The chips are down! The Commission fines Qualcomm for abuse of dominance

The Commission has fined Qualcomm €997 million for abuse of dominance. The Commission found that Qualcomm had paid Apple to use only Qualcomm LTE baseband chips in its smartphones and tablet devices (see here) and that this was exclusionary and anti-competitive. 

Commissioner Vestager has said Qualcomm “denied consumers and other companies more choice and innovation – and this in a sector with a huge demand and potential for innovative technologies”, as “no rival could effectively challenge Qualcomm in this market, no matter how good their products were.

LTE baseband chips enable portable devices to connect to mobile networks. The Commission considers Qualcomm to have had a market share of over 90% between 2011 and 2016 (the period of the infringement). 
 
The Decision centres on an agreement between Qualcomm and Apple in force from 2011 to 2016 under which Qualcomm agreed to make significant payments to Apple. The payments were conditional on Apple not using chips supplied by Qualcomm’s rivals, such as Intel, in Apple’s mobile devices. Equally, Apple would be required to return a large part of Qualcomm’s previous payments if it decided to switch chip suppliers. The Commission also identifies Qualcomm’s IP rights as contributing to the significant barriers to entry in the chip market, reinforcing Qualcomm’s dominance.

The Qualcomm Decision is similar to the Commission’s 2009 Decision to fine Intel €1.06 billion for giving rebates to major customers in return for them exclusively stocking computers with Intel chips – a decision recently remitted by the CJEU to the General Court for further consideration of the ‘as efficient’ competitor analysis (see here and here). 

Applying the CJEU’s reasoning in Intel, Qualcomm sought to justify its rebate arrangements with Apple on the basis of the ‘as efficient competitor test’. However this attempt was rejected by the Commission as there were “serious problems” with Qualcomm’s evidence (see here).

Separately, Apple has also argued that Qualcomm’s dominance may be reinforced by its strategy for licensing its standard essential patents (SEPs) to competing chip manufacturers. Apple is bringing cases against Qualcomm around the world, alleging that it has engaged in “exclusionary tactics and excessive royalties”. In litigation launched in the English Patent Court in 2017, Apple alleges that Qualcomm is unwilling to license its SEPs to competing chip manufacturers, offering only patent non-assert agreements (see here) which could have a foreclosing effect on other chip manufacturers. (We understand that this case is subject to a jurisdiction challenge, due to be heard in the coming months.)

Qualcomm’s patent licensing arrangements are described (by Apple in its pleadings) in the diagram below:

The Qualcomm Decision reiterates the aggressive approach adopted by the Commission to policing rebates given by dominant companies and potential foreclosure effects. Following the Qualcomm Decision, Commissioner Vestager said “[t]he issue for us isn't the rebate itself. We obviously don't object to companies cutting prices. But these rebates can be the price of an exclusive relationship – the price of keeping rivals out of the market and losing the rebate can be the threat that makes that exclusivity stick” (see here). 
 
As litigation and antitrust clouds swirl around Qualcomm’s business model, in a separate case filed in the Northern District of California in 2017, the US Federal Trade Commission has similarly alleged that Qualcomm is using anti-competitive tactics to maintain its monopoly of baseband chips and has rejected requests for SEP licenses from Intel, Samsung and others (see here and here).

In parallel, competition authorities in China, South Korea, Japan and Taiwan have fined the company a total of $2.6 billion in relation to its SEP licensing policies and pricing (see here).

In summary, while the EU Commission fine is significant, and interesting for competition lawyers as it perhaps suggests that the significance of the Intel CJEU judgment may be more limited than anticipated, it is only part of the overall picture for Qualcomm (and for the sector as a whole). Indeed, even with today’s decision, the Commission has not brought its interest in Qualcomm to an end, as it is still investigating a separate predatory pricing complaint which was filed in 2015.  

The cumulative impact of these legal issues (as well as Qualcomm’s rejection of Broadcom’s takeover bid) may have contributed to a fall in Qualcomm’s share price – although Qualcomm had better news from DG Comp recently when its proposed acquisition of NXP was cleared by Brussels on 18 January (see here and here).

In a froth: Trademark licensing fails to disguise anti-competitive market sharing arrangement

The CMA has today issued a £1.71m fine against two laundry companies for market sharing.  Micronclean Limited was fined £510,118 and Berendsen Cleanroom Services Limited was liable for £1,197,956. The companies both specialise in laundering clothes worn in ‘cleanrooms’.  These are highly sterile environments, with meticulous rules on the cleanliness of equipment and clothing, which are vital in the manufacture of pharmaceuticals and medical devices.

The two companies had established a joint venture agreement in the 1980s where both traded under the ‘Micronclean’ brand.  However it was only in 2012 that they started the market sharing arrangement, attempting to mask it as a reciprocal trademark licence arrangement.

This arrangement had two problematic elements.  First an artificial line was drawn between London and Anglesey; customers south of that line were reserved for Berendsen, whilst those to the north were allocated to Micronclean.  Second, over and above the territorial restrictions, companies decided to reserve specific customers to themselves and agreed not to compete for them.

Geographic market sharing and customer allocation is illegal (other than where legitimate exclusivity arrangements are concluded as part of a broadly pro-competitive agreement such as technology licensing). In this instance, the CMA did consider whether the arrangement, when taken as part of the wider joint venture agreement, could be justified.  Unfortunately for Micronclean and Berendsen the CMA concluded that it could not.  In particular the CMA found that the companies were competitors and two of the biggest players on the market. This left customers, including the NHS, with few options in choosing service providers. 

The existence of the trade mark agreement did nothing to change that fundamental position. Trade mark licences do not generally fall within the scope of the Technology Transfer Block Exemption.  In any event, the EU Commission’s Guidelines on Technology Transfer, which provides broad guidance on the analytical approach to the competitive effects of IP licensing, make clear that sales restrictions agreed between competitors in a licensing arrangement are likely to be regarded as market sharing, particularly where the licence is a cross licence (or “reciprocal” in the language of the block exemption) – and so it proved here.

This case serves as a reminder that anti-competitive practices which take place under the guise of an IP licence will not avoid scrutiny by the competition authorities.  In this instance the arrangement came to light in the context of two related merger reviews in the industry undertaken by the CMA – also a reminder of the importance of due diligence and early review of competition issues in the context of corporate transactions. As Ann Pope, Senior Director at the CMA added to the press release: “Companies must regularly check their trading arrangements, including long-running joint ventures and collaborative agreements, to make sure they’re not breaking the law.

Commission Communication on SEP Licensing – where has the Roadmap led?

Following around a year of lobbying and intensive debate, the Commission has today (29 November 2017) published its Communication on ‘The EU Approach to Standard Essential Patent Licensing’.  

As we reported back in April when the Commission published its initial ‘Roadmap’ for this area, the Communication is intended to address some of the uncertainties in SEP licensing left unresolved following Huawei v ZTE (see e.g. here), and to drive progress for the EU-wide adoption of 5G.  

And as we predicted a couple of months ago, the intensity of the debate surrounding the key issues in SEP licensing means that the Communication is far from overly prescriptive. 

The Communication will take a little while to digest in full, but for now the headline points are:

  • The current declaration system needs modernising to ensure greater transparency about which SEPs are actually essential and – in an era of great patent liquidity – who owns them. A new EU body may become involved in this.  And if this all seems rather aspirational, to be noted that the Commission is aware of the (not inconsiderable) costs implications, and suggests that changes may only be possible prospectively, e.g. for 5G…
  • There remains significant flexibility in how FRAND values are established, but a couple of preferences emerge from the guidance
    • ‘In principle’, FRAND values should not include any value attributable to the inclusion of the technology in the standard.  This is in line with previous statements in the Commission’s Horizontal Guidelines, and diverges from the approach in Unwired Planet, where both parties accepted that some such value could be taken by the patentee (see para 97).  However, where technology “has little market value outside the standard” (hardly an infrequent situation), other techniques may be needed, such as comparisons between types of contribution.
    • Aggregate royalty rates are important, and should be taken into account.  The Commission proposes that FRAND value should reflect the  “present value added” by the SEP, bearing in mind that this can change over time, and that it should not include value attributable to market success of the product.
  • Non-discrimination between similarly situated licensees remains fundamental, and evidence of non-discrimination forms part of the information that SEP holders should provide to licensees.  
  • Chipset licensing remains possible – but is not mandated.  One of the key areas of dispute in industry was whether the FRAND obligation required SEP holders to license all comers, including component manufacturers, or whether they can decide to license end manufacturers (thus giving a higher potential royalty base) to the exclusion of those higher up the value chain.  The report does not come off the fence on this issue, save to say that business models may vary from sector-to-sector.  Cases such as Apple v. Qualcomm will therefore have to continue to fight this issue out from first principles.
  • Use-based licensing is not mandated – but nor is it wholly out of the question.  This is another area of significant dispute in industry, with a deep split between rights holders and potential licensees (see the Fair Standards Alliance’s response to the Communication here…).  The concept behind use-based licensing is that it allows SEP holders to charge different rates for different uses (e.g. compare a smart car, a smartphone and a smart thermostat).   The Communication does conclude that FRAND is not a one-size-fits-all concept, and may differ from sector-to-sector and over time.  However, it also emphasises the need not to discriminate between similarly–situated parties.  
  • Safeguards against the inappropriate use of injunctions are still needed to prevent both exploitation (using threats to extract unfairly high licence terms) and exclusion.  Companion papers giving guidance on ‘certain aspects’ of the IP Enforcement Directive (here) and on ‘A balanced IP enforcement system’ (here) have also been published.
  • The Communication confirms that non-practising entities should be subject to the same rules (including on transparency and injunctions) as other SEP holders.  As with many of the points in this paper, there is no big surprise here.
And overall?  The Communication will be pored over by industry, and – while not binding in any strict legal sense – will no doubt feature in arguments on both sides of the FRAND debate.  There are certainly some common-sense points in here, as well as some regulatory aspiration.  But if this is a roadmap, it is certainly not the end of the road – and we will continue to watch as the debate unfolds in the UK, Europe and beyond.

Transparency may undermine online competition: Commission’s Final Report on the E-commerce Sector Inquiry

On 10 May 2017 the European Commission published its Final Report on the E-commerce Sector Inquiry, together with accompanying Q&As, and, for those who want something rather longer, a Staff Working Document

The inquiry, launched over 2 years ago, and part of the wider Commission Digital Single Market Strategy (see our earlier comment here) has gathered evidence from nearly 1,900 companies connected with the online sale of consumer goods and digital content.
The Report’s main findings

  • Price transparency has increased through online trade, allowing consumers instantaneously to compare product and price information and switch from online to offline. The Commission acknowledges that this has created a significant ‘free riding’ issue, with consumers using the pre-sales services of ‘brick and mortar’ shops before purchasing products online. 

  • Increased price transparency has also resulted in greater price competition both online and offline.  It has allowed companies to monitor prices more easily, and the use of price-tracking software may facilitate resale price maintenance and strengthen collusion between retailers.

  • Manufacturers have reacted to these developments by seeking to increase their control of distribution networks though their own online retail channels, an increased use of ‘selective distribution’ arrangements (where manufacturers set the criteria that retailers must meet to become part of the distribution system) and the introduction of contractual restrictions to control online distribution.
How about changes to competition policy? 

The Report does not advocate any significant changes to European competition policy, but rather confirms the status quo. The key point of interest are as follows: 

  • Selective distribution – whilst the Commission has not recommended any review of the Vertical Block Exemption Regulation (‘VBER’) ahead of its scheduled expiry in 2022, the Commission notes that the use of selective systems aimed at excluding pure online retailers, for example by requiring retailers to operate at least one ‘brick and mortar’ shop, is only permissible where justified (for example in respect of complex or quality goods or to protect suitable brand image).

  • Pricing restrictions – dual pricing (i.e. differential pricing depending on whether sales are made online or through a bricks and mortar outlet) will generally be considered a ‘hardcore’ (or object) restriction of competition when applied to one and the same retailer, although it is capable of individual exemption under Article 101(3) TFEU, for example if the obligation is indispensable to address free-riding by offline stores.  

  • Restrictions on the use of marketplaces – the Report finds that an absolute ban on the use of an online marketplace should not be considered a hardcore restriction, although the Commission notes that a reference for a preliminary ruling is pending before the CJEU (C-230/16 - Coty Germany v Parfümerie Akzente).

  • Geo-blocking – a re-emphasis of the existing position on territorial and customer restrictions – active sales restrictions are allowed, whereas passive sales restrictions are generally unlawful. Within a selective distribution system, neither active nor passive sales to end users may be restricted. The Commission also make clear that companies are free to make their own unilateral decisions on where they choose to trade.

  • Content licensing – the significance of copyright licensing in digital content markets is noted, as is the potential concern that licensing terms may suppress innovative business practices.  

  • Big Data – possible competition concerns are identified relating to data collection and usage. In particular, the exchange of competitively sensitive data (e.g. in relation to prices and sales) may lead to competition problems where the same players are in direct competition, for example between online marketplaces and manufacturers with their own shop.  
What happens next?

The Commission has identified the need for more competition enforcement investigations, particularly in relation to restrictions of cross-border trade.  It is expected that more investigations will be opened in addition to those already in play in respect of holiday bookings, consumer electronics and online video games. In a more novel approach, the Commission’s press release also name-checks a number of retailers (in particular in fashion) who have already reformed their business practices “on their own initiative”.
  
The Commission also highlights the need for a consistent application of the EU competition rules across national competition authorities.  It remains to be seen whether the Commission will seek to use its enforcement investigations to address inconsistencies such as those evident in the more interventionist stance of some national authorities (e.g. the Bundeskartellamt) in respect of issues such as pricing restrictions.

Collusion in the online economy – new competition law traps for the unwary?

We reported last year on the Eturas decision, in which the Court of Justice ruled that technical measures applied on an online platform gave rise to a potentially anti-competitive agreement.  The Lithuanian Court which had referred the matter to the CJEU then went on to consider liability, based on the participants’ knowledge of the relevant facts (for a review of this decision, see here).

But the risks posed by agreements over platform T&Cs are not the only thing for companies to be aware of.

The European Commission is now carrying out active enforcement in relation to geo-blocking, which can be achieved primarily through technical measures.  The Steam video games investigation is looking in particular at whether anti-piracy measures have an anti-competitive effect. 

Meanwhile, the CMA last autumn issued a statement noting another practice potentially raising antitrust concerns.  This concerned agreements restricting the use of paid online search advertising (e.g. through use of Google AdWords).  The CMA suggested that restrictions on bidding for particular ad terms, or on negative matching (identifying terms for which ads should not be shown) may infringe the competition rules.  It appears that the CMA sees this in terms of potential effects on competition, rather than as a new form of object restriction, with the CMA stating that the practices are particularly likely to be problematic “where one or more similar agreements include parties that collectively represent a material share of the relevant markets and, in the context of brand bidding restrictions, as a result of negative matching obligations in relation to brand terms which an advertiser would not negatively match but for the agreement”.   It should therefore not be assumed that such a provision would in fact be restrictive of competition – but it is something which bears watching.  Indeed, the CMA is not the only competition authority to have lighted on this issue – a similar point is under investigation in the United States, where the FTC accuses 1-800 Contacts of “orchestrating a web of anticompetitive agreements with rival online contact lens sellers that suppress competition in certain online search advertising auctions”.

In conjunction with this statement, the CMA also announced a market study into digital comparison tools; it described the study as an opportunity to explore the nature of competition between price comparison websites and their relationship with service providers.  This may lead to further issues in this area; in the meantime, judgment in the Coty case, which considers contractual prohibitions on the use of certain online sales channels, such as price comparison websites, is due from the CJEU in the near future.

And then there’s the risk of good ol’-fashioned collusion, with a modern twist.  One thing that comes to mind is the new attention on the significance of privacy conditions for consumers.  Now that these are recognised as a parameter of competition (see here, for example), is there a risk that exchanging information about planned changes to privacy conditions / other online trading T&Cs, or actually agreeing a common strategy for these could amount to a breach of Article 101 or its national equivalents?   Or that an agreement between separate companies to adopt a common practice on such terms (in particular if it results in less protection for consumers) could amount to active collusion?  These are open questions for now, but companies should remember that – while benchmarking is often sensible – they should ultimately take their own decisions, and keep their own counsel, about such matters.

Coincidentally, the consumer arm of the CMA has just closed an investigation into the online terms and conditions of cloud service providers following changes agreed by a number of companies.  The closure statement notes that “the CMA remains interested in unfair terms and conditions, particularly in the digital economy”.  It should not be assumed that this interest is limited only to the parts of the CMA responsible for enforcement of consumer laws… 

A decision of Paramount importance to independent film financing…?

In the latest instalment of the pay-TV saga, the French pay-TV operator Canal Plus has asked EU judges to overturn a commitments decision agreed earlier this year between Paramount and the European Commission.  Those commitments (on which we reported here) ended Paramount’s involvement in the Commission’s antitrust investigation into the distribution arrangements between Sky UK and the six Hollywood film Studios, with no infringement finding or fine. 

The Commission’s investigation into Disney, NBCUniversal, Twentieth Century Fox and Warner Bros remains ongoing.  In the background is the Commission’s Digital Single Market Strategy which aims to break down barriers preventing cross-border E-commerce.

What has been agreed with Paramount? 

Paramount has agreed to remove restrictions on customers trying to access content from another EU country.  In practice, this means it will no longer insert “geoblocking” obligations in its licensing contracts with EU broadcasters. 

As we previously commented, the Commission considered that the Studios bilaterally agreed restrictions with Sky UK that prevented it from both making active sales in to other EU territories and from accepting passive sales requests. 

These restrictions effectively granted Sky UK ‘absolute territorial exclusivity’ in the UK and Ireland, eliminating cross-border competition between Sky and other pay-TV broadcasters in other Member States.

Why is Canal Plus appealing?

Canal Plus wants the General Court to annul the Paramount settlement, as – in common with other EU broadcasters – it considers that the terms agreed with the Commission risk undermining the EU system of film financing which relies on broadcasters being able to use different pricing and release strategies for different EU counties.  

The appeal seems likely to face an uphill struggle; the General Court has only recently underlined the high hurdle for a successful appeal against a commitments decision in its Morningstar judgment.  Nevertheless, the Commission appears to be seeking to understand (or at least to address) this issue – it is understood to have requested further information from Sky and the remaining Hollywood Studios about the potential impact of a decision on the financing of independent films. 

Last thoughts 

Sky has also been in the news of late in relation to the recent bid by Twentieth Century Fox for the 61% of Sky that it does not already own.  If cleared, Sky’s future distribution arrangements with the film arm of Twentieth Century Fox are likely to fall outside of any future competition remedy imposed by the Commission in the Hollywood Studios investigation. Once their production and distribution businesses are vertically integrated, the rules on anti-competitive agreements will no longer apply, as there will no longer be any agreement between separate undertakings. 

Case T-873/16 Groupe Canal + v Commission

Premier League scores in latest dispute with pub broadcasting football matches

The ever-increasing amount of money tied up in TV deals for Premier League football perhaps makes it unsurprising that The Football Association Premier League (“FAPL”) has been willing to litigate on a number of occasions against publicans using foreign satellite services to show football matches in pubs.

Following the CJEU’s decision in the joined cases FAPL v QC Leisure and Murphy (C-403/08 and C-429/08) and the subsequent High Court decision in FAPL v QC Leisure (here) the law in this area is relatively settled. Although FAPL can grant rights on a territorial basis, exclusive licences preventing the supply of foreign satellite decoder cards into other Member States are unlawful. Despite this, the FAPL on-screen graphics and logos incorporated into the live feeds of football matches are copyright protected works. FAPL is therefore able to bring actions for copyright infringement for any unauthorised uses of these. The success of such actions will depend on the terms of the agreement that a decoder card is supplied under.

As an aside, it may be possible for pubs to avoid infringement claims by only switching the screens on at kick-off, and attempting to cover up any FAPL logos and graphics. This would be challenging in practice however, given the frequency in which graphics pop up throughout the matches (for example when a player is booked or a replay is shown).

FAPL v Luxton

The Court of Appeal has recently added to the relevant pool of judicial opinion by rejecting an appeal by Mr Luxton, the proprietor of a pub in Swansea, against the summary judgment granted in favour of FAPL by the High Court in January 2014. Mr Luxton had used a domestic satellite decoder card originally sold by a Danish broadcaster to show Swansea City matches following Swansea’s promotion to the Premier League.  Mrs Justice Rose held that by using a domestic satellite decoder card rather than a commercial one, Mr Luxton was using FAPL’s copyright works without its consent. 

Mr Luxton raised two EU law defences which have now been considered by the Court of Appeal (see here).

The two defences raised

  1. That the proceedings brought by FAPL were an illicit attempt to prevent Mr Luxton from using a foreign decoder card, isolating the UK market from the continental market in breach of Articles 101 and/or 56 TFEU.
  2. The (alleged) illegal arrangements between FAPL and its exclusive licensees in Europe had prevented Mr Luxton from obtaining a commercial foreign card; FAPL should therefore be prevented from exercising its copyright in respect of the domestic foreign card.
The Court of Appeal’s decision

Floyd LJ gave the leading judgment, disposing of both defences relatively quickly. On the first, he noted that in bringing the action, FAPL was relying on the right of a copyright owner to prevent the unauthorised communication to the public of copyrighted works. This right could also be enforced against a person in the UK who used a domestic card issued by FAPL’s UK licensee (Sky) for commercial purposes. The fact that Mr Luxton was using a foreign domestic card did not make any difference; FAPL’s right was not one that depended on the use of the card in a particular territory. Enforcement of the right could not therefore be capable of reinforcing allegedly unlawful agreements to partition the market.  

Regarding the second defence, the judge did not consider Mr Luxton’s use of the domestic card to be a consequence of FAPL’s agreements and practices. Even if the effect of those practices was to starve the market of foreign commercial cards - that did not make the use of foreign domestic cards a natural consequence of FAPL’s actions. Though Mr Luxton thought he had purchased a commercial card rather than a domestic one, this could not change the outcome, as if his argument was correct a publican who deliberately sought out a foreign domestic card would be in the same position.
 
Comments on ‘Euro-defences’

The decision provided some interesting commentary on the overlap between IP and EU/competition law, noting that it “has long been recognised that in some circumstances an intellectual property right may become unenforceable because what lies behind it is an attempt to divide up the market in the EU contrary to the provisions on free movement”. A breach of the Treaty isn’t enough – there must be a sufficient connection between the exercise of the right and the unlawful agreement in question.

Floyd LJ cited Lord Sumption’s warning in Oracle that this sort of ‘Euro-defence’ “must be scrutinised with some care” due to the risk of litigation devaluing intellectual property rights by increasing the cost and delay associated with their enforcement. In that case of course, the Euro-defence was rejected on the grounds that the unlawful conduct relied on was collateral to the particular rights which the claimant was seeking to enforce.

Scope for Commission activity?

A further point of note is that the evidence adduced in this case showed the difficulty of actually obtaining a foreign commercial card.  FAPL accepted that there is an arguable case that foreign broadcasters are still behaving as if they are bound not to provide commercial cards outside their national territories, and that if Mr Luxton had used a commercial card, he would have had an arguable defence that it authorised him to communicate the copyright works to the public in the UK. (Whether this defence would succeed may be the subject of further litigation in the future). 

Cross-border access to digital services is a central part of the Commission’s Digital Single Market Strategy and this is evidently an area in which the Commission is willing to take action – see our thoughts on the Commission’s investigation into Paramount’s pay-TV licensing practices here. This is certainly a space worth keeping an eye on in the future, as if it continues to prove difficult to obtain foreign commercial cards, thereby defeating attempts to deliver digital services across borders, there may be grounds for action by the Commission.

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.

That’s a wrap! The European Commission accepts Paramount’s pay-TV commitments

We hope you've got your popcorn ready because yesterday, there was a new development in the ongoing Sky UK / Hollywood Studios pay-TV investigation: the European Commission announced that it has accepted the commitments offered by Paramount Pictures, which are now legally binding.
 
We've blogged extensively on this investigation here and here, but as a quick recap:
July 2015: Statement of Objections

The Commission sent a Statement of Objections to Sky UK and six US film studios (including Paramount) in July 2015.  The Statement addressed certain clauses in the licensing contracts between Paramount and Sky UK which:

  1. prevented Sky UK from allowing EU customers outside the UK and Ireland to access Paramount films via satellite and online; and  
  2. required Paramount to ensure that broadcasters other than Sky UK were prevented from making their pay-TV services available in the UK and Ireland.

The Commission was mainly concerned that these clauses raised competition issues for pay-TV broadcasters which were operating on a cross-border basis, and consequently might restrict the EU's Single Market.  
 
April 2016: Paramount's Commitments

In response, Paramount offered four proposed commitments to the Commission in April 2016.  These were:
 
  1. when licensing its film output for pay-TV to a broadcaster in the EEA, Paramount would not (re)introduce contractual obligations, which prevent or limit a pay-TV broadcaster from responding to unsolicited requests from consumers within the EEA but outside of the pay-TV broadcaster’s licensed territory (No “Broadcaster Obligation”);
  2. when licensing its film output for pay-TV to a broadcaster in the EEA, Paramount Pictures would not (re)introduce contractual obligations, which require Paramount to prohibit or limit pay-TV broadcasters located outside the licensed territory from responding to unsolicited requests from consumers within the licensed territory (No “Paramount Obligation”);
  3. Paramount Pictures would not seek to bring an action before a court or tribunal for the violation of a Broadcaster Obligation in an existing agreement licensing its film output for pay-TV; and
  4. Paramount Pictures would not act upon or enforce a Paramount Obligation in an existing agreement licensing its film output for pay-TV.

The latest development

Following the usual market testing of the commitments, the European Commission yesterday announced that it has accepted them.  Paramount's commitments look wide-reaching: they apply to online and satellite broadcast services, and cover the standard pay-TV services as well as relevant subscription video-on-demand services.  The Commission also stated that the commitments will last for five years and apply throughout the European Economic Area.

The investigation into the other five studios continues, with the other companies still disputing the Commission's allegations.  But this latest announcement could well act as a trigger for further developments (and potentially even proposals of commitments), so stay tuned for a sequel coming to a screen near you soon.