-blox filed a Motion for a Temporary Restraining Order and Preliminary Injunction to prevent Interdigital from further interfering with u-blox’s customer relationships. The Division argued that the Court would benefit from hearing its views on granting a TRO based on u-blox’s claim that Interdigital monopolized the 2G, 3G and 4G cellular technology markets. Intervening in a District Court case is highly unusual and is yet another clear signal that the Division has reversed the Obama Antitrust Division’s antitrust treatment of FRAND violations, despite the disparity between the Division’s current position and numerous well-reasoned U.S. court decisions that have carefully considered these issues and come to precisely the opposite conclusions.

Retro-Jefferson Approach[1]

By way of background, standard setting involves competitors and potential competitors, operating under the auspices of Standard Setting Organizations (SSOs), agreeing on a common standard and incorporating patented technology. Patents that are incorporated into a standard become much more valuable once a standard becomes established and commercially deployed on a widespread level, and it becomes impossible for companies manufacturing devices that incorporate standardized technology to switch to alternative technologies. In these circumstances, patent holders may gain market power and the ability to extract higher royalties than would have been possible before the standard was set. This type of opportunistic conduct is referred to as “patent hold-up.” To address the risk of patent hold-up, many SSOs require patent holders to commit to license their SEPs on FRAND terms. FRAND commitments reduce the risk that SEP holders will exercise market power by extracting exorbitant licensing fees or imposing other more onerous licensing terms. One way to address patent hold-up is through breach of contract and antitrust suits against holders of FRAND-encumbered SEPs.

The Obama Antitrust Division advocated the position that, under appropriate circumstances, the antitrust laws may reach violations of FRAND commitments. This position was, and remains, consistent with applicable legal precedent. For example, in 2007 the Third Circuit recognized in Broadcom v. Qualcomm, 501 F.3d 297, that a SEP-holder’s breach of a FRAND commitment can constitute a violation of Section 2 of the Sherman Act where the SEP-holder makes a false FRAND promise to induce an SSO to include its patents in the standard and later, after companies making devices that incorporate the standard are locked in, demands exorbitant royalties in violation of the FRAND commitment. Numerous other cases similarly stand for the proposition that it is appropriate to apply competition law to the realm of FRAND-encumbered SEPs. See, e.g., Research in Motion v. Motorola, 644 F. Supp. 2d 788 (N.D. Tex. 2008); Microsoft Mobile v. Interdigital, 2016 WL 1464545 (D. Del. Apr. 13, 2016).

The Obama Antitrust Division also took the position that in most cases it is inappropriate to seek injunctive relief in a judicial proceeding or an exclusion order in the U.S. International Trade Commission (ITC) as a remedy for the alleged infringement of a FRAND-encumbered SEP. Injunctions and exclusion orders (or the threat of one) are generally incompatible with a FRAND commitment and unfairly shift bargaining power to the patent holders. In the Obama Antitrust Division’s view, money damages, rather than injunctive or exclusionary relief, are generally the more appropriate remedy. Again, the Obama Antitrust Division’s policy reflected case law recognizing the same principles. See, e.g., Apple v. Motorola, 757 F.3d 1286 (Fed. Cir. 2014).

The Obama Antitrust Division articulated its views on the use of exclusion orders against the infringing use of SEPs in a joint statement issued by the Department of Justice and the U.S. Patent & Trademark Office on January 8, 2013 entitled “Policy Statement on Remedies for Standards-Essential Patents Subject to Voluntary F/RAND Commitments” (Joint Policy Statement). The Joint Policy Statement urged the ITC to consider that “the public interest may preclude issuance of an exclusion order in cases where the infringer is acting within the scope of the patent holder’s F/RAND commitment and is able, and has not refused, to license on F/RAND terms.”

New Madison Approach

The Division is now of the view that the Obama Antitrust Division’s focus on patent implementers and its concerns with hold-up were misplaced, even though many courts and other regulatory bodies around the world have noted the significance of the hold-up problem. The Division currently does not believe that hold-up is an antitrust problem. According to the Division, the more serious risk to competition and innovation is the “hold-out” problem. The hold-out problem arises when companies making products that innovate upon and incorporate the standard threaten to under-invest in the implementation of a standard, or threaten not to take a license at all, until their royalty demands are met. The Division further has questioned the role of antitrust law in regulating the FRAND commitment, even though the Federal Trade Commission (FTC) – and numerous other competition agencies around the world – has engaged in enforcement efforts to curb allegedly anticompetitive SEP licensing practices, many of which are directed at Qualcomm (which is the subject of an ongoing trial between the FTC and Qualcomm in Federal District Court in California).

Assistant Attorney General Makan Delrahim coined the term the “New Madison Approach” to describe his approach to the application of antitrust law to patent rights.[2] The four premises of the New Madison Approach are:

  • The antitrust laws should not be used as a tool to police FRAND commitments that patent holders make to SSOs.
  • To ensure maximum incentives to innovate, SSOs should focus on implementer hold-out, rather than focus on patent hold-up.
  • SSOs and courts should not restrict the right of a patent holder to seek or obtain an injunction or exclusion order.
  • A unilateral and unconditional refusal to license a patent should be considered per se legal.

The Division has taken at least three concrete steps to implement the New Madison Approach. First, it has opened several investigations of potential anticompetitive conduct in SSOs by implementers, for example to exclude alternative technologies. Second, in a December 7, 2018 speech in Palo Alto, California, AAG Delrahim announced that DOJ was withdrawing its support of the Joint Policy Statement. According to AAG Delrahim, the Joint Policy Statement created confusion to the extent it suggests a FRAND commitment creates a compulsory licensing scheme and suggests exclusion orders may not be appropriate in cases of FRAND-encumbered patents. AAG Delrahim noted he would engage with the U.S. Patent & Trademark Office to draft a new statement. Finally, the Division intervened in the u-blox case.

u-blox v. Interdigital

u-blox presents a fact pattern that commonly arises in FRAND cases. Since 2011, u-blox has licensed Interdigital patents that had been declared essential to the 2G, 3G and 4G standards. U-blox relied on Interdigital’s FRAND commitments, and its devices are now allegedly locked into 2G, 3G and 4G cellular technology. u-blox alleges that in its most recent round of negotiations, Interdigital is demanding supra-competitive royalty rates. Among its various claims, u-blox alleges Interdigital breached its contractual obligation to offer its SEPs on FRAND terms and has monopolized the 2G, 3G and 4G technology markets in violation of Section 2 of the Sherman Act. u-blox also alleges that Interdigital threatened its customers to force u-blox to pay excessive, non-FRAND royalties. u-box has asked the court to set a FRAND rate and filed a TRO to prevent Interdigital from interfering with its contractual relationships.

On January 11, 2019, the Division filed its Notice of Intent to explain its views concerning u-blox’s monopolization cause of action. The Division further explained that due to the partial government shutdown, it was unable to submit a brief before the TRO hearing scheduled for January 31, 2019, and asked that the TRO hearing be delayed until after DOJ appropriations have been restored, or in the alternative, to order DOJ to respond. Although not stated in the Notice of Intent, the Division can be expected to argue that it would be improper to grant a TRO based on a claim of monopolization because the antitrust laws should play no role in policing Interdigital’s FRAND commitment where contract or common law remedies are adequate. On January 14, 2019, u-blox responded that it would withdraw reliance on its monopolization claim to support its request for a TRO and instead rely on its breach of contract and other claims.

Implications of the Division’s Intervention in the u-blox Case

The Division’s filing of a Notice of Interest in the u-blox case is highly unusual. The Division rarely intervenes in district court cases, and it may be unprecedented for the Division to intervene at the TRO stage. It is also difficult to explain why the Division chose to intervene on this motion. While u-blox was relying on its antitrust claim, among several other claims, to support its TRO request, u-blox was only seeking an order to prevent Interdigital from interfering with its customer relationships while the court adjudicated its request for a FRAND rate. It is also notable that the Division put its thumb on the scale in the aid of Interdigital, a company that often finds itself in FRAND litigation.

The Division appears to be attempting to aggressively implement the New Madison Approach that the antitrust laws should protect innovators. The Division’s decision to withdraw its assent to the Joint Policy Statement appears to have been a clear signal to the ITC that it is free to grant an exclusion order in SEP cases. The Division’s intervention in the u-blox case is a clear signal that it is willing to intervene at the district court level to advance its view that the antitrust laws are not an appropriate vehicle to enforce FRAND commitments where there are adequate remedies sounding in contract or other common law theories.

To date, the Division has used speeches to make policy arguments that the antitrust laws should not be used to enforce FRAND commitments. If the Division ever gets the opportunity to present its views to a district court, watch to see what legal arguments it can marshal to support its policy position. Also watch to see whether the Division attempts to participate in other FRAND cases.

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[1] Assistant Attorney General Makan Delrahim coined the phrase in his March 16, 2018 speech at the University of Pennsylvania entitled “The ‘New Madison’ Approach to Antitrust and Intellectual Property Law” based on the initial understanding of patent rights held by Thomas Jefferson, the first patent examiner of the U.S. (and a former president and principal author of the Declaration of Independence). AAG Delrahim describes the retro-Jefferson view of patents as conferring too much power on patent holders at the expense of patent implementers and that such power should be constrained by the antitrust laws or Standard Setting Organizations.

[2] The term “New Madison Approach” is based on the understanding of intellectual property rights held by James Madison, the principal drafter of the U.S. Constitution. Madison believed strong IP protections were necessary to encourage innovation and technological progress.

Is Amazon the Next Big Case? – GAFA Under Antitrust Scrutiny

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Margrethe Vestager, head of the European Union’s Directorate-General for Competition (“DG Comp”), recently announced that the EU was once again investigating actions of a high-profile tech company – Amazon.

During a press conference held in Brussels in September, Commissioner Vestager affirmed that DG Comp had already sent questionnaires to market participants and started looking into Amazon’s potential abuse of dominance. However, DG Comp has not yet opened a formal case. As the Commissioner stated, “[t]hese are very early days and we haven’t formally opened a case. We are trying to make sure that we get the full picture.”

This investigation comes only a year after Amazon was found to have received illegal state aid through tax rulings of the State of Luxembourg, which was then ordered to recover more than €250 million.

The Issue at Stake

It is no secret that Amazon wields significant influence in retail e-commerce. The tremendous visibility of Amazon’s platform around the world attracts many third-party sellers and enables the company to act as both seller and host.

The recurrent concerns on the market relate to the dual nature of the Seattle-based company. The issue put forward by Commissioner Vestager concerns the use of third-party sellers’ data by Amazon as a host to increase the efficiency of Amazon as a seller.

How? Easy as pie. When a product sells well, Amazon is immediately informed through the data it collects, and the company then simply needs to adjust its own offerings and lower the price of its similar house-made products.

One could argue that these practices could put third-party vendors at a disadvantage and potentially amount to anti-competitive abuse of a dominant position under article 102 of the TFEU.

Amazon’s Strategy – A Fertile Ground for Global Competition Issues

Because Amazon is active in many different markets – as retailer, book publisher, marketing platform, host of cloud server space and in the television industry – its global strategy is to expand its integration across many business lines, exploiting the data it collects and being aggressive on pricing. The company appears to encourage growth over profits.

Those practices have been questioned over the past years. For instance, Lina M. Khan recently published an article in The Yale Law Journal discussing the alleged predatory pricing behavior of Amazon and related vertical relationship issues. For Ms. Khan, there is an ambient underappreciation of the risk to competition posed by the company, due, maybe, to an outdated vison of market power.

After Commissioner Vestager’s conference, it seems that the EU has taken preliminary steps to assess these risks.

Big Tech Companies – Sources of New Antitrust Challenges

DG Comp has only one toolbox: the EU treaties. Commission Vestager, however, proved to the world that there are many, many tools in this box.

Under Commissioner Vestager’s mandate, Google has been fined (twice) a total of almost $8 billion for abuse of dominance, Apple has been asked to reimburse the Irish State more than $14 billion in illegal State Aid and Facebook was sanctioned €110 million for providing misleading information about the WhatsApp takeover.

In reality, these cases point out the viability of EU competition instruments. The EU State Aid regime is precise and strong enough to catch hidden favorable tax schemes while venerable Article 102 is still able to catch unfair market practices, even those put in place in a new, digital economy.

Last but not least, it seems that EU Commissioner Vestager has found an impromptu ally in the war for fair competition: President Donald J. Trump himself, who recently argued in favor of antitrust actions against Amazon as part of an effort to exert more control over powerful multinationals.

This may be the first time when U.S. and EU antitrust agencies align their views toward a tech giant. That may not be not the kind of first-time attention Amazon would like.

FTC Kicks Off Hearings on Competition and Consumer Protection in the 21st Century

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Antitrust policy, once relegated to wonk status, has taken center stage in recent years: it seems as if each day there is a new debate over the need – or lack thereof – for more robust competition enforcement in today’s economy. In the past few weeks alone, competition law and big tech have been in the spotlight in both a call to reopen a Federal Trade Commission (“FTC” or “Commission”) investigation into Google and a forthcoming meeting among Attorney General Jeff Sessions, state Attorneys General investigating social media companies and a representative from the Department of Justice’s Antitrust Division (“DOJ”).

The FTC jumped into the fray on September 13, 2018 when it kicked off its hearings on Competition and Consumer Protection in the 21st Century, which had been announced earlier this year. The purpose of the hearings is to utilize the agency’s Section 6 authority “to consider whether broad-based changes in the economy, evolving business practices, new technologies, or international developments might require adjustments to competition and consumer protection law, enforcement priorities, and policy.” Among the announced topics are issues that have dominated the news lately, including: competition in technology markets, particularly those featuring two-sided “platform” businesses (ones that cannot make a sale to one side of the market without simultaneously making a sale to the other); the intersection of privacy, data and competition; evaluating the competitive effects of vertical mergers (those that join firms at different levels of the supply chain, e.g., the AT&T-Time Warner deal challenged unsuccessfully by DOJ); and the consumer welfare standard, which has served as the economic principle guiding antitrust enforcement since the 1980s. The FTC has accepted more than 500 public comments on 20 announced topics and continues to invite public comment in advance of specific hearing sessions.

Commission Chairman Joe Simons set the stage for the opening session by highlighting the combination of increased economic concentration and decreased antitrust enforcement that has generated calls to reassess the very nature of antitrust policy, noting that he is approaching the discussions “with a very open mind.”

The panel discussions that followed the opening session focused on the current landscape of competition and consumer protection law and policy, concentration and competitiveness in the U.S. economy, and the regulation of consumer data. Key takeaways so far include:

  • The Commission is eager to set competition enforcement priorities. Tech companies appear to be in the crosshairs.
  • Although there is growing concern about increased concentration in the economy, there is no consensus that big equates to bad. While some panelists cited data linking concentration to income inequality and reduced innovation, others cautioned that protecting less efficient businesses in the name of competition is misguided.
  • Effective privacy and data breach enforcement likely require new, modern tools both for detection and regulation. The FTC’s consumer protection mission likely will need to account for changes in federal legislation and/or voluntary rules established by the tech industry.

Videos of past hearing sessions are available online, along with public comments and additional information.

The FTC’s end goal is to produce one or more policy papers, patterned after the fruits of the 1995 hearings hosted by then-FTC Chairman Robert Pitofsky. Those hearings, which focused on global competition and innovation, led to two staff reports on competition and consumer protection policy “in the new high-tech, global marketplace” and helped pave the way for U.S. agency actions blocking mergers primarily based on harms to innovation. The Commission once again is revisiting its approach.

In the interim, stay tuned for additional updates as the hearings continue.

Potential Antitrust Issues Lurking in Blockchain Technology

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Blockchain technology has burst onto the scene and into the public consciousness over the last few years. While the securities and privacy law questions surrounding blockchain technology have received much attention, perhaps less obvious are the potential antitrust issues raised by the technology.

Although these issues are nascent, they are not wholly theoretical. For example, on March 16 the FTC announced that it is creating a Blockchain Working Group to look at, inter alia, competition policy. “Cryptocurrency and blockchain technologies could disrupt existing industries. In disruptive scenarios, incumbent companies may sometimes seek to hobble potential competitors through regulatory burdens. The FTC’s competition advocacy work could help ensure that competition, not regulation, determines what products will be available in the marketplace” (FTC Blog Post). And in January of this year, the Japan Fair Trade Commission also indicated that it may look into the competition policy issues involving blockchain-based cryptocurrencies.

This blog post briefly discusses some of the potential antitrust issues associated with blockchain technology. READ MORE →

Intellectual Ventures Wins Summary Judgment to Defeat Capital One’s Antitrust Counterclaims

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Patent License agreement on a table Intellectual Ventures Wins Summary Judgment to Defeat Capital One’s Antitrust Counterclaims

Antitrust partner David Goldstein recently wrote an article for the Antitrust, UCL and Privacy section of the State Bar of California regarding Intellectual Venture’s recent summary judgment win to defeat Capital One’s antitrust counterclaims asserted in response to IV’s patent infringement claims. The decision addresses recurring issues involving patent assertion entities, including the definition of the relevant market, the Noerr-Pennington doctrine, and collateral estoppel. The article can be accessed here.

The Chips Are Down: Intel’s Victory in the European Court of Justice Has Implications on How Anticompetitive Conduct Is Analysed in EU Antitrust Cases

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On 6 September 2017, the Court of Justice of the European Union (“CJEU”) handed down its long-awaited ruling in Intel v Commission (the “Ruling”).[1] The Ruling, which sets aside the appealed judgment of the EU General Court and orders the case to be re-examined for failing to consider the effects of anticompetitive conduct on competition, has potentially broad implications for how the European Commission (“Commission”) conducts its analysis and reasons its decisions in ongoing and future EU antitrust investigations.

Key Takeaways

  • The Ruling signals a return of “effects-based” analysis in EU antitrust cases and a move away from a “form-based” approach where certain conduct is deemed per se illegal.
  • The Ruling not only clarifies how the General Court should assess appeals of Commission decisions, but is likely to have implications for how the Commission approaches its analysis and reasons its decisions in EU antitrust cases going forward. In particular, the burden of proving that specific conduct or practices have anticompetitive effects is placed firmly with the Commission.
  • Intel’s victory may embolden other entities facing similar allegations to defend their corners more aggressively.
  • This is not the end of the road. It cannot be ruled out that the General Court, when it re-examines the case and applies the appropriate analysis, comes to the same ultimate conclusions and upholds the Commission’s original fine.

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Antitrust Issues on Collection and Use of Big Data in Japan

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On June 6, 2017, a committee within Japan’s Fair Trade Commission published a report on competition policy and big data. The report is based on a concern that dominance of big data by certain major technology companies could impede competition and innovation, and addresses how Japan’s Antitrust Act (Act) could be applied in this context.

A main focus of the report is how certain cases of “collection of data” and “use of data” could trigger antitrust issues. READ MORE →

U.S. DOJ and FTC Issue Updated Antitrust/IP Guidelines and International Enforcement and Cooperation Guidelines

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On January 13, 2017, the U.S. Department of Justice and the Federal Trade Commission issued their updated Antitrust Guidelines for the Licensing of Intellectual Property, first issued in 1995, which explains how the two agencies evaluate licensing and related activities involving patents, copyrights, trade secrets and know-how. Although the agencies have issued a variety of reports since 1995 regarding antitrust and IP issues, this is the first comprehensive update of the Guidelines.  The final updated Guidelines do not differ significantly from the proposed Guidelines released in August 2016, which we analyzed in this blog post.

Also on January 13, 2017, the DOJ and FTC issued their revised Antitrust Guidelines for International Enforcement and Cooperation, first issued in 1995 as the Antitrust Enforcement Guidelines for International Operations. These Guidelines explain the agencies’ current approaches to international enforcement policy and their related investigative tools and cooperation with foreign enforcement agencies.  The revised Guidelines differ from the 1995 Guidelines by adding a chapter on international cooperation, updating the discussion of the application of U.S. antitrust law to conduct involving foreign commerce (e.g., the Foreign Trade Antitrust Improvement Act, foreign sovereign immunity, foreign sovereign compulsion, etc.), and providing examples of issues that commonly arise.

China’s and Japan’s Antitrust Enforcement Agencies Warm Up To Each Other

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Chinese and Japanese crossed flags increased communication, cooperation and coordination among Chinese and Japanese antitrust enforcement agencies

Although China and Japan have very different histories regarding their antitrust laws, antitrust enforcement officials from the two countries have recently taken steps to open a formal dialogue. This is a welcome development for Chinese and Japanese companies, as well as for foreign companies that do business in China and Japan, and it continues the trend of increased communication, cooperation and coordination among national enforcement agencies. There remains an open question, however, as to how convergence among Asian antitrust enforcement agencies will affect possible convergence with agencies in the United States, the European Union and the rest of the world.

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Third Circuit Jump-starts Class Action, Holding that an Indirect Purchaser Can Bring Federal Antitrust Claims as a Direct Purchaser Based on Assignment of the Claims Even Without Consideration

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Antitrust Class Action Truck Transmissions

On September 15, 2016, the Third Circuit jump-started a federal antitrust class action involving truck transmissions, holding that a direct purchaser’s assignment of its federal antitrust claims to an indirect purchaser is valid as long as the assignment was written and express—even if there was no consideration for the assignment. The Third Circuit also held that a proposed class representative’s motion to intervene is presumptively timely if made before class certification.  Wallach, et al. v. Eaton Corp., et al., No. 15-3320 (Sept. 15, 2016).

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China’s Fair Competition Review System: China Takes Another Significant Step Eight Years After Enacting the Anti-Monopoly Law

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Rshutterstock_99699011-2ecognizing concern that the Chinese government intervenes excessively into markets and private economic activities, the China State Council recently released opinions directing the implementation of a fair competition review system (“FCRS”), which is intended to moderate administrative authorities’ issuance of regulations and minimize the government’s interference in China’s economy. Although the CRS has been hailed as “a key step to establish the fundamental status of competition policies,”[1] its success will depend on how it is implemented.

On June 1, 2016, the Opinions of the State Council on Establishing a Fair Competition Review System During the Development of Market-Oriented Systems (“Opinions”) were promulgated and became effective.  The Opinions note that enforcement of current laws sometimes entails “local protectionism, regional blockade, industry barriers, business monopoly, granting preferential policies in violation of the law or illegally prejudicing the interests of market players, and other phenomena contrary to the efforts of building a unified national market and promoting fair competition.”  These so-called “administrative monopolies,” which often are at issue in cases investigated under the Anti-Monopoly Law (“AML”), are at cross purposes to the AML.  In an effort to reduce or eliminate obstacles to economic development, the Opinions call for limiting the government authorities’ administrative powers, establishing the FCRS, preventing new policies and measures that exclude competition, and gradually revising and ultimately abolishing existing provisions that impede fair competition.

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