Competition law issues of digitalisation in 2022

In 2022, the digital economy will continue to keep legislators and practitioners of competition law very busy. We will now look ahead to the legislative changes scheduled for this year as well as some important proceedings before courts and competition authorities in the field of the digital economy.

Proposed legislation

DMA

The Digital Markets Act (DMA) is of great importance to the digital economy. The DMA represents a special regulation for so-called gatekeepers, whereby there are overlaps in content with the prohibition of abuse under competition law according to Art. 102 Treaty on the Functioning of the European Union (TFEU). The DMA is intended to make digital markets in the EU more contestable and fairer so that both end users and business users can fully benefit from the advantages of the digital economy. On 15 December 2021, the EU Parliament adopted its version of the DMA with a clear majority. The text contains a number of amendments to the EU Commission’s proposal of 15 December 2020, which are presented in this synopsis. The next stage of the legislative process is the Informal tripartite negotiations between the Council, the Parliament and the Commission, and it is quite possible that the DMA will enter into force in 2022. The regulations of the DMA in the version adopted by the EU Parliament at a glance:

Addressees of the DMA

The DMA is intended to address providers of core platform services that hold a so-called gatekeeper position. Core platform services are online intermediation services, online search engines and online social networking services, video-sharing platform services, number-independent interpersonal communication services, operating systems, web browsers, virtual assistants, connected TV, cloud computing services and online advertising services operated by the operators of the other central platform services.

An undertaking is designated as a gatekeeper if it

1. has a significant impact on the internal market (rebuttably presumed in the case of an annual EEA turnover of at least EUR 8 billion in the last three financial or an average market capitalisation or the equivalent fair market value of at least EUR 80 billion in the last financial year and the provision of a core platform service in at least three Member States),
2. operates a core platform service that serves as an important gateway for business users and end-users to reach other end-users (rebuttably presumed in case of more than 45 million monthly end-users established or located in the EEA and more than 10 thousand yearly business users established in the EEA), and
3. enjoys an entrenched and durable position in its operations or it is foreseeable that it will enjoy such a position in the near future (rebuttably presumed if the thresholds mentioned under ii. are reached in each of the last two financial years).
   Undertakings shall be obliged to notify the EU Commission without delay, but at the latest within two months after the above-mentioned thresholds are satisfies, that such thresholds have been reached.

Obligations for gatekeepers

The DMA provides for an exhaustive catalogue of obligations for gatekeepers (some of which susceptible of being further specified). The starting point for the various obligations are the two central aims of the DMA, namely contestable markets on the one hand and fair markets on the other. In this context, the protection of competition is likely to be the predominant objective of the various conduct rules, even if, according to Recital 10 of the DMA, the Act is intended to protect a different legal interest than the provisions of EU competition law.

The text adopted by the EU Parliament contains additional obligations for the use of data for personalised or targeted advertising and for the interoperability of services such as number-independent interpersonal communication services and social network services, as an extension of the catalogue of obligations under the EU Commission’s draft DMA.

With regard to the obligations for gatekeepers, two aspects of the DMA are to be criticised:

• The conduct restrictions in Art. 5 and 6 DMA apply uniformly to all gatekeepers. However, since the respective business models of the gatekeepers are very heterogeneous, the obligations do not fit all gatekeepers equally.
• Moreover, the obligations in Art. 5 and 6 DMA do not provide for a sufficient possibility of justification of the conduct by the gatekeepers. This is to be criticised on the grounds of proportionality. If, in an individual case, a conduct does not have a negative impact on the contestability and fairness of the internal market, then a prohibition is not necessary and the gatekeeper should accordingly have the possibility to be exempted from the respective prohibition.

Concentrations

The DMA in the EU Parliament’s version also provides that the EU Commission may prohibit gatekeepers from making acquisitions (in particular so-called killer acquisitions) in areas relevant to the DMA for a limited period of time, if this is necessary and proportionate to remedy the damage caused by repeated infringements or to prevent further damage to the contestability and fairness of the internal market. In addition, gatekeepers are to be obliged to inform the EU Commission of planned concentrations.

Sole enforcement competence of the EU Commission and relationship of the DMA to Section 19a Act against Restraints of Competition (GWB)

The EU Member States advocate enforcement of the DMA also by the competition authorities of the EU Member States (see also Coalition Agreement, p. 31 [available in German only]) and the competition authorities of the EU Member States themselves have also advocated their complementary competence. However, even in the version adopted by the EU Parliament, the DMA provides that only the EU Commission should be authorised to enforce the DMA.

The EU Parliament has also not changed the partial primacy of the DMA over national competition law of the EU Member States. The text of the EU Parliament provides in Art. 1 (6) DMA that the DMA blocks national competition law insofar as the EU Commission has designated a gatekeeper and national competition law addresses conduct that is already inadmissible under Art. 5 and 6 DMA. With this regulation, little would remain of the scope of application of Section 19a GWB for undertakings with paramount significance for competition across markets (see below), because most of the conduct that can be prohibited under Section 19a GWB is already prohibited to a gatekeeper under Art. 5 and 6 DMA.

If you would like to know more about DMA, click here for our webinar on the Digital Markets Act (DMA) (available in German only).

Vertical Block Exemption Regulation

In addition to the special regulation of digital conglomerates in the DMA, the EU Commission is in the process of revising its competition law to take into account the specifics of competition in digital markets.

First and foremost, this concerns the amendment of the Vertical Block Exemption Regulation (“VBER”) and the corresponding revision of the Vertical Guidelines. The drafts were published in July 2021. The new regulations will enter into force on 1 June 2022.

Below are some of the significant changes of the current draft of the new Vertical BER (“Draft VBER”) in the area of digitalisation:

• Agreements between competitors:

Digitalisation is creating new competitive relationships. Manufacturers increasingly sell directly to end customers and therefore compete with their sales intermediaries. Art. 2(4) sentence 1 of the Draft VBER excludes vertical agreements between competitors from the exemption of the Draft VBER. However, an exception to this is found in Art. 2 (4) sentence 2 Draft VBER for non-reciprocal vertical agreements between competitors. The prerequisite is that the supplier is active on the one hand as a manufacturer (or wholesaler or importer) and on the other hand as a distributor and the buyer is active as a distributor but not a competitor of the supplier in the area of manufacturing (or wholesaling or importing). In addition, an exemption requires according to Art. 2 (5) Draft VBER that the combined market share of the supplier and the buyer on the relevant retail market does not exceed 30% (if the combined market share is not above 30%, but above 10%, the exchange of information between the undertakings to the agreement is assessed according to the rules on horizontal agreements). This new market share threshold is in addition to the already existing market share threshold of 30% on the relevant market for the sale and purchase of the contract products (Art. 3 (1) Draft VBER). Finally, according to Art. 2 (6) Draft VBER, the vertical agreement between competitors must not contain any restriction of competition by object. This requirement must also be observed with regard to the exchange of information in the supplier-buyer relationship.

• Online intermediary services and hybrid platforms:

Art. 1 (1) (d) Draft VBER defines the term online intermediary services and stipulates that providers of online intermediary services are to be regarded as suppliers under the Draft VBER. This classification as a supplier was unclear under the current VBER. According to Art. 2(7) Draft VBER, the exemption does not apply to vertical agreements with providers of online intermediary services if they hold a hybrid position, i.e. if they sell goods or services in competition with undertakings for which they provide online intermediary services. The Vertical Guidelines and the Horizontal Guidelines of the EU Commission, which are also being revised currently, govern the permissibility of individual restrictions of competition in such agreements.

• Parity obligations/most favoured nation clauses:

A common restriction in the distribution of goods and services in digital markets, especially digital platform markets, concerns so-called parity obligations (also most favoured nation clauses). These state that a company must offer its contractual partner at least as favourable conditions as on any other sales/marketing channels (e.g. other platforms) or via the company’s direct sales channel (e.g. its own website(s)). The Draft VBER now explicitly states that parity obligations are exempt if the conditions of the Draft VBER (inter alia the 30% market share threshold) are met. However, an exception to this applies pursuant to Art. 5 (1) (d) Draft VBER to retail parity obligations imposed by suppliers of online intermediation services.

• Dual pricing systems:

Dual pricing systems, whereby the same buyer pays a different price for products to be re-sold online than for products to be re-sold offline, may be exempted under the Draft Vertical BER provided they aim to incentivise or reward appropriate investment in the online or offline sectors. Previously, dual pricing systems were classified as an inadmissible hardcore restriction, which was not exempted under the VBER.

• Equivalence principle:

According to the equivalence principle, requirements for online sales did not have to be identical, but equivalent to the requirements for stationary sales. With the Draft VBER, the equivalence principle no longer applies.

Act against Restraints of Competition

Even if the new federal government provides in its Coalition Agreement (p. 31) to “evaluate and further develop the Act against Restraints of Competition (GWB)” and in the digital sector in particular to enshrine “an obligation for interoperability […] via the GWB for market-dominant companies”, an adjustment of the competition law in Germany is not to be expected in 2022. After all, the “GWB Digitisation Act” only came into force at the beginning of 2021, which contains far-reaching changes for the digital economy, particularly in abusive practices law.

If you want to learn more about the changes for the digital economy through the 10th GWB amendment click here (available in German only).

Competition law proceedings

In addition to the legislative changes, there will also be a number of decisions in competition law proceedings concerning digital business models in 2022 that can be eagerly awaited. Here is a small selection:

CJEU – Facebook

The “Facebook Saga” (see Nagel/Horn, ZWeR 2021, 78 ff. ) will probably be continued by the CJEU this year.

The story so far

In February 2019, the German Federal Cartel Office had prohibited Facebook (now Meta) from collecting and merging user data from services belonging to the Facebook group, such as WhatsApp and Instagram, on the one hand, and data from third-party websites on the other hand, and from allocating these to individual Facebook user accounts without first obtaining the consent of the users. The Federal Cartel Office had regarded Facebook’s conduct as an exploitative abuse with regard to Facebook’s conditions under Section 19 (1) GWB. The Federal Cartel Office had derived the inadequacy of the conditions from a violation of the GDPR, because the GDPR was to be used as a benchmark for the inadequacy of the conditions.

The Higher Regional Court of Düsseldorf had overturned the Federal Cartel Office’s decision in summary proceedings (decision of 26 August 2019, ref.: Kart 1/19 (V) [available in German only]). A violation of the GDPR was not sufficient due to the lack of a required competitive damage. In June 2020 (decision of 23.06.2020, ref.: KVR 69/19 [available in German only]), the Bundesgerichtshof (“BGH”) confirmed the Federal Cartel Office’s decision – but with different reasoning. Facebook’s conduct constituted an imposed extension of services to the detriment of Facebook users. The Federal Supreme Court only took into account the GDPR in the context of the balancing of interests required under Section 19 (1) GWB.

Now it was again the turn of the Higher Regional Court of Düsseldorf – this time in main proceedings. According to the Higher Regional Court of Düsseldorf, a violation of Facebook’s terms of use against the GDPR can constitute an exploitative abuse regarding conditions pursuant to Section 19 (1) GWB. The competitive damage would consist of a violation of the users’ freedom of disposition over their personal data, which is protected by the GDPR. Therefore, it is relevant, inter alia, whether the Federal Cartel Office was authorised to determine whether Facebook violated the GDPR and, if so, whether Facebook actually violated the GDPR. The Higher Regional Court of Düsseldorf therefore stayed the proceedings and referred several questions on the interpretation of the GDPR to the CJEU for a preliminary ruling (decision of 24.03.2021 (ref.: Kart 2/19 (V)).

The preliminary ruling procedure at the CJEU

The CJEU must now clarify, among other things, whether it is compatible with the jurisdiction rules of the GDPR for the Federal Cartel Office to determine a violation of the GDPR by Facebook for the purposes of abuse control under competition law. If this is not the case, the CJEU must answer the question of whether the Federal Cartel Office may make findings on whether Facebook’s data processing complies with the requirements of the GDPR in the context of the balancing of interests to be made when assessing the permissibility of the conduct under the prohibition of abuse.

The importance of the CJEU decision on these questions of the Federal Cartel Office competence in the application of the GDPR should not be underestimated. If the CJEU were to deny the Federal Cartel Office’s jurisdiction, the question arises whether a prohibition of Facebook’s terms of use by the Federal Cartel Office would still be permissible under Section 19 (1) GWB. With the reasoning given by the Federal Cartel Office in the form of an exploitative abuse regarding conditions determined on the basis of the standards of the GDPR, probably not. If, on the other hand, the BGH’s reasoning is taken into account, there are good arguments in favour of a prohibition being permissible. It is true that the BGH also took into account the values of the GDPR in the context of the balancing of interests. However, this was probably not decisive for the result of the balancing of interests. Rather, the result of the balancing of interests could also be based solely on the competitive and fundamental rights considerations, which the Federal Supreme Court also considered in its balancing of interests.

Federal Cartel Office – Section 19a GWB proceedings

In 2022, decisions by the Federal Cartel Office in its Section 19a GWB proceedings are also to be expected. The Federal Cartel Office already took one decision on 30 December 2021 concerning Alphabet/Google.

The provision of Section 19a of the GWB only applies to companies which are active to a considerable extent on multi-sided or network markets and which are of overriding importance for competition across markets. In addition to Alphabet/Google, the Federal Cartel Authority is also examining Meta/Facebook, Amazon and Apple for the existence of such an overriding cross-market importance for competition.

If the Federal Cartel Authority determines that a company is an addressee of Section 19a of the GWB, it can, in a second step, prohibit various types of conduct, which are exhaustively listed in Section 19a of the GWB with standard examples.

In the case of Alphabet/Google, the Federal Cartel Authority will examine, among other things, Alphabet/Google’s data processing conditions. Pursuant to Section 19a (2) No. 4a GWB, the Federal Cartel Authority can prohibit undertakings with paramount significance for competition across markets from making the use of their services dependent on users agreeing to the processing of data from other services of the undertaking or a third party provider, without giving users sufficient choice as to the circumstance, purpose and manner of the processing. This provision thus covers the facts that the Federal Cartel Office prohibited in the Facebook case.