Digital antitrust conduct: too elusive to catch?
The ink on the Digital Market Act (DMA) has barely dried, but fast-evolving digital developments already have competition authorities calling for new tools. Is Big Tech not kept in check by the DMA, the antitrust rules and the EU Merger Regulation after all? Certain digital conduct may prove too elusive to catch using these current tools.
The tweaking of existing tools, the creation of new tools and an overall appeal to Big Tech’s corporate responsibility are being considered to remove competition concerns arising from, for instance, vendor lock-in, employee hiring tactics and strategic investments.
More rules and a more creative use of existing tools are therefore likely on the horizon. A steep learning-curve lies ahead for competition authorities, digital companies and their customers.
Catching on of ‘creative’ antitrust dodging
Potential anti-competitive conduct dodging antitrust and merger rules seems to be catching on in the digital sector.
Take, for instance, ‘vendor lock-in’: an effect where, once a customer has chosen a particular vendor, they are locked in with this vendor because switching becomes too expensive or too complex. Vendor lock-in appears to be quite a familiar phenomenon in the digital sector. The Dutch Authority for Consumers and Markets (ACM) has had its eye on cloud service ‘vendor lock-in’, in particular in healthcare IT systems, for quite some time now (see our February 2024 newsletter). Similarly, the European Commission is looking into customer lock-in effects resulting from Broadcom’s changes to VMware’s licensing terms following its acquisition of VMware.
These ‘lock-in’ effects are largely untouchable without specific regulation. The DMA prevents gatekeepers from locking in users in their ecosystem (see our October 2023 newsletter) and the upcoming Data Act aims to avoid vendor lock-in by allowing customers to switch between different cloud providers. Outside these scenarios, ‘vendor lock-in’ is generally out of reach of ‘traditional’ antitrust enforcement if the relevant provider is not dominant and the arrangement falls within the Vertical Block Exemption Regulation’s framework.
Similarly, antitrust rules also appear to be powerless against the rapidly growing number of strategic partnerships entered into between Big Tech and AI startups. Microsoft entering into strategic partnerships with OpenAI and Mistral and taking over key personnel from Inflection has stirred powerful antitrust emotions (for instance, in the United States and the United Kingdom, and at the European Commission). Google’s strategic investment in Anthropic is also being closely monitored.
Catching up with ‘creative’ solutions
In case of partnerships or employee takeovers, the EU merger control rules could be one way of reviewing potential competition concerns as long as the qualify as a merger and exceed relevant thresholds.
Moreover, even if these takeovers or partnerships fall below EU and national merger notification thresholds, there are two ‘creative’ fall-back options to trigger their merger control scrutiny:
- upward referral of below-threshold transactions: a national competition authority can refer the takeover or partnership to the European Commission for review (see our August 2022 newsletter). The DMA’s obligation for gatekeepers to inform the Commission of any intended ‘digital’ concentration provides an extra safeguard that no ‘digital’ merger goes unnoticed (see our April 2022 newsletter). So does the ability of certain national merger control regimes, for instance in Germany and Austria, to catch non-controlling minority acquisitions. However, the upward referral possibility is currently on shaky grounds: Advocate General Emiliou has advised the European Court of Justice against upholding this option.
- ex-post abuse review under the EU prohibition on abuse of dominance: if the upward referral option fails, a non-notifiable transaction may still be reviewed by a national competition authority to determine whether it constitutes abuse of a dominant position (see our April 2023 newsletter): an option currently reserved for national competition authorities, but perhaps soon to be added to the Commission’s toolkit under a revised Regulation 1/2003.
Once a transaction has been caught by the EU merger control rules, the European Commission is not afraid to be creative with its assessments either. Non-price parameters have been smoothly integrated into its merger assessments to take account of the specificities in digital sectors, such as innovation, quality, network effects, data protection and privacy, access and interoperability, and reliability of supply. Their viability test is coming up soon: the European Court of Justice will rule on the Commission’s prohibition of the Booking/eTraveli transaction based on a purely ‘conglomerate’ theory of harm soon.
One big catch
There is one big catch, however. Despite creative solutions to catch non-notifiable transactions and to conduct equally creative assessments, transactions will first need to qualify as a merger to be reviewed under the merger control rules. This is where it may go pear-shaped for competition authorities wishing to review the strategic partnerships and employee takeovers. The Commission has indicated, for instance, that Microsoft’s strategic partnership with OpenAI does not constitute a merger.
As a consequence, when market power concerns resulting from these partnerships or takeovers cannot be caught under the abuse of dominance prohibition, there is currently only one indirect way left for the Commission to review these non-controlling shareholdings. The revised merger notification form (see our May 2023 newsletter) requires parties to include details on competitors holding non-controlling interests in them. The Commission can subsequently flag potential competition concerns from non-controlling shareholdings, but only if they come up in a different transaction that has been notified for review.
This is hardly an airtight solution to get a grip on an ever-increasing pattern of potentially anti-competitive partnerships or takeovers. Moreover, it cannot resolve any competition concerns arising from ‘vendor lock-in’.
Competition authorities are therefore calling for new and more flexible competition tools to remedy non-illegal competitive market failures, to lower legal and commercial barriers to entry and expansion for competitors, and to catch potentially problematic small acquisitions (see our February 2024 newsletter). Big Tech itself is also being called on to chip in by taking its corporate responsibility and acting in good faith, instead of merely adhering to the antitrust rules.
Conclusion
Competition authorities have their work cut out for them to come up with creative solutions using old tools and finding leverage for creating new tools. Time will tell whether these tools will suffice to keep up with the speed of developments in the digital sector.
At the same time, digital companies and their customers are faced with a steep learning curve by having to keep track of all the new or creative ways of either complying with or complaining about digital anti-competitive conduct. Exciting times lie ahead.
