Tech Policy Trends 2021 | Global Antitrust Takes Centre Stage

Tech Policy Trends 2021 | Global Antitrust Takes Centre Stage

2020 has been a challenging year for everyone, and large tech companies have not been exempted, especially in terms of regulation. Now that countries have more mature data protection frameworks, regulators have shifted their attention to the competition policy space. Unlike data protection or cybersecurity, competition issues are less straightforward and more dynamic. The moves that have been made by authorities around the world aim to shape several processes, which we discuss below.

What constitutes as anti-competitive conduct?

Large tech companies may no longer be able to operate as usual. Despite years of being left alone to innovate and develop new business models, governments are now scrutinizing their activities. Governments are mulling over whether certain practices, that have somewhat become an industry norm for the tech industry, may actually be anti-competitive and have enabled these tech companies to stymie any potential competition. In the US, the Federal Trade Commission (FTC) and 48 state attorney generals are suing Facebook on the grounds that the company is illegally maintaining its personal social networking monopoly through years of “anti-competitive conduct”. The FTC will potentially require Facebook to divest assets including Instagram and WhatsApp, prohibit Facebook from imposing anticompetitive conditions on software developers and require Facebook to seek prior notice and approval for future mergers and acquisitions.

How should mergers be assessed?

Traditional merger regulations do not take into account the amount of data a company holds when it merges with another company. This will change in many countries as governments want to reign in the power that a company can wield when it holds a substantial amount of data. Upcoming regulations will aim to democratise data, meaning giving everyone access to data and removing any gatekeepers. For example, because of this issue, the Australian competition authority had rejected Google’s undertaking that sought to address competitive concerns over its acquisition of Fitbit. Australia’s position deviates from positions taken by the European Commission and other regulators like the Japan Fair Trade Commission. The Australian authority also commenced its Informal Merger Review which encourages merger parties to seek the authority’s view on whether the proposed acquisition is likely to have the effect of substantially lessening competition before going ahead with the merger. Most recently, China, which has mostly left its tech industry alone for many years and allowing them to become behemoths (think Tencent and Alibaba), is also starting to take action. China’s recent draft Anti-Monopoly Guidelines on the Sector of Platform Economies similarly considered additional factors like the impact that a merger has on market concentration and the impact of concentration on technological progress.

To What Extent do Behaviours by Platforms Constitute an Abuse of Superior Bargaining Power?

Antitrust laws tend to prohibit dominant players from abusing their position in the market. But shifts are happening where regulators find that a non-dominant player can still have superior bargaining power and uses it to gain unfair terms in their business dealings. In India, the competition regulator is investigating whether Alphabet Inc.’s Google was abusing its market position to promote its payments app, as well as forcing app developers to use its in-app payment system. Similarly, Apple was questioned by the House Judiciary Committee’s Subcommittee on Antitrust, Commercial and Administrative Law for the cut it takes from app developers in its App Store. Also in India, the Competition Commission of India (CCI) is calling for the Karnataka High Court to resume its examination of alleged anti-competitive practices by online retailers Flipkart and Amazon. Eventually, regulators aim to regulate the behaviour of platform companies that act as gatekeepers to ensure that other businesses that rely on their platforms are fairly treated.

Europe as Global Policeman

So far, these actions demonstrate a certain incoherence among competition regulators around the world. This may change in 2021 with the European Commission’s Digital Markets Act (DMA).

When Europe introduced the General Data Protection Regulation (GDPR), there was no certainty that it would garner as much attention globally as it eventually did. Eventually, GDPR became a kind of “golden standard” for privacy, which has been emulated across markets. It allowed Europe to set standards for privacy through adequacy decisions and measures to ensure that recipient markets match the protections accorded by GDPR.

In the case of the DMA, the Commission knows that the world is watching. It is ready to play the role of global policeman once again and set the standards for the competition space. This is an ambition that the Commission has harboured for a while. Its Competition Cooperation Project, which started in 2018, provided the Commission with a platform for dialogue and the exchange of practices with competition authorities in Asia. The Commission’s influence has been felt in the Asian competition policy space recently when markets like Japan and Korea emulated the Commission’s Platform-to-Business Regulation. We expect the competition policy space to move rapidly in 2021 as the DMA provides a baseline for other authorities to study.

The DMA creates a “gatekeeper” category for “core platform services”, which covers services such as search engines, social networking services, certain messaging services, operating systems and online intermediation services. Gatekeepers are expected to comply with the obligations in the DMA or face fines of up to 10% of the company’s total worldwide annual turnover – higher than the 4% threshold under GDPR – and periodic penalty payments of up to 5% of the company’s total worldwide annual turnover. The point of the DMA is to side-step lengthy and formal competition investigations and enable European Commission competition authorities to take speedier action for perceived market-distorting behaviour.

Is the Europe Effect Enough?

Previous actions by the European Union to curtail the powers of American tech companies have been met with retaliation, but the tides are changing in the US. Columbia University Law Professor Lina Khan’s calls for a paradigm shift where antitrust triggers move away from consumer harm and towards concentrated market power, described in her 2017 article, may finally gain traction in 2021. The House Judiciary Committee’s Antitrust Subcommittee’s report, which was released in October 2020, discussed market concentration in greater detail. Like the European Commission, it examined how dominant platforms “exploit their gatekeeper power to dictate terms and extract concessions”. Bipartisan determination to reign in the area of big tech companies has grown over the years and will likely gain momentum under Biden’s administration. With the US on board and the FTC’s lawsuit being a clear signal, it will be easier for global competition authorities to align their actions against the big tech firms.

Who Do the Rules Target?

It is easy to assume that the upcoming competition regulation policies will only impact the big tech firms. While that may be the initial intent of the regulatory moves, the eventual regulations and policies will impact the larger ecosystem. For example, when governments start considering additional factors like the amount of data that companies hold after mergers or acquisitions, all types of acquisition deals across industries will be impacted, especially given that all companies today hold large amounts of data. Moreover, start-up founders who want to rely on acquisition as an exit strategy may find it is no longer so easy. As governments meddle in acquisition deals, it may be more difficult for start-ups to turn to this strategy.

We also see competition arguments like “levelling the playing field” creeping into other policy areas such as tax. Even before the pandemic, many authorities were already contemplating digital services taxes aimed at creating more parity between domestic and foreign companies. The pandemic saw government revenue sources depleted, making the digital taxation issue even more pertinent. The OECD’s recently released draft Inclusive Tax Framework Blueprints touch on “levelling the playing field” between jurisdictions. Digital taxation policies will be implemented across the board and will not discriminate between companies that fall within the big tech sphere and those that do not.

Countries like India and Singapore are also developing data-sharing frameworks or policies that are aimed at giving companies a fair shot at innovation by enabling access to data held by other companies. Depending on how it is implemented in different markets, this may create risks like additional compliance costs or competitors gaining insight into business activities, since data-sharing will be a two-way street.

Recommendations

  • If competition has been an area that has been traditionally managed by your legal team, the politicising of competition policies and the confluence of competition and other policy areas will mean that the government affairs and legal teams must work hand-in-hand.
  • For companies that will not be directly impacted, it is still critical to monitor the developments and understand the dynamics in each market. While regulators may borrow ideas from one another, it is important that you keep abreast of developments so you are ready to intervene when it is needed.
  • Competition issues are emerging globally, from the Americas to Asia and Europe, so companies with international operations should focus on understanding the landscape and developing a long-term strategy.

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