Exploitative abuse, data and digital dominance: the application and suitability of EU competition law

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Exploitative abuse, data and digital dominance: the

application and suitability of EU competition law

An EU competition law assessment of the potential application and adequacy of Article 102(a) Treaty on the Functioning of the European Union to data protection concerns.

Candidate number: 550.

Submission deadline: 25.05.2020.

Number of words: 16961.

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1 Introduction

1.1 Purpose and Research Question

In 2006, the European Court of Justice (ECJ) held that matters concerning personal data are not a competition law issue.¹ Yet, over a decade later, the data protection and competition nexus is one of the timeliest issues in European competition law discussions.² Due to an increase in businesses profiting from the accumulation of personal data and the emergence of stricter data protection regulations, there is a growing tension between competition and data protection law.

Currently, there is a risk of consumers being exploited online and that both competition and data protection law fail to intervene.

Therefore, the thesis seeks to clarify whether Article 102(a) Treaty on the Functioning of the European Union (TFEU)³ can address data protection concerns. The provision prohibits dominant firms from “directly or indirectly imposing unfair purchase or selling prices or other unfair trading conditions”. The issue of applying Article 102(a) TFEU to data protection concerns is complex and contested. To date, Germany is the only example in the European Union (EU) where a dominant firm breached competition law due to unfair data protection practices.⁴ Thus, a clarification of the circumstances under which Article 102(a) TFEU applies to data protection concerns merits further investigation.

The aim of the thesis is to address the question: what is the potential application and adequacy of Article 102(a) TFEU to data protection concerns stemming from dominant firms in digital markets? In order to provide a response to the research question, the thesis moves in two parts.

First, it examines justifications and circumstances for the application of Article 102(a) TFEU to data protection concerns, as it is important to understand when Article 102(a) TFEU Next, the thesis analyses whether Article 102(a) TFEU and the regulatory framework is appropriate in addressing data protection concerns pertaining to dominant digital firms.

1 Case C-238/05 Asnef-Equifax, Servicios de Información sobre Solvencia y Crédito, SL v Asociación de Usuarios de Servicios Bancarios (Ausbanc) para 63.

2 Lundqvist (2020).

3 Consolidated version Treaty on the Functioning of the European Union (2016) art. 102.

4 Bundeskartellamt Decision B6-22/16 (Facebook).

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2 1.2 Topic and Relevance

We live in a digital era and digitalisation has provided us with the possibility to communicate, facilitate transactions and exchange information. Notably, digitalisation has led to the emergence of new ways of conducting business to which data plays a key role. Consumers benefit from digitalisation and data in numerous ways – from access to online social networks and media outlets to support in maintaining a healthy lifestyle.

Due the importance of data in driving the digital economy, some have labelled data the “new oil”⁵ as many business models in the digital economy receive revenues based on their ability to collect and aggregate data. In March 2019, the top four companies in the world according to market capitalisation were Microsoft, Apple, Amazon and Alphabet (parent company of Google).⁶ A common denominator for these firms is that they all possess large datasets. Face- book and Alibaba (placed number 6 and 7 respectively in the same survey) can also accredit parts of the high revenues to use of datasets.

As a result, these firms’ ability to gather and process large datasets has raised several privacy concerns. Consumers struggle to define what information about their personal preferences and online behaviour has been collected by these firms and who can access this data. These novel business models have sparked a global debate within the antitrust community on the role of data and competition law in the digital economy.⁷

The debate is divided between two main fractions. On one side, there are the proponents of free markets principles who argue that markets self-correct: if the consumers demand high data protection standards, services on the market will adapt accordingly. On the opposite side, it is be- lieved that new regulations are necessary, and that competition law can apply to issues usually regulated by consumer and privacy laws.⁸ Further, this debate will be referred to in section 2.1 and Chapter 5 of this thesis.

5 The Economist (2017).

6 PWC (2019) p. 19.

7 See e.g. Manne and Sperry (2015), Stucke and Gunes (2016), Graef (2018), Llanos (2019) and Esayas (2019).

8 Ohlhausen (2015) p. 122.

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3 1.3 Methodology

This thesis uses the dogmatic legal method which aims at clarifying the meaning of the law by looking at the relevant legal sources; legislation, case law and jurisprudence. Looking at these legal sources can provide an overview of where the law stands and which direction the law is likely to move in when approaching a new legal issue. In this thesis, the dogmatic method is used to examine how the EU competition rules on abuse of dominance are applied and interpreted. Afterwards, this thesis identifies regulatory gaps and recommends potential ways the legislator and courts can best fill these gaps (de lege ferenda and de sententia ferenda). The methodological justification for this approach is that business models based on the collection and processing of data is novel to EU competition law. The thesis discusses how flexible the law is in meeting innovative legal questions and which direction it is likely to take.

The TFEU, in addition to the Treaty on European Union (TEU)⁹ and the European Charter of Fundamental Rights (EU Charter)¹⁰, form the basis of all EU legislation known as primary sources of EU law. According to Article 288 TFEU, the EU institutions can issue secondary legal sources such as regulations, directives, decisions, recommendations and opinions. Of these, only regulations, directives and decisions are binding legal instruments. As such, the primary legal sources together with the relevant regulations, directives and decisions contribute to the de lege lata and de sententia ferenda section of this thesis. The Court of Justice of the European Union (CJEU), consisting of the Court of Justice (ECJ) and the General Court (GC), oversees the interpretation and application of EU law.¹¹ As such, the CJEU is the main inter- preter of EU law and therefore its case law is principal to the understanding of the law. In the application of the law, the CJEU can take into consideration the wider goals and values of the EU such as social, political and economic aims.¹² This thesis has limited focus on jurisdictions outside the EU, as most do not have an equivalent of Article 102(a) TFEU in their antitrust legislations.

9 Consolidated version of the Treaty on European Union and the Treaty on the Functioning of the European Union OJ C 202/01 (2016).

10 Charter of Fundamental Rights of the European Union OJ C 202/02 (2016).

11 Consolidated version of the Treaty on European Union and the Treaty on the Functioning of the European Union OJ C 202/01 (2016), art. 19(1).

12 Esayas (2019) p. 34.

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EU competition law is also influenced by economic theories. However, due to the limited scope of this thesis, economic theories are not granted significant attention. As a result, economic theories are only explained where it contributes to the analysis.

Moreover, to address the research question, it is necessary to consider data protection law.

Among data protection laws, the European General Data Protection Regulation (GDPR)¹³ will be the main reference for this thesis. When data protection law is discussed in this thesis, the GDPR is referred to if no other data protection regulation is specifically mentioned.

1.4 Outline

In the following, the thesis is structured into five chapters (chapters 2-6). Chapter 2 considers the rationale behind Article 102(a) and the substantive legal assessment of a dominant position.

A review of the legal assessment is continued in Chapter 3 with a focus on the case law concerning abusive conduct in Article 102(a). The purpose of chapters 2 and 3 is to provide the reader with the necessary understanding of Article 102(a) before the discussions in chapters 4 and 5.

In Chapter 4, the thesis examines the circumstances under which Article 102(a) might address data protection concerns. Specifically, the chapter discusses justifications for applying Article 102(a) TFEU to of data protection concerns. In the second part of Chapter 4, it is assessed when and how data protection concerns could be incorporated in the legal assessment. In Chapter 5, the thesis analyses the adequacy of Article 102(a) TFEU and the current regulatory framework in addressing data protection concerns. A conclusion of the thesis is given in Chapter 6.

1.5 Terminology for understanding digital business models

The digital economy is characterised, inter alia, by zero-price and two-sided markets, network- effects and economies of scope and scale. While not being new concepts to EU competition law, these four characteristics are of relevance to the competitiveness of digital markets and thus worth introducing.

13 Reg. 2016/679/EU.

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Firstly, several digital services operate in a zero-price market. Despite not demanding a monetary exchange for the service, users often enter a contractual relationship with the service provider. Such contractual relationships can be formulated through “terms and conditions”, “terms of service”, “terms of use” and “data policy” (hereafter abbreviated ToS) which are showed to the user when accessing the service for the first time. An example of a ToS can look like this:

«These Terms of Use Are a Contract Between You and Us. (…) you grant us a non- exclusive, sublicensable, irrevocable and royalty-free worldwide license (…) to use, re- produce, transmit, print, publish, publicly display, exhibit, distribute, redistribute, copy, index, comment on, modify, transform, adapt, translate, create derivative works based upon, publicly perform, publicly communicate, make available, and otherwise exploit such User Generated Content (…) in any number of copies and without limit as to time, manner and frequency of use, without further notice to you”¹⁴

As such, the ToS indicates that there is a non-monetary transaction between the user and the service provider; the service comes at a zero price in exchange for a collection of data. User generated data is of importance for the turnover of many online services. Online firms might desire a high volume and variety of datasets because it can attract better commercial deals from advertisers.¹⁵ That is why, zero-price markets might compete on parameters beyond price such as the attractiveness of the interface. Such competition was recognised by the European Com- mission (EC) in its decision against Google’s comparison-shopping services.¹⁶

Even though non-price quality parameters are recognised in EU competition law, many of the current frameworks are based on at least the possibility of competing on price.¹⁷ In the digital economy, where price competition is not necessarily the main parameter for competition, the current framework finds itself in a new situation. Accordingly, either the current framework needs to be fitted to the new context or new frameworks need to be developed.

14 The Walt Disney Company (2020).

15 OECD (2016) para 23.

16 Ibid. para 160.

17 Wasatjerna (2018) p. 528.

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Secondly, platforms with zero-price markets often also operate in a closely connected paid market. In EU competition law terms, such platforms are said to have two-sided markets; one side which involves a zero price and another side which is monetary based. The monetary based side weigh up for the losses on the zero-priced market. As such, the two sides of the market have a compatible relationship.¹⁸ In digital platforms, this synergy consists of the user generated data in the zero-price market being fed into the paid side of the platform which is often an advertising market. Thus, the value of the advertising market depends on the quantitative and qualitative data collected on the zero-price market. For users, the two-sided relationship can be beneficial in receiving more targeted an effective advertising.¹⁹

Thirdly, network effects are relevant because it means that the value of a service increases per new user contributing to that service.²⁰ The traditional example of a business model based on network effects is telecommunication subscriptions. The value of the telecommunication subscription increases per client subscribing to the service as this gives the already subscribing customers an additional person to interact with. Networks effects enhance as the user group grows.²¹ With the example of the telecommunications subscription, such a strategy can be that a customer calls for free to other customers using the same telecommunications subscription while calling comes at a fee when it is to non-customers. The more of the users’ friends and relatives using that telecommunications subscriptions the more people can the user call at a zero price.

Taking this into consideration, network effects can be beneficial both to the service provider and the user. On the other hand, network effects can also have anti-competitive consequences.

One potential anti-competitive result caused by indirect network effects is market tipping.²² When a market tips in favour of one product, all or most customers use the favoured product leading to dominance or near monopolisation of the market. Direct network effects can lead to entry barriers for actual or potential competitors and costs to the consumers who would like to switch service.²³

18 Parker (2005) p. 1498.

19 Gebicka (2014) p. 155.

20 Ibid. p. 161.

21 OECD (2013) p. 34.

22 Stigler Committee on Digital Platforms (2019) p. 29.

23 Bundeskartellamt (2016) p. 13.

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Lastly, the digital economy often consists of economies of scale and scope. Economies of scale means that the more units produced, the lower the costs of the production in the long term.²⁴ In the digital economy, companies might have little income as the user group is small and the costs of production is high. However, as the user group grows, the production comes at a less cost the more customers using the product.²⁵ In the digital economy, economies of scale can lead to network effects which again leads to an accumulation of more data.²⁶ This again can lead to high barriers of entry for new platforms as they are not able to gather the same amount of data.²⁷ In a similar manner, economies of scope refer to the possibility to expand services and products due to the infrastructure already in place, technical expertise and branding.²⁸ As an example, a firm producing running shoes can start producing tennis shoes at a lower cost than a furniture company due to the already existing competences of making shoes that the furniture company does not have.

In the same example, the economies of scope can be an entry barrier for the furniture company as it would have more costs setting up the new tennis shoe production. In the digital economy, Facebook serves as an example of a data rich firm benefitting from economies of scope. Face- book has scaled up its production from offering social interaction on the Facebook.com platform, to offer new services such as Facebook Login and Workplace. In the light of the Covid- 19 outbreak, Facebook quickly expanded its services to Messenger Rooms and Facebook Shops, entering the video conference call market and the e-commerce market.²⁹

24 Chandler (2020).

26 Stigler Committee on Digital Platforms (2019) p. 18.

27 L.c.

28 Ibid. p. 14.

29 Business Insider (2020) and Facebook (2020).

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2 Article 102: Dominant position

The focus of this thesis is Article 102 TFEU sub-section (a) which provides that an undertaking holding a dominant position is prohibited from “directly or indirectly imposing unfair purchase or selling prices or other unfair trading conditions”. The article has been called “one of the most intriguing”³⁰ provisions in EU competition law due to its debated historical roots and undetermined content.

Consequently, it is necessary to comment on the legal framework of Article 102(a) TFEU before attempting to answer the research question. There are two main assessments to be under- taken in Article 102(a); whether an undertaking holds a dominant position and whether its conduct is abusive. The first assessment (a dominant position) is the topic of Chapter 2, while the second assessment (abusive conduct) is elaborated in Chapter 3.

2.1 The rationale behind Article 102 TFEU

While the prohibition on abuse of dominance has formed part of the EU law since the beginning of the Union, the rationale behind the prohibition is disputed. The dispute is relevant because the rationale provides guidance on the scope of the normative assessment of abuse in Article 102(a) TFEU.

In the beginning of the 2000s, a lack of enforcement of Article 102 TFEU led to an academic debate in Europe on the proper function of the prohibition. In 2005, Vickers noted that the abuse of market power is “perhaps the most controversial current issue for competition policy”³¹. He added that a challenge for the regulators in applying Article 102 is to find a balance between slack enforcement that might endanger the competitiveness of markets and strict regulation that might hinder innovation.³² Moreover, Vickers argued that the enforcement of Article 102 could go in two alternative directions; either a form-based or effects-based regulation. A form-based regulation would mean that if a conduct meets a certain description it would constitute an abuse.

He supported the latter, which entails that a conduct can constitute a breach of Article 102 if that conduct produces certain economics-based effects.

30 Gal (2013) p. 385.

31 Vickers (2005) p. 244.

32 L.c.

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Furthermore, the EC seemed to agree with Vickers effects-based approach when publishing the 2005 Discussion Paper on the application of Article 82 of the Treaty to exclusionary abuses³³ and the 2009 Guidance on the Commission’s enforcement priorities in applying Article 82 of the EC Treaty to abusive exclusionary conduct by dominant undertakings³⁴. The 2005 and 2009 communications from the EC reflects a tendency among the EC officials to an effects-based approach to Article 102 TFEU.³⁵ This requires a theory of harm showing a link between the undertaking’s conduct and the anti-competitive effects.³⁶

However, the effects-based approach has not fully been endorsed by the CJEU leading to tension between economic evidence and a broader interpretation of the notion of consumer welfare.

37 The tension reflects a core conflict in EU competition law; on whether competition law should be interpreted through the lens of Chicago School or the Freiburg School (Ordoliberalism).³⁸ In short, the Chicago School of antitrust promotes an economic rationale behind competition law.

This entails an economic interpretation of consumer welfare where non-economic considerations, such as fairness, play a marginal role.³⁹ For example, on the issue of unfair pricing by dominant firms, the Chicago School of Antitrust believes intervention should be limited. It holds that intervention by the regulators can damage consumer welfare in terms of lack of innovation and fewer entrants to the market.⁴⁰

On the contrary, Ordoliberal arguments are mainly concerned with the prevention of monopo- lies.⁴¹ To the ordoliberal, fairness considerations are relevant to help restrain dominant firms even when such consideration might diminish economic consumer welfare.⁴² In this regard,

33 DG Competition discussion paper on the application of Article 82 of the Treaty to exclusionary abuses (2005)

34 Guidance on the Commission’s enforcement priorities in applying Article 82 of the EC Treaty to abusive exclusionary conduct by dominant undertakings (2009).

35 Kingston (2011) p. 295.

36 Peeperkorn (2009) p. 20.

37 Esayas (2019) p. 260.

38 Anchustegui (2015) p. 152.

39 Ducci (2019) p. 82.

40 Akman (2008-2009) p. 172.

41 Ducci (2019) p. 94.

42 Ducci (2019) p. 93.

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fairness is the freedom to choose another contracting party beyond the dominant undertaking.⁴³ An ordoliberal approach to EU competition law might have more room for incorporating data protection concerns into the analysis, as the emphasis is on the consumer’s choice. Applying Article 102 TFEU with an ordoliberal approach might require a normative assessment of the facts potentially giving room to other considerations such as the quality of choice offered to the consumer.⁴⁴

2.2 The definition of a dominant position

A core element of Article 102(a) TFEU is defining the dominant position. Preliminarily, only undertakings can hold a dominant position. An undertaking is in EU competition law defined as an entity engaged in an economic activity regardless of its legal status and the way in which it is financed.⁴⁵ Correspondingly, a dominant position is a position of economic strength which allows an undertaking to prevent effective competition from being maintained and to behave in an appreciable extent independent of its competitors, customers and consumers.⁴⁶

In order to assess whether an undertaking holds such a position of economic strength, case law repeatedly highlights a combination of two factors.⁴⁷ These are (i) the definition of the relevant market including existence of large market shares and (ii) the market power of the undertaking on the relevant market. These factors will be explored in the following section with emphasis on their application to data-rich business.

2.2.1 Relevant market and market shares

By defining the relevant market, it is possible to determine the boundaries within which the undertaking is dominant.⁴⁸ Several ways to define those boundaries has been put forward, with

43 Gal (2013) p. 389.

44 Behrens (2015) p. 23. See also Esayas (2019) p. 265.

45 Case C-41/90 Hofner and Elser v. Macrotron GmbH, para. 21. See also joined Cases C-180/98 to C-184/98 Pavlov and Others v. Stichting Pensioenfonds Medische Specialisten, para. 74.

46 Case 27/76 United Brands Company and United Brands Continentaal BV v Commission of the European Com- munities, para 65. See also Case 85/76 Case C-85/76 Hoffmann-La Roche & Co. AG v Commission of the European Communities, para. 38 and Case T-201/04 Microsoft Corp. v Commission of the European Com- munities, para. 229.

47 Case 27/76 United Brands Company and United Brands Continentaal BV v Commission of the European Com- munities, para. 66.

48 Opinion of Advocate General Kokott delivered on 22 January 2020 in Case C-307/18 Generics (UK) Ltd and Others, para 220.

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the adaption method being one of the prevailing tests. It checks whether other undertakings could, by a simple adaption, enter the market and create a serious counterweight.⁴⁹ Another way to assess dominance on a relevant market is to look at the allocation of market shares. Case law on Article 102 TFEU shows that the existence of high market shares is an indication for dominance.⁵⁰

However, digital platforms challenge the traditional assessment of the relevant market and market shares. One aspect which illustrates how the relevant market analysis is being challenged by digital platforms is that platforms might operate on several markets. For example, in a decision against Facebook, the German competition authority (BKA) concluded that Facebook op- erates two markets for social networks: one market for private users and another market for advertising.⁵¹ In the decision, BKA explained that Facebook’s strategy involves having the advertising side of the service recuperate the costs of the zero-price side of the service.⁵² Despite a strong correlation between the two markets, BKA found that the demands of the private user market differed from those of advertising.⁵³ Notably, BKA concluded that a market which op- erates at a zero-price constitutes a separate market.

In addition, the possibility of having a zero-priced relevant market was accepted by the EC in its Google Search⁵⁴ decision. The decision concerned Google’s dominance in the comparison- shopping market. The EC found that the provision of general search services constitutes a relevant market and an economic activity despite the service being offered at zero price.⁵⁵ Indeed, the EC found that users contribute to the monetisation of the general search service by providing the service with user data.⁵⁶. As the provision of search engines is offered at zero price, the EC found that “there are other parameters of competition between general search services”⁵⁷.

49 Case 6/72 Europemballage Corporation and Continental Can Company Inc. v Commission of the European Communities, paras 32-33.

50 Case C-85/76 Hoffmann-La Roche & Co. AG v Commission of the European Communities, para 39.

51 Bundeskartellamt Decision no. B6-22/16 Facebook (2019).

52 Bundeskartellamt (2019b) p. 4.

53 Ibid. p. 4.

54 Decision COMP/AT.39740 Google Search (Shopping)

55 Ibid. para 157-158.

56 Ibid. para 158.

57 Ibid. para 160.

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Another challenge concerns how to quantify market shares in markets that are zero-priced.

Again, the EC’s decision in Google Search serves as an example. In that decision, the EC de- cided to base the assessment of market shares on the volume of users instead of by the value in price. The decision to use volume as a proxy for market shares was affected by the distinct nature of the platform services.⁵⁸ The EC provides three justifications for assessing market share by volume instead of value.

Firstly, the EC held that market shares by value cannot be used where the service provided to users is free of charge. Secondly, the EC found that value was a misleading proxy due to the difficulties in obtaining the accurate revenue per usage of the search engine. Thirdly, the EC found that the value of the advertising side depends on the number of search users meaning that the higher volume of free users, the more valuable would the market shares in the paid market be.⁵⁹

2.2.2 Market power

The second factor laid out by the case law as relevant when assessing dominance is market power. An undertaking that is dominant enjoys substantial market power and lack of competition over a period.⁶⁰ The barriers for actual or potential competitors to enter or expand on the market is a common factor for assessing whether such market power exists on the market.

In the relevance of data and platforms, at least two issues deserve further elaboration. The first issue is whether a high amount of data indicates dominance. The second is whether access to data can constitute a barrier to entry and expansion. On the issue of access to data as an indication of dominance, BKA points out that knowledge of consumer preferences is important also in non-digital markets.⁶¹ Initially, holding such information about consumers does not indicates dominance. But the exclusive control over data in combination with other factors such as network effects can result in a dominant position.⁶²

58 Ibid. para. 275.

59 Ibid. para. 275.

60 Guidance on the Commission’s enforcement priorities in applying Article 82, para 10.

62 Ibid. p. 17.

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Another issue to consider is the extent to which data constitutes a barrier to entry or expansion of competitions. In its decision against Facebook, BKA found that the access to data constituted a barrier to entry.⁶³ While it can be argued that competitors can access data through data-brokers, the data offered by such trade is not competitive enough. This means that data-brokers are not able to provide the same volume, velocity and variety of data as larger platforms.⁶⁴ In the digital economy, having diverse and consistently updated data is valuable.⁶⁵

Moreover, the Furman report points out that data can provide a competitive advantage by having; user feedback loops and monetization feedback loops.⁶⁶ The first loop demonstrates that data collected from the user of the service can be used to improve the quality of the service for the user which then attracts more users. The second loop refers to the use of the revenues generated on the advertising side to increase the quality of a service, which again results in more users.

What is more, Graef emphasizes that, in addition to access to relevant and recent data, a new entrant would have high costs in engineering resources to develop applicable algorithms and ensure a user-friendly platform.⁶⁷ Other potential impediments for entry or expansion in digital markets are the tendency of single-homing⁶⁸, the necessity to offer services at zero-price to attract users and the collect data.

2.3 The future impact of data on the dominance assessment

The question remains to which extent does the control over data give rise to a dominant position.

As shown, data can constitute a barrier to entry and expansion. In other words, this means that having access to large datasets form an advantage in a digital market. Consequently, data can provide an indication of a dominant position. It serves as an important input for the provision of services to users and advertisers. The ways in which data can provide a competition

64 Graef (2015) p. 483.

65 Torngren (2017) p. 7. See also Stucke and Grunes (2015) p. 2-3 on the implication of big data on competition policy.

66 Furman (2019) para 1.73.

67 Graef (2015) p. 488.

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advantage resulting in dominance is manifold and would be best addressed by regulators with a case-by-case analysis.

Currently, data is mainly relevant as an input of the service provided by the dominant firm, and not a market in itself in competition law terms.⁶⁹ Graef argues for the need to assess an additional relevant market for user data.⁷⁰ In addition, the idea of a separate market for data was amplified by US Federal Trade Commissioner Pamela Jones Harbour in her dissenting statement in the Google/Doubleclick merger stating that “it might have been possible to define a putative relevant product market comprising data that may be useful to advertisers and publish- ers”⁷¹.

A market for data as an input used for advertising purposes could be one way to improve the assessment of dominance in markets where services are offered to customers at zero-price.⁷² The aim of such a market definition would be to assess the health of competition where price is not a key parameter.⁷³ Relevant competitive parameters in the market for data as an input for advertising purposes would include aspects of competition beyond price such as innovation, quality and potentially data protection concerns.⁷⁴ The term “market” is not a clearly defined legal concept nor a static one.⁷⁵

As stated by the ECJ in United Brands⁷⁶, a dominant position “derives from a combination of several factors”.⁷⁷ Legally, there is room in EU competition law to go beyond price-centric tools of dominance assessment to create markets that mainly compete on parameters beyond price.

The question remains whether regulators would be prepared for such a novel task.

69 Graef (2015) p. 492.

70 L.c.

71 F.T.C. File No. 071-0170 Dissenting Statement of Commissioner Pamela Jones Harbour (2007) p. 9.

72 Esayas (2019) p. 123

73 Kemp (2019) p. 42

74 Ibid. p. 41

75 Esayas (2019) p. 123.

76 Case 27/76 United Brands Company and United Brands Continentaal BV v Commission of the European Com- munities.

77 Ibid. para 66.

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3 Article 102(a): Exploitative abuse

This chapter continues the analysis of the legal framework of Article 102(a) TFEU with a focus on the definition of abusive conduct that falls under the provision. It is necessary for the analyses in chapter 4-5 to first understand the legal framework of Article 102(a).

This chapter is divided into three main parts. Part one looks at the understanding of “abuse” in CJEU case-law. Part two scrutinizes the two forms of exploitative abuse described in Article 102(a); “unfair purchase or selling prices” and “other unfair trading conditions”. Part three comments on some preliminary challenges of addressing data protection through Article 102(a).

3.1 Definition of abuse of a dominant position

It is generally held that the abusive conduct described in Article 102(a-d) is non exhaustive.⁷⁸ There is no universal definition of abuse in EU competition law, but case law repeatedly de- scribes it as:

(A)n objective concept relating to the behaviour of an undertaking in a dominant position which is such as to influence the structure of a market where, as a result of the very presence of the undertaking in question, the degree of competition is weakened and which, through recourse to methods different from those which condition normal competition in products or services on the basis of the transactions of commercial operators, has the effect of hindering the maintenance of the degree of competition still existing in the market or the growth of that competition.⁷⁹

To clarify, an abuse does not exist simply by the fact that an undertaking is dominant. A dominant undertaking has a “special responsibility” to make sure that their dominant position does not distort competition.⁸⁰ Even though the scope of this responsibility is still disputed, it is generally understood as conduct that would otherwise be legal can constitute abuse in the terms of Article 102 if executed by a firm holding a dominant position.⁸¹

78 Case C-333/94P Tetra Pak International SA v Commission of the European Communities para. 37.

79 Case C-85/76 Hoffmann-La Roche & Co. AG v Commission of the European Communities, para. 92.

80 Case C-322/81 NV Nederlandsche Banden-Industrie Michelin v Commission of the European Communities, paras 57 and 70.

81 Colino (2019) p. 342.

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What is more, abusive conducts have been grouped in several categories; exclusionary, exploitative and discriminatory abuse. Yet, these are not fixed as a conduct can consist of a mix of the categories.⁸² The EC’s enforcement priorities have been on exclusionary abuse which, in general, is behaviour that harms the competitive process. Nevertheless, in the last years, exploitative abuse (the direct exploitation of consumers) in Article 102(a) TFEU has received attention from the EU and national regulators.⁸³ Therefore, this thesis concerns exploitative abuse which falls under Article 102(a) TFEU. This provision holds that an abuse exists when a dominant undertaking imposes unfair prices or trading conditions. The content of abuse in Article 102(a) will be explored in the following section.

3.2 Evolution of the case law regarding exploitative abuse

This section reviews the evolution of Article 102(a) TFEU, commonly referred to in EU competition law as exploitative abuse. Article 102(a) seeks to protect consumers from being exploited by a dominant firm. The law illustrates two types of exploitative abuse: “unfair purchase or selling prices” and “other unfair trading conditions”. In CJEU case law, these have been treated as two separate categories with different legal assessments required. In the following section, the paper will address the main legal assessments put forward by the CJEU in its case law per category.

3.2.1 Unfair prices

According to Article 102(a) TFEU, a dominant undertaking is prohibited from imposing unfair purchase or selling prices. Unfair prices, also known as excessive prices, have been labelled the

“textbook abuse”⁸⁴ as first year economics students start by explaining how consumers are worse off when a monopolist raises prices for their own profit.⁸⁵ However, in practice, such abuse is rarely pursued by competition law enforcers. O’Donoghue and Padilla point to three main reasons why competition authorities in general are reluctant to prosecute excessive pricing.⁸⁶

82 See for example Case C-385/07 P Der Grüne Punkt – Duales System Deutscheland v. Commission, paras. 32 and 143 where the court found both an exclusionary and an exploitative abuse.

83 See European Commission (2019b) para 4.2.1.

84 Lyons (2007) p. 66.

85 L.c.

86 O’Donoghue (2019) p. 738.

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Firstly, if competition authorities set a price cap on an industry, incentives to invest and inno- vate might reduce. Secondly, identifying which prices are fair and which prices are excessive generate significant conceptual and practical challenges. Thirdly, in most markets without high barriers to entry, a firm imposing prices above the competitive level would lose consumer to another market players that offers competitive prices.⁸⁷

Nevertheless, there are examples of case law concerning unfair prices. The CJEU case law dates to the General Motors⁸⁸ case of 1975. In that case the court explained that General Motors could unilaterally set the price for its service because it was the dominant undertaking on the market.

The price fixing constituted an abuse because the price was “excessive in relation to the economic value of the service provided” leading to unfair trade.⁸⁹

Since General Motors, the case law has sought to define when a price is “excessive” in relation to the economic value of the service. In British Leyland, the court found that a price was excessive when “clearly disproportionate”⁹⁰ to the service’s economic value. In determining the gravity of the excessive price, the court said that the length of the period under which the fee was charged and the lack of detrimental effects stemming from the high fee were irrelevant.⁹¹ For the matter of defining when a price results in “excessive”, the judgment in United Brands was an important contribution. That case concerned the prices set by United brands, the whole- saler of Chiquita bananas, to retailers in several European countries.⁹² In that case, the court laid out a standard method for assessing whether a price is excessive and unfair in the sense of Article 102(a) TFEU.

Considering whether the price set by United Brands was excessive, the ECJ applied a two-step analysis. The first step is to compare the product’s sale price with the costs of production in order to disclose the undertaking’s profit margin and whether the profit margin was excessive

87 L.c.

88 Case 26/75 General Motors Continental NV v Commission of the European Communities.

89 Ibid. para 12.

90 Case 226/84 British Leyland Public Limited Company v Commission of the European Communities, para 30.

91 Ibid. paras 32-33.

92 Case 27/76 United Brands Company and United Brands Continentaal BV v Commission of the European Com- munities, para 2(C).

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(the excessive limb).⁹³ The second step is to test whether the price imposed is “unfair in itself or when compared to competing products”⁹⁴ (the unfair limb). The court added that there might be other methods that can prove a price contrary to Article 102(a) TFEU.⁹⁵

For instance, O’Donoghue and Padilla point to four potential methods of assessing whether a price is excessive and unfair.⁹⁶ While only the wording in the second step of the United Brands test allows for comparison (“compared to”), O’Donoghue and Padilla hold that benchmarks are relevant both at the excessive and the unfair steps. Beyond the price-cost comparison applied in the United Brands case, the authors suggest a comparison of price over time, across competitors and across member states. A recent example of a price being unfair when compared to historical prices, is the case concerning pharmaceutical CD Pharma⁹⁷ before the Danish Mari- time and Commercial Court. In that case, the court found that CD Pharma had applied prices which were 2000% higher than the historical price of the drug Syntocinon.⁹⁸

Moreover, price comparison across competitors and member states have also been upheld by the CJEU. In Pompes funèbres⁹⁹ the court found that excessiveness could be tested by comparing the price charged by one group to the price charged by another (comparison across competitors).¹⁰⁰ Geographic comparison, such as comparing the price of the service in one member state with that of another member states, was applied in Tournier. In that case the court explained that an indication of abuse could be found when a dominant firm applies fees which are

“appreciably higher than those charged in other Member states”¹⁰¹.

This geographic comparison was reiterated in AKKA/LAA.¹⁰² That case concerned the fees applied by a collective management organisation for copyrights. The Latvian Competition

93 Ibid. para 251

94 Ibid. para 252

95 Ibid. para 253.

96 O’Donoghue (2019) pp. 761-773.

97 Case BS-3038/2019-SHR CD Pharma v Konkurrencerådet.

98 Ibid. para 23.

99 Case 30/87 Corinne Bodson v SA Pompes funèbres des régions libérées.

100 Ibid. para 31.

101 C-395/87 Ministère public v Jean-Louis Tournier, para 63.

102 Case C-177/16 Autortiesību un komunicēšanās konsultāciju aģentūra / Latvijas Autoru apvienība (AKKA/LAA) v Konkurences padome.

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Council had found that the fees applied in Latvia were significantly higher than those applied in neighbouring member states Estonia and Lithuania.¹⁰³ ECJ ruled that an indication of a dominant position can exist where a comparison of the price levels in the member states have been made on a consistent basis and that comparison show that the fees applied in one member state is appreciably higher than those charged in other member states.¹⁰⁴ A criterion for this approach is that the Member States compared must be somewhat similar economically and cul- turally and selected in accordance with objective, appropriate and verifiable criteria.¹⁰⁵

The above analysis shows that there are currently at least four valid methods for comparing prices. Choosing the most suitable method would likely depend on the various facts of a specific case. In CD Pharma, the national competition council had applied all four methods in the assessment of unfair.¹⁰⁶ Irrespective of which method is applied in a specific case, the decisive test is whether the dominant firm has “made use of the opportunities arising out of its dominant position in such a way as to reap trading benefits which it would not have reaped if there had been normal and sufficiently effective competition.”¹⁰⁷.¹⁰⁸

Moreover, excessive prices have been characterised by economists as “those which are set significantly and persistently above the “competitive” level”.¹⁰⁹ Recent decisions by national competition authorities on excessive prices in the pharmaceutical sector serve as examples of significant and persistent prices.¹¹⁰ In 2016, the Italian Competition Authority found that Aspen had imposed unfair prices when negotiating price increases between 300-1500%. In the same year, the UK competition agency concluded that Pfizer and Flynn breached Article 102(a) by imposing a price increase of 780-2600%. The Danish agency found CD Pharma to have in- creased prices by 2000% thus imposing an unfair price. The lowest threshold was found in the Italian Aspen case with a 300 % increase for a price to constitute unfair.¹¹¹

103 Ibid. para 11.

104 Ibid. para 38.

105 Ibid. para 41.

106 Case BS-3038/2019-SHR, para 23.

107 Ibid. para 249

108 O’Donoghue (2019) p. 760.

109 Ibid. p. 740.

110 European Commission (2019) pp. 2 and 31-32.

111 Ibid. para 31.

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In conclusion, the case law highlighted above suggests that there currently is no clear rule for assessing excessive and unfair prices in EU competition law. All four benchmarks laid out have been target of criticism.¹¹² Consequently, this has led to some competition authorities to apply all four benchmarks in one case, such as shown in CD Pharma.¹¹³

3.2.2 Unfair contractual terms

Unlike the unfair prices’ analysis highlighted above, the assessment of unfair trading conditions in Article 102(a) is based on a normative interpretation of abuse.¹¹⁴ Legislation and case-law do not provide a general definition of the term “unfair” nor a complete list of contractual terms constituting unfair. In order to understand the prohibition of unfair contractual terms in Article 102(a), it is first useful to review relevant case law.

According to case law, unfair contractual terms that were unnecessary, disproportionate, unilaterally imposed and opaque have been defined as unfair in the meaning of Article 102(a) TFEU. However, the case law has not developed yet a clear test to determine if a clause can be defined as unnecessary, disproportionate, unilaterally imposed or opaque. In BRT/SABAM¹¹⁵, the ECJ assessed whether an association for the management of copyrights employed unfair contractual terms towards its members. The case has two important outcomes for the assessment of unfair contractual terms under Article 102(a) TFEU. First, the court expressed that all relevant factors must be considered, where the interests of the users are balanced against the interests of the dominant firm.¹¹⁶ Second, the contractual clauses imposed must be necessary in order to obtain the undertaking’s legitimate purpose.¹¹⁷

Furthermore, a relevant contribution in the understanding of how to assess unfair is found in the Tetra Pak II¹¹⁸ decision. The EC concluded that Tetra Pak had employed several unfair

112 O’Donoghue (2019) p. 797.

113 Case BS-3038/2019-SHR para 23. See also O’Donoghue (2019) suggesting such an approach, p. 797.

114 Esayas (2019) pp.388-389.

115 Case 127-73 Belgische Radio en Televisie and société belge des auteurs, compositeurs et éditeurs v SV SABAM and NV Fonior.

116 Ibid. para 8.

117 Ibid. para 11.

118 European Commission Decision IV/31043 (Tetra Pak II).

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contractual clauses and its assessment can be classified into four criteria.¹¹⁹ Firstly, the EC said that a “distinction must be made between those policies which are legitimate (…) and those which are not.”¹²⁰. Secondly, the EC found that there must be a connection between the purpose of the clauses and the purpose of the contract.¹²¹ In Tetra Pak, the clauses imposed had “no connection with the purpose of the contract”¹²²

Thirdly, discussing whether the clauses where necessary, the EC said that Tetra Pak could have applied less restrictive terms.¹²³ In other words, Tetra Pak’s clauses went beyond what was necessary for achieving its objective.¹²⁴ Lastly, the EC also looked at Tetra Pak’s aim to ensure high quality technical and public health standards. However, the EC found that clauses were a calculated policy aimed at strengthening Tetra Pak’s market power and eliminating competition.¹²⁵ The decision was upheld on appeal where the GC which found that Tetra Pak’s clauses were unreasonable and without a legitimate purpose. ¹²⁶

In addition, case law following the Tetra Pak decision, contributed to the clarification of unfair trading conditions under Article 102(a) TFEU.¹²⁷ The EC decision in Duales Systems Deutscheland (DSD) provides an example for the latter. There, the EC held that unfair terms exist “where an undertaking in a dominant position fails to comply with the principle of pro- portionality.¹²⁸ The DSD’s “take it or leave it” offer to consumers failed to comply with this principle.¹²⁹

Another example from the EC, where a clause was deemed unnecessary to obtain a legitimate purpose, was the 1998 Football World Cup decision. The case concerned an obligation to provide a postal address in France in order to buy tickets to the Football World Cup. The ticket

119 O’Donoghue (2013) p. 856.

120 Tetra Pak II, para 73.

121 Ibid. paras 107, 130, 134, 143.

122 Ibid. paras 107

123 Ibid. para 119.

124 Ibid. para 134.

125 Ibid. para 165, 183.

126 Case T-83/91 Tetra Pak International SA v Commission, para 140

127 O’Donoghue (2013) p. 856.

128 Decision COMP/34.493 (Der Grüne Punkt - Duales System Deutschland GmbH) para 112.

129 Robertson (2020) p. 180.

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organiser argued that the conditions were necessary for security reasons, leading the EC to assess whether those objectives were legitimate and whether the condition was necessary to achieve those objectives.¹³⁰ The EC found that the obligation to provide a postal address in France “failed to contribute in any material way to maintaining or improving security at football matches”¹³¹.

As to the characterisation of unnecessary, unproportionate, unilaterally imposed or opaque, some descriptions might be inferred from a reading of the EU and national decisional practice.

In Michelin II, the EC found that unilaterally imposed terms were unfair.¹³² A result, the contracting parties were forced into a position which they would not have agreed to if they had been fully informed and autonomous.¹³³ Recently, in a decision against Google, the French competition authority said Google abuse its dominant position by applying unfair conditions.¹³⁴ Google’s contractual clauses kept advertisers “in a situation of legal and economic insecurity”

with Google being able to dictate the contractual terms arbitrarily and unilaterally.¹³⁵

Nevertheless, few cases concerning unfair conditions have been put before the ECJ. As shown in the discussion above, several conditions can be inferred from case law. Yet, there is no clear legal test for assessing unfair conditions, nor a distinct threshold for such conditions.

3.3 Challenges for the exploitative abuse framework

The digital economy challenges many of the underlying assumptions of EU competition law.¹³⁶ The role and extent of data protection concerns in the competition law assessment is an oppor- tunity to revive the debate on the scope and application of Article 102(a). As shown in the discussions above, Article 102(a) concerns practices that are “unfair” towards the consumer.

Invading a customer’s privacy online, especially through concealed data practices such as track- ing and storing a user’s personal information, physical location and biometric data beyond the user’s awareness¹³⁷, can seem unfair at a first sight. However, as is clear from the case law reviewed above, competition law is not dealing with business conduct that is unfair. Article

130 Decision Case IV/36.888 (1998 Football World Cup), para 105.

131 Ibid. para 109.

132 Decision COMP/E-2/36.041/PO (Michelin), para 265.

133 Ibid. para 220-221, 223-24.

134 Case 19-D-26 Autorité de la concurrence v. Google

135 Ibid. p. 5.

136 Robertson (2020) p. 161.

137 For a discussion on concealed data practices, see Kemp (2019) especially p. 18.

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102(a) requires something beyond unfair – such as a dominant position and harm to consumer welfare.

In other words, the issue is that the necessary link between the unfair conduct and this “something beyond unfair” is to some extent undetermined and leaves room for interpretations. If one accepts that the collection and processing of personal data can under some circumstances constitute a breach of Article 102(a) TFEU, it is essential to notice that a breach of data protection law automatically constitutes a breach of competition law. Competition law is “self-sufficient”

138, meaning that an abuse of dominance can exist regardless of the presence or infringement of data protection law. The independent nature of competition law must be respected.

On the other hand, this does not mean that one cannot take into consideration competition law’s interplay with other laws. To reiterate this, Margrethe Vestager, EC Commissioner¹³⁹, has said that she does not see competition policy as a “lonely” policy.¹⁴⁰ Therefore, it is important to assess the influence other areas of law can have on competition law, the value of applying Article 102(a) to data protection concerns and how an intervention by Article 102(a) TFEU could potentially be carried out in practice. The next chapter will investigate this potential intervention.

138 Robertson (2020) p. 167.

139 Margrethe Vestager is holding the position as Executive Vice-President for A Europe Fit for the Digital Age and Competition, European Commission (2019-2024). Formerly she held the position Commissioner fro Com- petition, European Commission (2014-2019). For more information see European Commission (2020).

140 Vestager (2014).

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4 The application of Article 102(a) to data protection concerns

This chapter seeks to understand in which circumstances Article 102(a) TFEU could address data protection concerns. In order to answer the question, it is first necessary to assess potential justifications of applying Article 102(a) TFEU to data protection concerns. Finally, the chapter explores some practical examples of when Article 102(a) TFEU could be applied to such concerns.

4.1 Potential justifications for the application

Initially, it should be noted that competition law is to a large extent based on economic assessments. Some would say that it is one of the strengths of competition law: its objectivity means that competition law has been to some extent protected from political influences and allows us to apply over 100 years old laws (e.g. the US Sherman Act¹⁴¹) to today’s markets.¹⁴² Using data protection laws as a normative benchmark in the digital economy would mean a change to competition law as it would allow a more subjective evaluation of the law. To some scholars, such an incorporation would “inject an undesirable level of subjectivity”¹⁴³ in the application of competition law.

However, not all research shows that allowing data protection concerns in the enforcement of competition law is undesirable. Some indications suggest that competition law would benefit from the subjectivity offered by data protection law.¹⁴⁴ This thesis focuses on two arguments on why the incorporation of data concerns in Article 102(a) TFEU could be justified. In the following, the thesis explains that Article 102(a) TFEU regulates dominant firms through a normative assessment and that a breach of data protection rules cause harm to consumers, resulting in a consumer welfare deficiency. The two factors will be elaborated in the following.

4.1.1 The normative assessment of Article 102(a) TFEU

One value in allowing Article 102(a) to intervene where data protection concerns stems from a dominant digital firm is the normative element of the provision. As shown under section 3.1, Article 102(a) stands out as one of the few, if not only, normative assessments under the EU

141 Federal Trade Commission (2020).

142 Hockett (2019).

143 Cooper (2013) p. 1129.

144 Costa-Cabral (2017) p. 14 arguing that data protection can provide “normative guidance”.

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abuse control framework. The normative characteristic of Article 102(a) has two added values in relation to data protection concerns. To begin with, this could allow Article 102(a) TFEU to be applied to conduct by dominant digital firms in cases where data protection fails to intervene.

Next, data protection intervention could be beneficial to competition law as it would inform the fairness analysis which in competition law to date is underdeveloped.¹⁴⁵ These two aspects will be further discussed in the following.

At a first sight, data protection law is the natural intervention mechanism to concerns vis-à-vis the collection and accumulation of data. On a closer inspection, however, there might be sce- narios where a dominant firm can apply certain data practices without being controlled by data protection laws. The EDPS points at control over “gateways to the Internet”¹⁴⁶ as one such concern. Another example is where the data practice is a source to market power. According to BKA, competition authorities should intervene where access to personal data is fundamental to a dominant firm’s market power.¹⁴⁷ As such, data accumulation and privacy can be a competition law issue which merits the scrutiny of competition law.¹⁴⁸

In addition, an added value of using Article 102(a) TFEU to is the potential of developing the current fairness analysis under the provision. As shown in 3.2.2, a legal test for assessing unfair conditions and a distinct threshold for such conditions is lacking. Thus, interpretations of fairness in data protection could give some indication into the analysis of unfair trading conditions in Article 102(a) TFEU.¹⁴⁹

Before elaborating on how data protection laws could inform the fairness analysis, it is necessary to take a step back and look at the broader discussion of fairness in competition law. This discussion was briefly introduced under 2.1, where ordoliberal and Chicago school approaches to the rational of abuse control was presented. Besides, diverging views exist on the background and content of fairness in EU competition law – from protection of the competition process to welfare economics.¹⁵⁰ Those who adapt a strict economic welfare view on competition –

145 Kalimo (2017) p. 8.

146 EDPS (2016) p. 8.

147 BKA (2019b) p. 6.

148 Vezzoso (2020) p. 2.

149 Kalimo (2017) p. 14.

150 Kalimo (2017) p. 5.

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maintaining that economic welfare is the main objective of competition law – generally oppose the idea that fairness can be pluralistic.¹⁵¹ Following this line of argumentation, non-economic normative privacy considerations are irrelevant to competition law.¹⁵² Indeed, despite the obvi- ous reference to fairness in the legal text, it is unclear what fairness entails under the provision.¹⁵³ Irrespective of the interpretation of consumer welfare, the aim should be to apply a standard which is sufficiently clear to hinder arbitrary enforcement

For Article 102(a) TFEU, one way to overcome this challenge is by aligning the wording “unfair” with a broader concept of fairness in the EU legal family¹⁵⁴. As such, rights stemming from the EU Charter can provide a fairness standard that might sufficiently hinder arbitrary enforcement. The GDPR aims at protecting natural persons in the processing of personal data in accordance with the EU Charter Article 8(1).¹⁵⁵ As such, a violation of the GDPR may be rallied behind the EU Charter.¹⁵⁶ Article 7 TFEU stipulates that the EU must “ensure con- sistency between its policies and activities, taking all of its objective into account”. Therefore, national competition authorities could consider the EU Charter rights when applying Article 102(a).

In addition, under section 3.1.2, the thesis showed that contractual terms that are unnecessary, disproportionate, unilaterally imposed or opaque might constitute “unfair” according to Article 102(a) TFEU. The GDPR can provide support to competition authorities when assessing ToS of data-collecting dominant firms on the criteria mentioned above. For example, the purpose- limitation principle and the data minimization principle in the GDPR Article 5(1)b and Article 5(1)c respectively, provides that data collection must be limited to what is necessary for achieving a specified and legitimate purpose.

As follows, when assessing whether the contracting party of a dominant firm is ill-informed due to opaque terms, the authorities can seek support in the GDPR Article 6 and Article 7. For

151 Kalimo (2020) p. 5.

152 Kalimo (2020) p. 6.

153 Akman (2012) p. 149.

154 Costa-Cabral (2017) pp.14 and 50 (referring to certain “family ties” between data protection and competition law, and as “member of the EU law family)”.

155 Reg. 2016/679/EU preamble 1.

156 Robertson (2020) p. 184.

Exploitative abuse, data and digital dominance: the application and suitability of EU competition law