25.07.2016Julie Catala Marty

Newsletter Competition – Distribution n° 5 – July 2016

Competition law and ‘big data

The booming growth of digital economy companies, whether tech giants like Google, Amazon, Facebook and Apple, or more modest start-ups, owes much to the mass collection and use of their users’ digital data (or more colloquially, “big data”).

So far, the privacy and consumer law implications of processing big data have taken center stage, but several recent announcements by antitrust and competition authorities suggest that competitive implications must no longer be overlooked:

  • After having published a joint report on competition law and data with the Bundeskartellamt (the German competition authority), the French competition authority ( Autorité de la concurrence or “FCA”) announced, on May 23, 2016, a full-blown sector inquiry into the use of data in the online advertising sector (decision no. 16-SOA-02, May 23, 2016), as part of which the FCA is to launch a public consultation to solicit input from all stakeholders. Further on, the FCA could prosecute any anticompetitive practices its sector inquiry may have brought to light.
  • On June 13, 2016, after Microsoft announced the acquisition of the professional social network LinkedIn, which deal will have to be approved by the European Commission (the “Commission”), European commissioner for competition Margrethe Vestager stated that data will be key in assessing the market power of the new entity.

These recent stands sketch out the main issues raised by big data under competition law. The first one is the assessment of the market power (and the existence and abuse of a dominant position) a company can derive from holding data (1). The second is whether competition law is suitably equipped to tackle the issues raised by big data (2).

1 Does managing data confer market power?

The issue of whether the data held by a company is a factor in determining its market power and its potential for anti-competitive practices is not entirely new. For instance, it came up in cases involving the databases of former government monopolies (see, for example, Commercial division of the Cour de Cassation, France’s highest appellate court, December 4, 2001, France Telecom case no. 99-16.642, relating to the publication of telephone directories).

This is now becoming a crucial issue in digital markets, where big data is a key competitive asset.

Indeed, in these markets the collection and use of data is almost systematic and far more extensive, in terms of both volume and type of data (contact details, social and demographic profile, behavior, transaction details, location, tracking, etc.).

Therefore, the issue is whether data, some of which can have significant market and strategic value, is likely to confer significant market power its holder can then use (i) to improve its services, customer captivity, and prospect targeting in the market where it operates, or (ii) to preempt or at least expand into other innovative markets (whether upstream, downstream or related).

However, assessing the market power that comes from holding digital data is a complex task. In fact, holding a vast amount of data does not necessarily confer significant market power. First, there is a wide variety of data that can be used by businesses, and whether it is substitutable or not is a complex matter. Second, digital markets are very dynamic. Their frequent innovations may quickly undermine the value of the data held by existing operators and enable new entrants to collect the same data.

Even if a company derived significant power from the data it collects, the question would remain whether it is exploiting this data in a way that may constitute an abusive practice. This is why, for instance, antitrust authorities have looked at how data can be exploited in two-sided markets, such as digital platforms or social media.

They particularly focused on markets with a “free side”” and a “paying side”.Data collection is easier on the “free side” of the market, where users often volunteer data (called “searching” data). Plus, this data is usually very specific, in that it concerns users’ interests, consumer habits, etc. The entity holding the collected data can then leverage it to increase its market power on the “paying side”, catering for advertisers’ demand for audience-targeting data.

In Google v. Bottin Cartographes, the Paris Court of Appeals found that these markets do not raise any competitive concerns, holding that “it may be rational for these operators to offer products or services for free in one market, not with the intent to drive competitors out, but to increase their number of users in other markets” (Paris Court of Appeals, November 25, 2015, Google v. Bottin Cartographes, case no. 12/02931).

It will therefore be interesting to see how the FCA views data-related abusive practices.

2 Is competition law equipped to tackle big data issues

Given the market power that holding big data can confer, the question arises to what extent competition law tools are fit to deal with big data, as far as anticompetitive practices (a) and merger control (b) are concerned.

  • Big data and anticompetitive practices

One of the points the FCA will have to settle at the end of its inquiry is whether or not conventional competition law concepts are relevant in addressing the issues raised by big data.

Some concepts seem perfectly relevant to the digital economy. For example, denying access to certain data can constitute an abuse of a dominant position if the data in question is considered as an essential facility, or if the denial of access is discriminatory (FCA decision no. 14-D-06, July 8, 2014), two concepts which are not specific to digital markets.

Similarly, as pointed out by the President of the FCA, Bruno Lasserre, at a hearing before the French National Assembly on July 7, 2015, competition law enforcement tools are “flexible” enough to crack down on predatory practices in digital markets.

In addition to deterrent penalties, competition law provides the possibility for companies to remedy anticompetitive situations by themselves, by making voluntary commitments, which allow all at once to avoid litigation, preserve their business model, and promptly restore a level playing field. For example, that is how the FCA got the online booking service to agree to stop imposing price parity clauses on the hotels listed on its platform (FCA decision no. 15-D-06, April 21, 2015).

Even when made to one country’s competition authority, these commitments may cause a company to change its practices around the world, as Google did with its advertising service AdWords, in the wake of its dispute with Navx (FCA decision no. 10-D-30, October 28, 2010).

  • Big data and merger control

As regards merger control, the main issue is whether big data should be factored into merger control triggers.

For the moment, merger control triggers are based solely on the revenue of the parties to the concentration (at least as far as the FCA and the Commission are concerned). Yet digital companies often have a relatively low revenue, and at the same time, a substantial degree of market power conferred by their vast user base, from which they are able to collect considerable amounts of data that they can then monetize.

A particularly striking example is Facebook’s 2014 acquisition of WhatsApp, for over 20 billion dollars. Although it boasted nearly 600 million active users at the time, WhatsApp’s revenue did not exceed the European merger control threshold. Only because several national authorities across Europe received complaints did the deal end up under the Commission’s scrutiny, as a result of EU referral rules.

This type of situation prompted both Bruno Lasserre, at a hearing before the French National Assembly, and the European Parliament, in its last report on EU competition policy, to recommend amending merger control triggers to factor in the market power of the new digital giants.

We will keep you abreast of how, if at all, these proposed reforms are passed into law, and of any specific recommendations made by the FCA in the wake of its inquiry.

For more information on these subjects, please contact the Competition-Distribution Department of Franklin Law Firm:
Julie Catala Marty – Partner
This newsletter does not constitute legal advice or legal opinion on specific facts or circumstances. The content of the newsletter is intended only to provide general information.

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