eu competition law

GDPR you ready for competition on the merits?

The new European rules on personal data – the General Data Protection Regulation (‘GDPR’) – are coming into force on May 25. The Regulation is a giant piece of legislation and it’s expected to affect almost every aspect of commerce. The law aims to give everyone absolute control over the use of their personal data. It will require companies to give detailed information about what data they collect from their customers and to explain how they are going to use that data. The Regulation imposes strict conditions in relation to obtaining consent from persons to process their data and clarifies the ‘right to be forgotten’ established by the European Court of DATA-BagJustice. Compliance is not something that companies are willing to gamble with since the Regulation provides for fines of up to €20M for violators.

The effect of the law on the way in which companies compete in the market is not expected to be insignificant either. The regulation establishes a right to ‘data portability’ that’s been proclaimed as the basis for healthy competition in data-intensive environments. According to the GDPR, every person has the right to receive the data that they have provided to a company in a machine-readable format and – when technically feasible –  to ask for the personal data to be transferred to a different company directly. Here’s how the right might affect competition.

Incentivising interoperability:

Each company manages, organises and presents information in the way that it chooses to. Think of the contacts list on your phone for example. In addition to filling in a person’s phone number, your phone-maker typically allows you to add their home address or their email account on their contact card. Other phone-makers might allow their users to add more information on contact cards. For instance, they might allow users to pair social media accounts with their contact list.

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All these different ways of doing business are implemented to enhance the experience of the customer. But they make the life of companies that aren’t part of a brand miserable. Imagine the struggle of an independent productivity app trying to convince you to leave Outlook and switch to them if they can’t get a hold of your contact list. This interoperability issue is a major obstacle for competition on the merits as it allows companies to protect themselves through simple technological tricks. Developing standard file formats (like the vCard file format for contacts) that can be read and processed easily by specialised software can alleviate this problem.  The GDPR, by giving users the right to obtain their data in a ‘machine-readable’ format, incentivises the production of such file formats. Through this right, competitors are assured that their success will depend on their ability to innovate, not on the capacity of their rivals to guard their data. In effect, the right provides the tools to empower smaller market players and to stimulate competition.

Lock-in lockout:

A characteristic of competition in data-intensive environments is that consumers are hesitant to try out alternative options because they are locked into using their current platforms. This is because consumers feel that the services that they use already know them and are, therefore, better equipped to personalise their experience. Think of your relationship with your search engine for example. You might be excited to hear that there is a new search engine that plants trees every time you do an internet search. This new search engine might enthuse you because it conforms with your personal morality. But there’s a high possibility that you are still not going to abandon Google. This is because your current search engine knows a huge amount about you. It knows your likes and dislikes, as well as your quirks and habits. The right of data portability weakens this lock-in effect and allows users to take all their history of data with them to another service. This is expected to strengthen the appetite of consumers to try alternative solutions.

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Data are portable – Profiles are not

After explaining how this right to portability is expected to work, your immediate response might be that this provision is a bit unfair, or even hostile towards the current dominant data companies. After all, companies like Google and Facebook invest time and money to develop the processes that make our experience on their platforms attractive. The European Commission recognises that companies are to be applauded for innovating. The right to portability is not expected to ask companies to hand out the products of their hard labour. The GDPR specifies that the data that are to be portable are the ones that the user has provided to the company. The right to portability is additionally limited by a clause that requires for the rights of others not to be adversely affected. These provisions seem to suggest that portability is not likely to apply to data composed by a company.

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Take an example from social media. Imagine that you make a post saying: ‘Watching The Last Jedi tonight!’. Your current social media provider might have developed sophisticated software that reads the content of your posts and informs your profile of your interests to pass them on to advertisers. From your post, the company might infer that you like going to the movies, or that you like sci-fi films, or that you’re a Star Wars geek (or even a Star Trek snob). All this information is still profiling data, but it’s information that a company has figured out on its own about you. The wording of the GDPR suggests, as fair competition demands, that only the provided data will be portable. In this way, companies will compete on their ability to analyse data and personalise their services. A company that’s simply accumulated large amounts of raw data will have no competitive advantage in this regard.

Tearing down walls while building new ones

Fort.pngWhile the right to portability might make life easier for some competitors in the aspects discussed before, the GDPR might produce more challenges for the most vulnerable market players. Reports have estimated that compliance with the new law will add a € 3.000 – € 7.200 yearly cost for Small and Medium-sized Enterprises (SMEs). The process of competition relies on the ability of new companies to enter the market and to disrupt it with innovative solutions. Given the fact that the GDPR will apply equally to every entity, added costs might be perceived as unproblematic for competition. But this is not the full picture. Start-ups already have trouble convincing investors to back their businesses. Adding an extra cost of this scale is not going to make their financing efforts easier. This expense, while a necessary evil, is going to be something that the Commission will have to address.

The General Data Protection Regulation promises to restore the sovereignty of the individual over its personal data. For competition, the law provides reasons for celebration. The Regulation is certainly a step bringing us closer to competition on the merits.

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Whatever happened to ‘View Image’?

Noticed any changes while navigating Google the past few days? If not, maybe you’re not a Google Images fanatic. Google made a massive alteration to its image search service. It removed the ‘view image’ button that enabled users to skip having to visit individual websites to get access to a picture. This was part of a compromise made with Getty Images to drop its case against them at the European Commission – the top antitrust enforcer of the EU.

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In 2016, Getty filed a complaint to the Commission against Google’s ‘scraping’ practices. Scraping is the practice of collecting, copying and presenting content from competing websites. Every Google search inquiry involves some scraping activity. If Gardening Tips.pngyou search for gardening tips, Google reads a vast number of websites and presents the most relevant information to you. Google developed its search engine as to enable itself to present the information that you need without leaving the Google Search website. This has a negative effect on websites that lose web visitors and, therefore, advertising revenue.

 

The complaint made by Getty was concerned with the way in which Google conducted its image searches. Prior to 2013, Google presented its image results in low resolution. For this reason, an end-user who wanted a high-resolution image had to visit the source site of the image to get it. After a change in its service in January 2013, Google started presenting image search results in high resolution. Pirate.pngThat, in combination with the ‘view image’ button that enabled users to skip host websites and to view downloadable images in a single click, facilitated copyright piracy and negatively impacted the ability of artists and photographers to monetize their endeavours.

 

To combat the practice, Getty complained to the European Commission, arguing that Google’s practices were anticompetitive. News Corp, the parent company of the Wall Street Journal and the New York Post, joined-in the complaint. The Commission took note of the scraping allegations and Competition Commissioner Vestager didn’t rule out the possibility of taking action against it in the future. To appease the concerns of these companies, Google concluded a settlement with Getty. According to the agreement, Google would remove the ‘view image’ button from its image search service. This would require internet users to visit image-hosting websites to download pictures in return for payment or copyright attribution.

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While the agreement might appear to be a victory for artists in the digital era, the changes have only made image piracy more difficult, not impossible. Using a different search engine or downloading an image through the code explorer of an internet browser (for the more tech-savvy) is still an option. The only guaranteed assurance against online image piracy still remains the unappealing picture watermark.

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How much are you willing to give up for Facebook?

NetworkThe Federal Cartel Office (‘FCO’) of Germany has preliminarily found that Facebook’s Terms of Service are violating competition law. The Office is concerned about the amount of personal data that internet users are expected to give up, just to be on the social media platform.

Let’s be honest. You probably didn’t read Facebook’s Terms of Service when you signed up for the platform. And why should you? As a consumer, you expect that if a company doesn’t behave according to what’s acceptable, a rival will eat them alive. That’s certainly true in most cases, but social media platforms are a bit special. The peculiarity of social media stems from the fact that users can become locked into using them because other people use them too. If you’re not happy with the Facebook Terms of Service, you can’t just simply jump ship. What about all your friends?! For this reason, the German Office examined whether Facebook abused its dominant position through that ‘I agree with the Terms of Service’ checkbox.

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Protecting competition on the internet is complex. That’s because online services like Facebook are rarely offered in return for cash. Data is the internet’s preferred payment method. To get Facebook, you have to give up information about you so that ads that appear on your screen can pay for your Facebook ‘subscription’. So the ads for postgraduate degrees on your feed shouldn’t really surprise you a week after you postedDATA-Money.png a picture of you throwing that hat up in the air. Why, then, is the FCO worried about the fact that Facebook is collecting your data? Well, they don’t really mind about all that data that you’re willingly giving on the Facebook website itself. They worry about all the data that is being collected when you visit other websites that have Facebook add-ons.

When you visit a website, any website, that uses Facebook add-ons like the ‘Facebook like’ button or the ‘Login with Facebook’ button, Facebook collects data about your actions on that website. They then take that data and merge it with your Facebook profile. That’s why Facebook knows much more about you than what you occasionally post on your wall. Ever wonder why Facebook knows you’ve been looking for a new backpack a minute ago? The website you’ve been scrolling through might be using Facebook Analytics. Facebook doesn’t have to ask for your consent to take that data from you. You gave them that consent when you ‘read’ those Terms of Service!

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The German Cartel Office thinks that this data collection goes too far. The Office worries that, because accepting the Terms of Service of Facebook is a condition for creating an account and because Facebook has become such a dominant platform online, consumers have no real power to consent to the amount of data that they allow to be taken. As a result, Facebook offers a take-it-or-leave-it deal with no real option to leave. Put simply, in the eyes of the Federal Cartel Office, if data is the currency of the internet, Facebook is charging too much.

Facebook now has the opportunity to offer proposals that address the concerns of the FCO. For more information visit the website of the Bundeskartellamt.

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Luxury brands are… special

EU’s highest court decided that prestigious brands like Calvin Klein can refuse to have their products sold on online platforms like Amazon in order to preserve their ‘aura of luxury’.

What happened:

COTY, the company behind reputable brands like Chloé, Calvin Klein and Marc Jacobs, distributes its beauty products in Europe through regional distributors. One of its distributors in Germany – Parfümerie Akzente (‘Akzente’) – decided to sell COTY’s products through the German Amazon site (amazon.de). This was not permitted under the contract that COTY signed with Akzente. Their contract allowed Akzente to sell only on websites that preserved the luxury character of COTY’s products. Essentially, what companies like COTY are trying to do with such contracts, is to make sure that online shoppers still get the ‘luxury aura’ that their brands are known for when customers shop through an online shop. The presentation of a brand’s logo, font and colours are some of the details that these brands look out for on websites that sell their products. The effect of this provision in the contract meant that Akzente couldn’t sell COTY’s products on Amazon. This was because the Amazon website could not – according to COTY – preserve the luxury image of their brands.No_Amazon.png

The legal issue:

The question for the Court was whether contracts like the one signed by COTY and Akzente violated competition law. Contracts that restrict the freedom of a party can be very problematic for competition. Imagine a situation where a very successful company agrees with shops to sell only their product. If most of your country’s shops sold exclusively Microsoft tablets because of such agreements, competitors like Apple would find it very hard to reach customers and persuade them to buy their iPads. The contract between COTY and Akzente can be bad for competition in a similar way. By requiring that their products are sold on specific websites, COTY can tightly control competition online by refusing to sell to giants like Amazon and Ebay. This can result to high prices and lack of choice for consumers.

COTY+AkzenteThe decision:


Luxury2.pngThe Court of Justice decided that contracts like the one signed between COTY and 
Akzente can be allowed when they are intended to preserve the luxury image of a brand. According to the court, luxury brands are special because their quality is not only measured according to their material characteristics. Their ‘aura of luxury’ additionally ads to their quality. Consequently, agreements that are made to preserve this quality do not violate the rules of competition. So, in a situation where a luxury company makes agreements that dictate who qualifies to be their seller, if these agreements are designed to preserve its image and as long as these agreements are proportionate, uniformly laid down and non-discriminatorily applied; they are good to go.

 

How this impacts you:

The decision means that luxury brands can pull out their products from third-party online sellers like Amazon and Ebay. So, if you’re trying to treat yourself with a Marc Jacobs perfume for the holidays, you might need to rush for that ‘Proceed to Checkout’ button. Otherwise you might have to do your holiday shopping on the brand’s official website.
Note: The effect of the case might be obvious on brands that unmistakably have an ‘aura of luxury’. But it might be difficult to draw the boundaries of the luxury category in the future. Is NIKE a luxury brand? 

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The first recorded antitrust trial?

LysiasIf greed is as old as human existence, then antitrust must be as well. There are no records of antitrust laws on Neanderthal cave paintings (or any that we’ve interpreted as such, at least), but the earliest documentation of an antitrust trial is much older than what one would maybe guess. The first written example of an antitrust case is described by an ancient Greek orator named Lysias. The facts of the illegal activity are quite remote and not really relatable to anyone now, but the description of the trial is interesting in observing how antitrust has always had a political side.

Lysias describes the trial of the grain dealers of Athens. Grain was a vital import for the Athenians. The soil in and surrounding Athens was very poor so it wasn’t possible for the Athenians to grow it themselves. Since grain was a necessary ingredient to produce bread, its trade was heavily regulated by the authorities of Athens. Fearing a long winter or possible attacks by Sparta, one of the grain commissioners suggested to the dealers not to compete when buying grain from the docks. Seeing a window of opportunity to make profits on the backs of the Athenians, the grain dealers bought large amounts of grain at the same price and stored it.

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Since none of the dealers were offering a different purchase price to the merchants at the docks, they created a monopsony. In this way, they fixed the price for wholesale wheat. Wholesale price-fixing is not unheard of in modern times. In fact, fixing of the wholesale prices of medicines for the benefit of citizens is a common practice by modern governments. The price-fixing was not problematic in and of itself. In fact, Lysias admits that the actions of the dealers might have been to the benefit of the Athenians up until that point. This is because storing grain would have secured that Athens would have enough of it in a time of crisis. This explains why the grain commissioner advised the dealers to collude in the first place. The action became problematic when the dealers hoarded the grain and sold it at inflated prices. Through these actions, Lysias explains, the dealers created a disincentive for ships to trade with Athens and they cheated the Athenian public.

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The case is interesting just as historical trivia, but it’s also interesting as a chance to witness the political side of antitrust. Lysias doesn’t document the verdict of the trial. But in his speech he accuses the dealers of being ‘resident aliens’ of the city. He appeals to the emotion of the Athenians by saying:

‘…[the grain dealers] are so delighted to see your disasters that they get news of them in advance […] or [they] fabricate […] rumour themselves […] And thus at times, although there is peace, we are besieged by these men’

The story of Lysias is therefore a reminder to be cautious when enforcing antitrust. Because, in the hands of a populist, antitrust can escape the sphere of the legal and enter the realm of the political. 

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Read more:

  1. Lambros E. Kotsiris, ‘An Antitrust Case in Ancient Greek Law’ (1988) 22 Int’l L. 451
  2. Wayne R. Dunham, ‘Cold Case Files: The Athenian Grain Merchants 386 B.C.’ (2007) Available at SSRN: https://ssrn.com/abstract=976028

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How to bust a cartel.

I don’t have the technical training to give a lesson on how to raid a meth lab. Although, in this blog post, I will describe how you can report and claim compensation for an anticompetitive practice. 

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There are a lot of markets that are dominated by few players. Apple and Microsoft, Visa and Mastercard, Coke and Pepsi. When that’s the case, it’s really easy for such companies to coordinate their actions and avoid competing to make profits on the backs of consumers. Of course, going after such giants is not an easy – or cheap – task. That’s the reason why antitrust is heavily enforced by competition authorities. The best way to deal with a competition concern is to contact a competition authority to invite them to investigate the issue. If the authority finds a violation of competition laws, then consumers that have been affected by it have the right to claim compensation in their local courts.

 

Finding the right competition authority

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Commissioner Vestager (Image: Ted.com)

So, let’s say (hypothetically) that you think that two cheese brands that produce the delicious halloumi cheese, agreed among themselves to sell it at the inflated price of €12 per piece. If the halloumi cartel is something that can affect the markets of many EU countries, it’d be best to contact the EU competition watchdog to investigate it. The European competition enforcer is the European Commission, lead by the Commissioner for Competition Margrethe Vestager. If the halloumi cartel is most likely to affect the consumers of just one EU country, you would have to contact your local competition authority to investigate the claim. Thankfully, the European Commission has a useful website with links that direct to the websites of the EU national competition authorities.

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So you would have to look at whether the companies that you’re going after are just small, local companies that sell in your country or whether they are so big that they need to be taken down by the Commission. Obviously there are no rules of thumb here, but if you’re thinking of going after Google, do email Vestager! After deciding which authority will investigate your concern, the process is not at all difficult for you. All you need to do is to contact the authority and to give them as much information as possible to help them with the investigation. You don’t even need to be an affected consumer to do it. So, you can contact them about your suspicion without having bought any halloumi. The contact email for the European commission is this (for national competition authorities, their contact information is available on their website). 

Claiming Compensation

CourtIf you have been personally affected by an antitrust violation, you have a right to compensation for not only your actual loss but for any potential loss of profit, plus interest. The good news is that as soon as the Commission or a National Competition Authority establishes that there has been a violation of antitrust law, you don’t need to make your case against the companies again. That means that all you need to do to claim compensation from the halloumi companies is to prove that you bought a halloumi when the prices were fixed by them.

So here you go. With just one email, you busted the notorious halloumi cartel!

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See more information about how to contact a competition authority here.

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Anti…what?

If you read the word antitrust somewhere before, it probably ended up being the reason why you closed that article tab. If you haven’t done so again already, I’ll try to explain what antitrust is and why you should care about it.

What is it?

Antitrust is a collection of laws that are put in place to make sure that companies compete with each other effectively and fairly. In order to do so, antitrust is interested in three main issues:

1. Unilateral actions of big market players

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Companies that enjoy large market power can act, to a large degree, independently. Take Microsoft for example. More than 80% of the computers out there at the moment run the Windows Operating System (‘OS’). That means that if Microsoft tries to spoon-feed you their software (Office, Outlook or Internet Explorer to name a few) by integrating them in their OS, rival software like Google Docs, Gmail and Chrome will have a hard time competing with them. In the end, you might end up being stuck using a lesser product or a product that you just don’t like, just because the competitors don’t integrate well with Windows.

2. Cooperation between companies

When companies are not big enough themselves, they might try to cooperate with each other to avoid competing. The simplest situation is when a company secretly approaches their rival to agree to fix their prices. In the early 2000, for example, a number of banana importers were found to have conspired to keep the price of bananas at a higher rate than what they would have charged otherwise. That way, everyone won! Except you, who ended up paying for a golden banana.

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3. Mergers and acquisitions 

Similar problems can arise when a company buys another one. For example, when Google bought Motorola,  competitors worried whether Google would only offer the best versions of Android to Motorola phones. In the end that didn’t end up being the case, but if that happened, competitors would have been driven away because you wouldn’t want to buy a phone with a bad version of Android.

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Why care for it?

Antitrust can be very relevant to you because, at the end of the day, it makes sure that you will end up getting the best products. Antitrust is designed to help companies, small or big, to compete on a level playing field. In this way, antitrust rewards innovators and punishes those who are sluggish. Next time that you’re frustrated about the prices of printer cartridges or about the fact that every time that you click on a link on iMessage Safari pops up, antitrust might come to the rescue.

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