Digital platform markets and networks are more prone to so-called tipping than other markets. The term tipping refers to the fact that a competitive market tips into a market with only a few or even only one provider/operator. Once the market has tipped, the market structure is almost irreversible. In other words, in relation to platform markets and networks, it can often be said “the winner takes it all”.
We show digital platform providers and network operators how they can successfully defend themselves against the threat of tipping in proceedings before German civil courts.
The companies operating in such markets often have great difficulties and only limited means to compete and defend themselves against a tipping process. In order to reduce the competitive concerns arising from tipping, the German legislator introduced a new possibility of intervention in Section 20 (3a) German Act against Restraints of Competition (GWB) with the GWB Digitisation Act.
Section 20 (3a) GWB aims to protect competitors of platform and network operators with superior market power. However, users of such platforms and networks can also defend themselves against possible anti-competitive market behaviour. Thus, it is conceivable that exclusivity obligations of the user in favour of the platform or network constitute a violation of the prohibition on restrictive agreements (Article 101 (1) TFEU or Section 1 GWB). In addition, platforms/networks can also be dominant (Section 18 GWB) or have relative market power vis-à-vis users (Section 20 (1) GWB). In this case, they may not treat users unequally without an objective reason.
Section 20 (3a) GWB – background: Danger of tipping on digital platform markets and networks
A key driver for tipping on platform markets and networks (together with scale and lock-in effects) are positive network effects.
What are positive network effects?
- A network is more attractive to its users the more other users of the same user group use the network, as they can then interact more with each other (direct positive network effects).
- Digital platform markets bring together different user groups. A platform is more attractive for a user group the more users of another user group use this platform (indirect positive network effects). Indirect positive network effects can be one-sided (only one user group benefits from the growth of the other group) or they can also be reciprocal.
Where do positive network effects exist?
Positive network effects exist on all digital platform markets and networks and here are just a few examples:
- auction and e-commerce platforms
- B2B platforms
- dating portals
- food delivery services
- hotel booking platforms
- IOT/IIOT platforms
- career networks
- messenger services or
- search engines
Section 20 (3a) GWB – pre-requirements
The pre-requirements for intervention under Section 20 (3a) GWB are as follows:
- The addressee is an undertaking with superior market power on a market within the meaning of Section 18 (3a) GWB, meaning a multi-sided market or a network. This allows courts to intervene against an abusive tipping process already before market dominance arises.
- The addressee must impede the independent achievement of network effects by competitors. This includes in particular the prohibition or obstruction of so-called multi-homing, meaning the parallel use of several platforms/networks, and the impediment of platform or network changes (BT-Drs. 19/23492, p. 83). The wording of Section 20 (3a) GWB was deliberately left open in order to include in the future measures for impeding the achievement of network effects that are not yet known.
- The impediment must give rise to a serious risk that competition on the merits will be restricted to a not inconsiderable extent. Section 20 (3a) GWB is thus fulfilled, if conduct that is proven to be dangerous for competition can be prevented irrespective of proof of actual effects of the conduct.
Section 20 (3a) GWB – enforcement
Courts have already applied the new possibility of intervention in Section 20 (3a) GWB. In a decision dated 8 April 2021 (16 O 73/21 Kart), the Regional Court of Berlin granted Immowelt’s application in temporary injunction proceedings and prohibited the market leader ImmoScout from continuing to apply its so-called list-first discount:
- Superior market power of ImmoScout: The decisive factor for the determination of a superior market power is an “overall assessment which leads to the conclusion that an undertaking has a special scope of conduct which is not sufficiently controlled by competition and which can cause the same distortion to the market as the negative effects which emanate from a dominant undertaking.” The Regional Court of Berlin makes such an overall assessment by comparing the number of page views and advertisements at ImmoScout and Immowelt.
- Impeding Immowelt in achieving network effects: The list-first discount was only granted if the commercial advertisers advertised at least 95% of their properties published online exclusively on ImmoScout or on their own website – but not on another real estate platform – during the first seven days. The Regional Court of Berlin saw the list-first discount as an impediment to multi-homing. This was justified by the fact that advertising properties exclusively on ImmoScout for seven days led to a “de facto exclusivity per se and an accompanying market foreclosure”, since 56% of all contacts took place within this period and 30% of the advertisements were already no longer online after its expiry.
- Serious risk of restricting competition on the merits to a not inconsiderable extent: The Regional Court of Berlin also considered this condition to be fulfilled because the introduction of the list-first discount had led to a sudden increase in the listing figures at ImmoScout, while the figures at Immowelt had simultaneously declined.
- Urgency: The Regional Court of Berlin concludes from the danger of tipping that there is a need for urgency. As a rule, if the pre-requirements of Section 20 (3a) GWB are met, there should indeed be a ground for an injunction. Therefore, there are good chances for platform and network operators to assert the infringement of Section 20 (3a) GWB against their competitors in preliminary injunction proceedings.
Taylor Wessing’s competition law practice regularly advises clients on issues relating to digitalisation and represents them in competition litigation proceedings. Our competition law expert Dr Stefan Horn will be happy to answer any questions you may have on the scope for proceedings under the new possibility of intervention in Section 20 (3a) GWB.