High Court Rules in Article 50 Case

We know it’s not strictly competition law or IP related but Competition and IP practitioners (and indeed the general public) will not have missed the latest Brexit developments. Yesterday, in a landmark ruling on the UK’s constitution, the High Court rejected the Government’s argument that it could trigger Article 50 by exercising its prerogative powers. Parliamentary approval will therefore be needed to invoke Article 50. It was common ground between the parties that Article 50 is irrevocable and the High Court’s ruling is predicated on this. However, the status of Article 50 has been the subject of considerable debate and the issue may need to be resolved before the Supreme Court hears the Government’s appeal. We discuss this here.  

In addition to this, we’ve written two Brexit posts which may also  be of interest:

Now, back to Competition Law and IP…


The privacy & competition law overlap: new competition rules on big data?

A few days ago, we reported on the European Data Protection Supervisor’s (EDPS) Opinion on coherent enforcement of fundamental rights in the age of big data (see our post here, and the Opinion here). 

On Thursday 29 September, at a Conference organised by the EDPS and BEUC, Commissioner Vestager gave a speech on Big Data and Competition in which she echoed some of the points raised by the EDPS (see here).

She confirmed that the Commission is “exploring whether we need to start looking at mergers with valuable data involved, even though the company that owns it doesn’t have a large turnover” (because, for example, it has not yet managed to monetise its data). 

Noting that “the competition rules weren’t written with big data in mind”, she also stated that the Commission is conducting an impact assessment on whether national competition authorities need new powers to deal with big data, and hinted that a proposal for new EU legislation, likely a Directive, may be on the table early next year. 

The current prognosis (subject to the outcome of the pending legal challenges) is that the UK may well have triggered Article 50 by then, and may have ceased to be an EU Member State before any such Directive has to be implemented.  This gives rise to the potential for different approaches to the treatment of big data in competition enquiries between the EU and UK post Brexit.

Data Pooling

‘Big data’ tends to be perceived as a (potential) competition issue in the context of tech giants which hold an enormous amount of data.  In her speech, Commissioner Vestager noted that in addition to a single company data set, large amounts of data can also be amassed as a result of several companies pooling their data.  She suggested that this might even be beneficial for competition, enabling smaller companies to compete more effectively with big companies.

However, she also warned that certain risks accompanied this, noting that “companies have to make sure that the data they pool doesn’t give away too much about their business.  Otherwise, it might become too easy for them to coordinate their actions, rather than competing to cut prices and improve their products”.  And of course, if companies are controllers of personal data, they can only share that data subject to applicable data protection laws.

The Commissioner ended her speech by saying that she “will keep a close eye on how companies use data”.  For our part, we will continue to keep a close eye on the EU / UK authorities’ approach to data.

The privacy & competition law overlap: co-operation between enforcement agencies?

Last week, the European Data Protection Supervisor (EDPS) released an Opinion on coherent enforcement of fundamental rights in the age of big data (available here). It builds on a Preliminary Opinion issued by the EDPS in 2014, which aimed to launch a debate on how to apply the EU’s objectives and standards in areas such as data protection, consumer protection and competition more holistically. 

Recognising that the Commission’s wide-ranging Digital Single Market strategy presents an opportunity to launch a new, coherent approach, the EDPS makes recommendations (amongst others) for: (i) how merger controls should take personal data into account, and (ii) a voluntary network where regulatory bodies can share information (a Digital Clearing House). 

Is personal data an asset that should be considered in mergers?

The EDPS Opinion considers that the largest web-based service providers (Google, Amazon etc., some of the biggest companies in the world) “owe their success to the quantity and quality of personal data under their control as well as to the intellectual property required to analyse and to extract value from these data”.  And it’s true that gaining access to customers’ personal data has been a significant factor in some of the big tech acquisitions of the last couple of years (Facebook purchasing WhatsApp for example, or Microsoft’s pending acquisition of LinkedIn). 

In a speech in March this year (here), Commissioner Vestager highlighted the fact that data is an asset, and that it can be a company’s assets rather than turnover that make it an attractive target.  She warned that important deals which warrant review may be missed under the current system, as the acquisition of a company with access to – as yet unmonetised or undervalued – data may not meet the Commission’s turnover test (as with Facebook/WhatsApp, which only fell within the Commission’s remit due to Facebook’s Article 4(5) request).

The EDPS supports greater scrutiny of acquisitions of this sort, and recommends that the expertise of independent data authorities should be utilised to consider the effect of such acquisitions on consumer welfare. 

Is privacy a competition law issue?

Commissioner Vestager downplayed the importance of privacy and data for competition enforcement in a speech in Copenhagen on 9 September (text here).  She noted that “our first line of defence will always be rules that are designed specifically to guarantee our privacy” and that “we shouldn’t be suspicious of every company which holds a valuable set of data”.  However, she did leave the door open for competition enforcement action in this area, recognising that a company in control of a unique set of data may be able to use it to shut rivals out of the market.

The EDPS Opinion also considers the interface between competition and privacy, but with a particular emphasis on personal data.  It speculates that in the near future machine-learning algorithms may be able to exploit differences in consumers’ sensitiveness to price (identifiable from their personal data), enabling firms to segment the market into each individual consumer and charging according to his or her willingness to pay.

Should such an issue arise, it would prompt concerns from data protection authorities about whether personal data was being used in an appropriate way, and from competition authorities about the effect of such use on consumers and the market. 

Surely it makes sense for these authorities to share expertise on these matters?

Digital Clearing House

Even before machine-learning algorithms take over, it’s clear that there are occasions where competition and privacy overlap, and where regulators can help one another.  This already happens on occasion.  The EDPS points to examples such as: 

  • The French competition authority’s interim decision in September 2014 that GDF Suez had abused its dominant position by using personal data collected when it was a state monopoly to later offer a promotion on an open market. 
  • The UK Data Protection Authority advised the CMA on its proposal to invite households who had not switched energy suppliers for three years to opt out from having their details shared with rival suppliers.
  • Germany’s competition regulator, the Bundeskartellamt is currently investigating Facebook’s privacy policies with input from a number of other national authorities – as we reported here.
The EDPS seeks to build on this kind of co-operation, proposing a voluntary network of contact points in regulatory authorities at national and EU level who are responsible for regulation of the digital sector.  Such a network could discuss the most appropriate legal regime for pursuing specific cases or complaints, and could potentially use data protection and consumer protection standards to determine theories of harm relevant to merger control and exploitative abuse cases.

From a competition law perspective, this is not uncontroversial: the relevance of other laws to the competition regime has been rejected on a number of occasions in the past.  Introducing privacy standards could open the floodgates to a need to consider, for example, environmental considerations, or industrial or social policy.  Added to which, there would doubtless be a number of practical challenges to setting up such a network – the first which springs to mind is persuading the diverse authorities involved to listen to one another!

The Brexit shaped spanner in the works

It’s too early to tell what appetite there is across Europe for a Digital Clearing House, but any UK involvement may obviously be affected by Brexit.  Aside from the politics involved, UK authorities may have to apply different legal frameworks to the rest of Europe (see our competition blogs on Brexit here and here, and our colleagues’ blog on the data protection implications here).  We’ll also have to wait and see if the CMA shares the view of the EDPS on the importance of personal data.

Either way, we expect there to be significant developments in this area in the future.

Brexit: What it means for competition law Q&A

As the dust begins to settle on the momentous events that unfolded in the early hours of Friday 24 June, focus inevitably turns to the practical implications of what happens next.  Many articles have already been written on this subject and no doubt many more will follow.  The honest position today is that no-one can predict precisely what the long-term future holds for the UK because there is still no clarity as to which Brexit path will ultimately be chosen.  At this stage however, we can narrow the most likely options down to the following five:

  1. Leave the EU, but remain a member of the EEA (often referred to as the ‘Norwegian model’);
  2. Leave the EU, rejoin EFTA, but stay outside the EEA (often referred to as the ‘Swiss model’);
  3. Leave the EU, but join an EU customs union (often referred to as the ‘Turkish model’);
  4. Leave the EU, but negotiate individual trade terms (often referred to as the ‘Canadian model’); or
  5. Leave the EU and fall back on WTO trade terms.

Which of these routes prevails in the long-term will determine to what extent (if at all), the EU competition rules continue to apply in the UK.  Broadly speaking, Option 1 would result in no change to the status quo as regards competition law, whereas all the others would result in greater autonomy for a UK regime, potentially operating entirely separate from, but in parallel to, the EU regime.

However, the immediate consequence of the Prime Minister’s decision to resign, initiate a leadership election and to leave the decision as to when to invoke the EU’s timetable for exit under Article 50 to his successor, has given everyone a certain breathing space with which to survey the options.  Unspoken amongst these is the possibility that a UK general election will follow in the autumn, which could mean that all bets are off, including potentially even Brexit itself.

Q.   What is the immediate impact of the Brexit vote on UK competition law

A.   Nothing is likely to change at all in the short or medium term.  The prevailing national UK and EU competition regimes will remain in full force.

Q.   What about longer-term?

A.   Again, in practice, the short answer is likely to be that very little will change.  That is of course the case should the UK remain with the EEA.  Beyond that, the UK competition rules will remain in full force, operating in parallel to the EU regime.  Businesses with international operations will continue to be bound by EU rules as regards their trade within the EU.

Q.   Business relies on the legal certainty and guidance arising from the EU’s system of block exemptions.  What will happen to these assuming EU law no longer applies?

A.   The UK no longer has any national block exemptions, relying instead on the application of ‘parallel exemptions’ meaning that the EU block exemptions result in parallel exemptions from UK competition law prohibitions in addition to the EU prohibitions.  Assuming a total exit from the EU competition regime, these would no longer automatically apply and the UK would need to consider implementing new national exemptions.  Where the UK is no longer part of the single market, this could well have the result that certain limitations in the application of the block exemptions are removed (i.e. those dealing with territorial restrictions aimed at protecting parallel trade and the single market).

Q.   What happens to merger notifications?

A.   The UK’s existing merger control regime is likely to remain, although it is possible that in the longer term its voluntary nature may come under increasing pressure.  There are, however, likely to be two main effects arising directly from Brexit should EU law no longer apply in the UK.  First, there will be an increase in mergers being notified to the UK as it will no longer be possible to rely on the one-stop shop principle inherent in the EU merger regulation regime.  Mergers raising any substantive issues in the UK that would previously have fallen under the exclusive jurisdiction of Brussels will therefore require parallel notification in the UK.  Second, it is to be expected that there may be a fall in the number of mergers notified in Brussels because UK turnover will no longer count towards the EU jurisdictional criteria.  As one of the EU’s largest economies, the removal of UK turnover may therefore be expected to have a non-negligible impact.

Q.   What happens to UK competition litigation concerning EU infringements?

A.   In the short term, we see little or no change.  The doctrine of acquired rights will mean that the UK courts will continue to apply the law as it applied at the relevant time - for competition damages litigation, this will be the time of the infringement giving rise to the cause of action for damages.  In future, Brexit will have implications for the implementation of the Damages Directive dealing with follow-on actions – however, given that the deadline for implementation is 27 December 2016, it seems most likely that the UK will still be a full member of the EU and hence that this will be implemented.  As with all EU legislation given effect by national implementing legislation, the UK will need to consider whether and how to adopt and/or amend.  As regards follow-on damages, it remains to be seen how the UK legislature and courts will treat EU infringement decisions for the purposes of establishing liability.

Q.   What steps should business take now to ensure continued compliance?

A.   Understandably, businesses operating in the UK will be concerned to ensure not only that they remain fully compliant with whatever legal obligations arise as a result of Brexit but also that compliance costs can be kept to a minimum.  Pragmatically, and whatever the final outcome, the message today is one of ‘no change’.  The EU regime remains in full force for the foreseeable future and whatever the decisions that will be taken over the course of the next few months, it seems highly unlikely that substantive alterations will be made to the base rules of the game when it comes to competition compliance.

Read our previous article on Brexit here: Brexit – What next? A competition law perspective 

Sophie LawranceStephen SmithPat Treacy

Brexit – what next? A competition law perspective

Introduction

It is difficult to think of a UK statesman who did more for European unity or was more supportive of the idea of a union amongst the states of Europe than Winston Churchill and it is hence with some hesitation that we begin this article about the UK’s exit from the European Union with one of his many quotable soundbites:

"Now this is not the end. It is not even the beginning of the end. But it is, perhaps, the end of the beginning". 

Yet that is precisely the situation facing the UK after it woke up on 24 June to the reality that it had voted decisively in favour of leaving the European Union. This has left politicians, diplomats, business and lawyers wondering what this means in practice and what happens next. Of course the nature of the position is such that the greatest certainty today remains one of uncertainty as to what happens next – although the vote to leave was clear, there is no consensus whatsoever as to what happens next.

At one extreme, EU membership could be replaced by the UK joining the European Free Trade Association and the European Economic Area (alongside Norway, Iceland and Liechtenstein). From many perspectives, including as regards competition law, this would clearly be the most straightforward, giving rise as it would to the fewest changes. This would entail a continued financial contribution to the EU budget and requirement to sign up to free movement of persons in exchange for access to the single market. UK courts would in effect continue to be bound by EU legislation and by decisions of the European courts. So far so good, but politically it is difficult to see how this squares with a Brexit campaign that has focused so overtly on immigration and repatriation of UK funds away from Brussels.

At the other extreme, the UK could seek a total exit, falling back on World Trade Organisation (“WTO”) rules to continue trading with the EU, but without access to the single market. Under this outcome, EU law would simply become another overseas jurisdiction, persuasive, but no more to the UK authorities and the courts.

At this stage it is too early to say anything definitive on which direction might ultimately be pursued. However, now that we have moved beyond the hypothetical and the UK begins its journey into uncharted waters, there are some general points to be made whatever our final destination.

Of course most aspects of UK law will be affected to a certain extent, but competition law and policy is one area where integration is perhaps its deepest and hence forms the focus of this article. Patent law and particularly work towards creation of the Unified Patent Court is also deeply and directly affected and our thoughts on the Brexit implications for the UPC can be read here.

Merger Control

EU and EEA member states benefit from the ‘one-stop’ shop of the EU Merger Regulation, meaning that transactions that meet the jurisdictional criteria may be notified and assessed in Brussels to the exclusion of national regimes. If the UK joins the EEA, there will therefore be no practical change to the current system. However, a total exit would require companies to assess whether transactions need to be conditional on UK and EU merger clearances. Whilst the UK operates a voluntary notification regime, transactions giving rise to any substantive overlaps are routinely notified in advance in the interests of legal certainty.

A total exit may therefore be expected to give rise to duplication and increased costs as international transactions with a UK element fall to be reviewed under both the UK regime and in Brussels in parallel. There are also obvious resource and hence cost implications for the UK competition authority, costs which ultimately could be expected to be passed through to business.

Cartels and investigations

The main UK competition rules concerning anti-competitive agreements and abuse of dominance broadly mirror equivalent EU provisions. There is no obvious reason why the UK would choose to use a Brexit as an opportunity to undertake wholesale revision of the competition regime and hence we envisage very little in the way of practical implications as regards the implementation of UK competition law.

However, as with merger control, the biggest impact is most likely to be one of duplication – pan-European cartels and issues will probably face parallel investigations by the UK and EU competition authorities, potentially giving rise to increased fines.

State Aid and Public Procurement

If the UK were to join the EEA it would be required to comply with the EU rules on state aid and hence the position would be one of ‘no change’. However, in the event of a ‘total exit’, the UK would no longer be bound by the rules aimed at protecting the single market and the far looser rules under the WTO would apply (e.g. prohibitions on trade subsidies). Crucially, the WTO rules would not prevent the UK subsidising ‘national champions’ and hence could result in direct Government intervention to support businesses such as Tata Steel.

The situation in relation to public procurement is similar. Whilst EEA membership would bring with it a continued obligation to comply with EU rules, a total exit would leave the UK free to create its own national rules outside of the EU regime. In practice however, it seems inconceivable that any UK system would not result in similar obligations for the award of public contracts in the interests of transparency, value for money and non-discrimination as between bidders.

Competition Policy

It is to be expected that the UK competition authorities will cease to be full members of the European Competition Network upon exit, which in the absence of separate agreements will mean a reduced UK voice in the shaping and development of competition policy at an EU level and ultimately globally. Whilst that leaves the UK free to pursue its own policy objectives, this might result over the longer term in a gradual shift away from the existing alignment with EU law as the UK regime adapts to life outside the EU. At least initially, however, we would expect any practical impact to be limited.

Competition Litigation

The position is most uncertain as regards competition litigation, particularly enforcement of damages claims. The UK had sought to position itself as a leading jurisdiction for the private enforcement of EU competition rights (alongside Germany and the Netherlands). It is to be expected that once the UK has finally left the EU, EU Commission decisions and EU law will cease to have a binding effect on the UK courts and the UK courts would consequently cease to be such an attractive forum for claimants.

But that might not be the final word – the UK remains a large market with a well-respected judicial system. Given the similarities that exist and will likely persist in the substantive provisions, it is probable that EU infringement findings will remain highly persuasive to the UK courts and hence there might actually be an increase in cases pursued in parallel in the UK and an EU court. UK courts are also adept at resolving conflict of law issues and can be expected to apply the law as it stood when the infringement took place and/or when the right to sue accrued. Hence EU competition law may continue to be of relevance in the UK Courts for some time to come, whatever the outcome on the exit negotiations.

Conclusion

And so we are now at the end of the beginning of the UK’s exit from the European Union.All we can say with certainty today is that the UK electorate has delivered a clear, if far from unanimous, mandate to its government to start the process of extricating the UK from the EU. But the main message to businesses operating within the UK can also be summed up by a historic cliché:‘Keep calm and carry on’.

At a very practical level the present system is likely to persist for some time. Furthermore, most businesses will remain subject to the same general restrictions and obligations as they do today, albeit with a greater risk of duplication and/or parallel reviews. Watch this space as we move from the end of the beginning to a new chapter in the UK’s relationship with the EU.

Sophie LawranceStephen SmithPat Treacy