Digital

An evolving regulation

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An evolving regulation

The rise of digital platforms on a global scale, the development of services based on digital technologies (algorithms, cloud, artificial intelligence, blockchain), and the disruption introduced into certain sectors of the traditional economy by new types of operators are throwing up new challenges for competition authorities as regards the implementation of competition law.

Faced with the profound upheaval in competition dynamics brought about by this digital revolution, the Autorité is ever more vigilant, and is strengthening its means of action. The new European regulatory tools (Digital Markets Act and Digital Services Act) will make it possible to better understand the challenges posed by the major platforms. A leitmotiv for the Autorité: invest in digital knowledge, adapt our approach and tools to act quickly!

A 360° view on the digital giants

The introduction of “upstream” regulation by the European digital reform

While these large companies have made a huge contribution to our societies, they need to be regulated in a way that is commensurate with their economic weight or their structural role for the ecosystems or communities of users over which they have control.
The significant market power acquired by certain actors, based, depending on the case, on their technological expertise, the importance of network effects, the collection of data on a massive scale or the economies of scale from which they benefit, as well as the consequences of the anticompetitive practices sometimes applied, have prompted competition authorities to undertake an in-depth reflection on updating their analysis grid, their methods and the tools at their disposal. The public health crisis has highlighted the structural position that the digital giants have taken in society, with platforms further consolidating these positions during this period.

At the European level, a new regulatory framework for digital companies is being prepared through two draft regulations, the Digital Services Act (which among other things will enhance the responsibility of platforms with regard to illegal content) and the Digital Markets Act. Whereas until now, competition authorities have taken action against anticompetitive practices by platforms downstream (with ex post regulation, i.e. when the practices have been applied) – with an investigation time scale which was not always compatible with the speed of evolution of the markets in question – the new legislation provides for an “upstream” approach (ex ante regulation, which involves the implementation of regulations to prevent practices from occurring in the first place).

The Digital Markets Act provides that the structural actors that have been identified as ‘gatekeepers’, i.e. those that control access to certain markets, will be required to comply with a list of predefined prohibitions and obligations. This will include banning practices such as discrimination in favour of their own services, but also obliging them to ensure interoperability with their own platform, or sharing the data that is provided or generated in the course of interactions between user companies and their customers on the platform in question. Failure to comply with the list of prohibited conduct will result in a fine (up to 10% of their total annual worldwide turnover) and periodic penalty payments. The Digital Markets Act therefore aims to ensure that these platforms behave fairly online, and should facilitate the opening up of markets by allowing the expansion of smaller platforms, SMEs and start-ups.

An evolving regulation

Diversification under scrutiny

While until relatively recently the major platforms operated almost exclusively in their clearly defined field of preference, they are now entering new markets and even competing in the same activities. As such, connected devices, health and banking services, for instance, represent new areas of high potential for them. While their role may be beneficial in terms of technological and social innovations, such diversification may raise new competition issues in view of the power of these actors, and will require in-depth analysis by the regulatory authorities in order to anticipate the potential risks.

In France, the Autorité has therefore decided to conduct a wide-ranging sector-specific inquiry into the FinTech sector, analysing in particular the development of the role of large digital platforms in payment services. While Information and Communication Technologies have fostered the emergence of a wide range of companies, generally small-scale, which market innovative services, often at a lower cost to the user, in niche markets or market segments (the “FinTechs”), the major digital players (“Big Tech”, which cover GAFAM and BATX) are now developing services in the financial activities sector. For example, some services are already established in France, including Apple Pay and Google Pay.

The crisis context makes it more pressing than ever to develop the regulation of ecosystems that have only grown stronger.

The Autorité has identified risks related to certain competitive advantages enjoyed by Big Tech. The major digital actors enjoy vast user communities built up through their original activities, which enable them to expand rapidly into related markets. Furthermore, access to large volumes of data on the users of their non-financial services, coupled with their expertise in new technologies such as artificial intelligence and algorithmic tools to process and analyse this data, gives them the ability to better assess the financial health of the users of their payment solutions and to tailor their offerings to the latter’s preferences or needs, including estimating their maximum willingness to pay. Big Tech also benefits from considerable financial strength, which allows them to make substantial investments in various new technologies that facilitate the development of innovative payment solutions. Thanks to the technical mastery of their ecosystems, structured for the most part around platforms, into which their payment solutions are integrated, the major digital actors are able to offer a highly fluid and high-end “customer experience” that is difficult for their competitors to replicate. Moreover, they face lower marginal costs than, for example, traditional banking actors, which enhances their capacity to offer their payment solutions to users free of charge. Finally, the major digital actors also have a brand image and reputation that is likely to ensure user loyalty.

An evolving regulation

The Autorité believes that while their market share in financial services is still limited at the present time, their power can very quickly change this situation. Their presence in the payments sector may be strengthened, in particular through the conclusion of new partnerships with banking actors. Although they do not have the experience of banks in the payments sector, Big Tech has mastered, or even controls, certain innovative technologies that could, in the future, play a decisive role in the service chain (Opinion 21-A-05 of 29 April 2021)

Big tech has mastered, or even controls, certain innovative technologies.

For its part, the European Commission has decided to open an investigation into anticompetitive practices in the sector of consumer goods and services related to the Internet of Things in the European Union in order to better understand the nature and possible effects of competition-related issues that may arise in this sector. The sector-specific inquiry will focus in particular on wearable devices such as smart watches or fitness bands, and connected consumer devices used in home automation such as refrigerators, washing machines, smart TVs, speakers, smart lighting systems, or music and video streaming services and the voice assistants used to access them. According to Margrethe Vestager, Executive Vice President for Competition Policy, “The consumer Internet of Things is expected to grow significantly in the coming years and become commonplace in the daily lives of European consumers. […] access to large amounts of user data appears to be the key for success in this sector, so we have to make sure that market players are not using their control over such data to distort competition, or otherwise close off these markets for competitors”. A final report is expected in 2022. (EC Press Release, 16 July 2020).

Negotiations with publishers on related rights, a first in Europe

Value created by the content produced by the media and distributed by the platforms is already being shared in France, under the impetus of the Autorité. In April 2020, the Autorité issued interim measures against Google, ordering it to negotiate “in good faith” with press publishers for the transfer of their content protected by the law on related rights, within a limited timeframe (Decision 20-MC-01 of 9 April 2020).

The situation in France is being closely observed in Europe, as France was the first country to transpose the Related Rights Directive and to implement the reform. It will undoubtedly have an impact at the international level at a time when many countries around the world are demanding that the giants such as Google and Facebook pay for the use of press publishers’ content. The Autorité continues to monitor the situation closely and will complete the remaining ongoing procedures in 2021.

An evolving regulation
FRANCE IS THE FIRST EUROPEAN COUNTRY TO APPLY THE REFORM ON RELATED RIGHTS

Data, privacy and competition

Personal data has become a major issue in the digital economy. The increasing collection, processing and commercial use of such data is prompting a wide-ranging debate on its role in business strategies and the application of competition law to these strategies. Today, various companies are generating significant revenues based on a data-driven business model. Working out why, how and to what extent data can become an instrument of market power is an important concern for competition authorities around the world (see, in this regard, the joint study by the Autorité de la concurrence and the Bundeskartellamt, 2016).

The question of the link between competition law and the protection of consumers/users is also a key issue. As part of its remit to protect the economic public order, the Autorité necessarily has to take into account privacy regulation. As such, it works in close collaboration with the CNIL on these issues.

An evolving regulation

The French competition authority, a pioneer in Europe

The Autorité has adopted more interim measures than any other competition authority in the European Union, around thirty decisions on interim measures since the 2000s, with an average investigation time of around six months.

In March 2021, the Autorité issued a decision, at the interim measures stage, on the issue of whether measures put in place by Apple to enhance user privacy could be considered an abuse of a dominant position. Apple planned to implement a feature that would require the user’s permission in order for them to be “tracked” by third-party sites. At the stage of the examination of the request for interim measures, the Autorité considered that this strategy did not appear to be anticompetitive in itself and that it was, in principle, a legitimate exercise of Apple’s commercial policy. This case raised the question of the compatibility of this Apple prompt with the GDPR. The Autorité found that the additional measure designed to provide additional user protection – without in itself replacing the consent that may be obtained by other actors for the collection and mining of their personal data – did not constitute an unreasonable practice by Apple that was not necessary and proportionate to pursue the objective of protecting the personal data of iOS product users. The Autorité sought the opinion of the CNIL in this case.

The need for competition authorities to be able to intervene rapidly is acknowledged as being crucial.

The Autorité is continuing its investigation on the merits of the case in order to verify that Apple has not implemented a differentiated treatment of the collection of user consent depending on whether it relates to Apple’s own services or third-party services, which could constitute a form of discrimination or “self-preferencing” (Decision 21-D-07 of 17 March 2021, for more details). In parallel, the CNIL has also received a complaint from France Digitale, which accuses Apple of not respecting European regulations on the protection of personal data and of applying different rules to third-party app publishers than those that apply to the use of its own apps.

The means to achieve its ambitions

Interim measures and commitments: solutions that are ideally suited to urgent situations

To act effectively in a wide range of sectors, and in particular in the digital sector, competition authorities need to rely on tools that have proven their effectiveness and flexibility. Today, the fact that competition authorities need to be able to intervene rapidly is acknowledged as being crucial. Most competition authorities therefore share the objective of conducting their investigations within timeframes that are responsive to rapid market developments and of making wider use of interim measures.

The Autorité makes regular use of interim measures and can intervene within a very short timeframe when imminent damage needs to be prevented, in the event of serious and immediate harm to the interests of an economic sector, a company or consumers, or to the functioning of competition in the market.
The dispute on the application of the law on related rights by Google is an example of rapid intervention, which made it possible, in just 4 months, to rule on the practices of a major digital platform.
Moreover, where it identifies competition concerns, the Autorité may make the commitments proposed by the company in question to address these concerns binding. The commitments procedure can therefore resolve problems quickly, provided that the companies in question are prepared to change their behaviour and adapt, for example, their internal practices, contractual provisions, pricing policy or internal organisation.

The adoption of the ECN+ Directive also represents a major step forward, by making interim measures common practice at European level and by allowing competition authorities to take action on their own initiative with a view to issuing such measures. This new provision will enable the Autorité to act on its own initiative as soon as an abuse is identified, without waiting for complaints from operators who are sometimes reluctant to refer practices to the Autorité that are implemented by actors on whom they may be economically dependent.

In addition to these advances, reflections are underway on the possible ways of encouraging greater use of interim measures at European level. Indeed, the European Commission wants to make more use of interim measures. In 2019, it used interim measures for the first time in 17 years, in the Broadcom case, which was subsequently closed with the commitments procedure (EC Press Release, 16 October 2019).

An evolving regulation

The creation of a Digital Economy Unit to provide ever more specialised expertise

There is currently a basic shift towards strengthening the necessary expertise in the areas where the new regulatory battles will be fought, whether in the field of competition or privacy protection, for example.

In order to get an accurate measure of all the developments in the digital field and adapt the implementation of competition regulation tools, investments in knowledge are needed, and cross-cutting reflections need to be undertaken. In order to stay one step ahead and anticipate the issues that could arise in the future in different markets, it is essential to understand the technologies at work and decipher exactly how sectors based on digital technologies function – such as online advertising – or those that are impacted to a significant extent, such as the audiovisual sector, with the revolution of OTT services such as Netflix. Finally, we need to launch an active policy to identify anticompetitive practices in the digital economy, using new investigative tools, in particular algorithms.

These are the conditions for these markets to maintain – or regain – a competitive dynamic, thereby safeguarding the capacity for innovation and entry of new competitors. To support these efforts, the Autorité has decided to set up a Digital Economy Unit, which will strengthen its arsenal. This Unit welcomes a diverse range of profiles (engineers, lawyers, economists, data scientists, etc.).

An evolving regulation

Yann Guthmann

Head of the Digital Economy Unit of the Autorité de la concurrence

You have recently taken charge of the new Digital Economy Unit, can you tell us about its missions?

My department will contribute to the reflections and sector-specific inquiries of the Autorité, on issues related to the development of digital technology, in the same vein as those already carried out on Big Data, online advertising and algorithms. Since our inception, we have contributed to ongoing studies on payments, blockchain platforms and technologies, and we have already provided support for various antitrust cases, including the decision on the iOS14 operating system.

Our roadmap also includes the task of developing new digital investigation tools, based on the automation of tasks, algorithmic technologies, the recovery and processing of big data, and artificial intelligence, in order to improve the detection of anticompetitive practices. We also intend to be able to detect new types of infringements committed via algorithms, which are more easily concealed than traditional cartels.

Furthermore, we will intervene to support all the investigation services that are confronted with cases that have a strong digital element. The intention is to help analyse the most complex cases involving mergers between companies and digital actors, as well as in litigation procedures relating to compliance with competition law in a digital context: for example, infringements committed via digital means, relating to problems of reference listing, ranking bias or the role of data in the contestability of a market or even collusion practices by algorithms

Finally, we will work in close cooperation with the industry regulators, the competent government departments and other competition authorities, at the European and international levels, to develop convergent and standardised methods of analysis and intervention. The tool for detecting changes to General Conditions of Use is a good example of the cooperation with the digital ambassador. This tool was made available to the rapporteurs of the Autorité back in November 2020 and the digital ambassador made it public in February 2021. We have also signed a technical cooperation agreement with PEReN (Pôle d’expertise et de régulation numérique du ministère de l’Économie, the Government’s Digital Regulation Expertise Cluster). The guiding principle is that we are stronger together.

We would also like to forge enriching and constructive exchanges with the academic community and research institutions specialised in digital issues.