Strong Winds of Change in the Antitrust World in Europe and the United States: Big Tech Under Cross Fire

Author: Luis Blanquez

Interesting times to be an attorney; especially an antitrust attorney. If you work in private practice, you are likely witnessing the most significant transformation in the legal sector in the past 20 years. If you are an in-house lawyer, you are probably dealing with a new set of legal and commercial issues you couldn’t even imagine a few years ago. And if you are an in-house antitrust attorney in one of the Big Tech companies, then you are currently involved in the perfect storm.

During the past years, competition authorities all over the world have been closely monitoring the steady acquisition of power by Big Tech companies in the new digital economy. That’s the main reason why they have recently initiated antitrust investigations on both sides of the Atlantic. As Senator Mike Lee (R., Utah), recently mentioned: “antitrust enforcers were asleep at the wheel while Silicon Valley transformed from a center of innovation into a center of acquisition. Instead of competing to be the next Google, Apple, Facebook, or Amazon, today’s tech startups are pushed by their private-equity backers to sell out to Google, Apple, Facebook, or Amazon.”

At the same time, in the U.S. the Antitrust Subcommittee of the House Judiciary Committee issued last year its long-anticipated Majority Report of its Investigation of Competition in Digital Markets. The Report detailed its findings from its investigation of Google, Apple, Facebook, and Amazon along with recommendations for actions for Congress to consider regarding those firms. In addition, the Report included recommendations for some general legislative changes to the antitrust laws.

You can read more about it in our previous article: Classic Antitrust Cases: Trinko, linkLine and the House Report on Big Tech. Now, Senator Klobuchar, who chairs the Senate Judiciary Committee’s Subcommittee on Antitrust, Competition Policy and Consumer Rights, in a keynote addressed at the annual State of the Net Conference, announced her antitrust reform legislation, the Competition and Antitrust Law Enforcement Act.

Meanwhile, in the European Union the European Commission is proposing new “ex ante” regulation to increase contestability and fairness in the digital markets, which includes: (i) The Digital Services Act (DSA)––addressed to protect end users and their fundamental rights online; and (ii) the Digital Markets Act (DMA)––which prohibits unfair conditions imposed by online platforms that have become or are expected to become what is called “gatekeepers” to foster innovation, growth and competitiveness.

So yes, Big Tech companies have too many irons in the fire. Let’s try to briefly summarize them here.

The New Proposed Competition and Antitrust Law Enforcement Act from Sen. Amy Klobuchar (D-MN) in the U.S.

In January 2021, Sen. Klobuchar, released her antitrust reform legislation, the Competition and Antitrust Law Enforcement Act, highlighting that “with a new administration, new leadership at the antitrust agencies, and Democratic majorities in the Senate and the House, we’re well positioned to make competition policy a priority for the first time in decades.” She also mentioned that current antitrust laws are inadequate for regulating companies like Amazon, Apple, Facebook and Google.

In a nutshell, the new proposed Act includes the following changes:

New Legal Standards To Determine Whether a Merger is Anticompetitive

The is the first attempt to change the existing standard relating to mergers that substantially lessen competition, to a new one that prohibits mergers that create an appreciable risk of materially lessening competition. The exact meaning of this new standard remains unclear, to say the least.

The new rules would also shift, in certain scenarios, the burden of proof of certain mergers from the government to private parties. These include (i) the acquisition of a competitor or nascent competitor by a company with market power or a market share of 50% or more; (ii) the acquisition of what is called a “disruptor”, (iii) and transactions valued at more than $5 billion, or the buyer is worth at least $100 billion.

Broader Scope To Prohibit Exclusionary Conduct

The proposed Act expands the concept of exclusionary conduct and defines it as any conduct that materially disadvantages competitors or limits their opportunity to compete. It creates a presumption of illegality in those scenarios where exclusionary conduct presents an appreciable risk of harming competition.

This is when a firm with market power, or a market share higher than 50%, engages in conduct that materially disadvantages actual or potential competitors or tends to foreclose or limit the ability or incentive of actual or potential competitors to compete.

Private parties will be still able to rebut such presumption by showing pro-competitive effects that eliminate the risk of harming competition.

Increase of Resources for Antitrust Authorities, More Civil Penalties and New Whistleblower Protections

The proposed Act includes an important funding increase of $300 million for both the FTC and DOJ.

It also increases civil monetary penalties, by imposing on private parties fines the greater of either: (i) 15% of the undertaking’s U.S. revenues in the prior calendar year, or (ii) 30% of the undertaking’s U.S. revenues in any business line affected or targeted by the unlawful conduct during the period of such conduct.

The new rules also provide further incentives to report potential antitrust violations. For instance, they extend anti-retaliation protections to civil whistleblowers, and in certain cases, even include an award up to 30% of the criminal fines.

In the meantime, Representative David Cicilline (Democrat – Rhode Island), who led the House’s investigation into Big Tech, and Senator Mike Lee, Senator (R., Utah), have also agreed to keep this momentum and discuss future changes to the antitrust laws, although with significant differences on their approach.

The Digital Services Act and the Digital Markets Act: A proposal to upgrade the rules governing digital services in the European Union

In the European Union things have not been quiet either.

As part of the European Digital Strategy, last December the European Commission finally published its proposals to regulate the digital sector. These include (i) Digital Services Act (DSA)––addressed to protect end users and their fundamental rights online; and (ii) the Digital Markets Act (DMA)––which imposes new ex-ante rules and prohibits unfair conditions imposed by online platforms that have become or are expected to become what are called “gatekeepers” to foster innovation, growth and competitiveness.

These proposals will now go to the European Parliament and European Parliament for discussion, to be adopted into law and enter into force at some point during 2022.

The DSA

Under the DSA, binding EU-wide obligations will apply to all digital services––from intermediary services offering network infrastructure and hosting services, to online platforms such as marketplaces, app stores, and very large online platforms like social media––, that connect consumers to goods, services, or content, including new procedures for faster removal of illegal content as well as comprehensive protection for users’ fundamental rights online.

In particular, the DSA proposes the following set of obligations:

• Rules for the removal of illegal content online in a timely, diligent and objective manner, through the establishment of user-friendly notice mechanisms.
• New obligations for very large platforms (more than 45 million users) to take risk-based action to prevent abuse of their systems.
• Wide-ranging transparency measures, including on online advertising and on the algorithms used to recommend content to users.
• New powers to scrutinize how platforms work, including by facilitating access by researchers to key platform data.
• New rules on traceability to help track down sellers of illegal goods or services.
• An innovative cooperation process among public authorities to ensure effective enforcement across the single market, with fines up to 6% of the platform’s annual income or turnover.
• Member States will also have to appoint a Digital Service Coordinator and will be able to impose fines of up to 1% of the platform’s annual income or turnover in the case of incorrect, incomplete or misleading information.
• Non-EU-based platforms that offer services within the EU will be required to appoint a legal representative within the EU and will be held liable for noncompliance with the DSA.

The DMA

The Digital Markets Act addresses the negative consequences of certain behaviors by “gatekeeper platforms” when they provide “core platform services”, by imposing certain obligations.

First, “core platform services” are those including: (1) online intermediation services (i.e., Apple store), (2) search engines (i.e., Google Search), (3) social networking services (i.e., Facebook), (4) video-sharing platforms (i.e., YouTube), (4) number independent communication services (i.e. Facebook Messenger), (5) operating systems (i.e., IOS), (6) cloud computing services (i.e., Google Cloud), and (7) advertising services (i.e., Google AdSense). Any other digital service is therefore not covered under the DMA, unless the European Commission decides to start a market investigation to include further digital services.

Second, the DMA considers a particular platform as a “gatekeeper when: (i) it has a significant impact on the EU internal market, (ii) controls an important gateway for business users to reach end users by operating a core platform service, and (iii) such control is entrenched and durable or it’s foreseeable it will be in the near future.

There is a rebuttable presumption that a platform is a gatekeeper when it meets the following thresholds during three consecutive years: (i) a turnover in the EEA of the undertaking to which the provider of core platform services belongs is equal or above €6.5bn ($7.9bn), or market capitalization equivalent to at least €65bn ($79bn); (ii) has a presence in at least three of the twenty seven EU Member States; and (iii) has more than 45 million monthly active end users and more than 10,000 active business users on an annualized basis in the EU.

Digital platforms have three months––once they find out they meet the thresholds––to notify the European Commission. The European Commission will decide within two months whether a particular platform is considered a gatekeeper. In case a platform doesn’t trigger the above thresholds, the European Commission still has powers to designate it as a gatekeeper following a market investigation based on qualitative factors such as its size, number of business users, vertical integration, entry barriers or network effects, among others.

Platforms designated as gatekeepers for one or several core platforms services are subject to two lists of obligations. The black list includes seven obligations, mostly prohibitions. The grey list covers eleven (more general) obligations. Most of these obligations come from previous (or current) antitrust investigations in which the European Commission found evidence of anticompetitive behavior by a digital platform. The difference now is that the European Commission will not be required to prove dominance nor define markets for each individual case, but will generally apply new “ex ante” regulation to increase contestability and fairness in the digital markets.

These new rules aim to establish more contestability for core platform services by, for instance, allowing third parties to interoperate with the gatekeeper’s own services under similar terms; prohibiting the use of price-parity clauses; requiring gatekeepers with search engines to stop preferencing their own rankings or products by applying fair and non-discriminatory conditions; or allowing business users to promote their offers and concluding contracts outside the platform (anti-steering).

The new proposed rules also prohibit the bundling or leveraging of the gatekeepers’ core services with other related services. For example, these rules might allow the uninstallation of pre-installed software or permit the installation of third-party apps. This means end users will be free to switch between different services and apps while using the same gatekeeper’s operating system, which should have a major impact on existing closed software digital environments.

Other obligations include limiting the combination of personal data sourced from the gatekeeper’s core platform services with similar data from other services within the platform or third parties, unless the end user is able choose and provide consent; providing end users with access to the data generated through activities by those same business users; or providing advertisers and publishers with information concerning the price paid by the advertiser and publisher and remuneration paid to the publisher, among many others.

In case of non-compliance, the European Commission may impose fines up to 10% of the gatekeeper’s worldwide turnover as well as periodic daily penalty payments to ensure effectiveness of the new rules. For recurrent infringers, these sanctions may also involve the obligation to take structural measures, potentially extending to divestiture of certain businesses, where no other equally effective alternative measure is available to ensure compliance.

Conclusions

Lately there is not one day without new developments in the antitrust world, especially when the digital sector and Big Tech companies are involved.

We will have to see whether Klobuchar’s proposed Act makes it into the end zone. It will not be an easy ride. But if the proposed Act finally becomes law, it will significantly change years of case law and jurisprudence in the U.S. Long standing antitrust standards––some of them with more than a hundred years of history––and some of the most important theories of harm––especially involving monopolization cases—could suffer a severe transformation. The entire antitrust community is watching and only time will tell.

In the EU, we might not see such radical changes on the current antitrust jurisprudence and legislation. At least for now. But make no mistake; it will not be a smooth sailing for Big Techs either. The DMA is proposing new “ex ante” regulation for gatekeepers’ core services platforms that go well beyond what we know from previous antitrust law enforcement and “ex post” individual cases. Still early stages, and the European Parliament and European Council will have a lot to say about the new rules. But everyone seems to agree on one thing: Regardless of their final draft, they will significantly expand the European Commission’s powers against Big Tech companies.