To quote this paper: Tom Drivot, “The French report on Digital Platforms: the birth of an ex ante regulation”, Competition Forum – French Insights, 2020, art. n° 0001, https://www.competition-forum.com/

” Online platforms have taken a central place in our lives, our economy and our democracy” Thierry Breton, Commissioner for the Internal Market and Services

Slow, insufficient, unsuitable, limited, obsolete. These are some of the adjectives used by the rapporteurs to the French National Assembly to define the inadequacy of positive law in addressing ‘structuring digital platforms’, a new form of actor with complex practices.

On June 24th, 2020, an informative report[1] soberly entitled On digital platforms’ was presented by deputies Mrs. Valeria FAURE-MUNTIAN and Mr. Daniel FASQUELLE.

On more than a hundred pages of analysialong with a list of proposals, several rapporteurs helped by the Committee on Economic Affairs highlight the debate around the evolution of competition lawThey focus on the apprehension of a new form of competition induced by the existence of these structuring digital platforms.

To avoid reproducing a simple synthesis of the elements presented in this paper, we will first dwell on the elements that characterize the existence of a structuring digital platform and their interaction with its environment (I) before presenting the innovations of French law in this area (II) in order to focus more closely on the birth of an ex ante regulation law in the strict sense of the term (III).

 

I – Structuring digital platforms

Thenotion of structuring digital platforms necessarily refers to the GAFAM (Google, Amazon, Facebook, Apple and Microsoft) that the French government and especially Minister of Economy Bruno Le Maire has constantly denounced as “opponents of States”[3] and put forward that they are“as powerful financially, technologically and commercially”[4].

Although their business models may be very different– advertising, hardware sales, software licensing, e-commerceand so on – the report highlights several common features such as significant economies of scale and increasing returns. Indeed, in some cases the production of an additional unit does not entailany cost for the company(e.g. the issuance of a software license, additional research). The report also highlights the economy of scale based on network effects and multisided markets. Finally, a huge data storage generally offers a significant competitive advantage.Coupled with locking strategiesthis advantage confirms the “Gatekeeper” role of these platforms along with the potential for further expansion based on “aggressive” strategies.

The rapporteurs thus propose to establish an analysis grid setting out the main criteria to definethese structuring digital platforms. Indeed, on several occasions law has tried to frame this type of platform through definitions that are far too horizontal[5](sectoral definitions), sometimes too asymmetrical, even disparate.

This results ina lack of a certain and specific definitioncapable of dealing with all these actors– especially operating systems.

The institutions involved such as the ADLC (Autorité de la Concurrence, French National Competition Authority), Treasury and ARCEP (France’s Electronic Communications, Postal and Print media distribution Regulatory Authority) put forward numerous consensual identification criteria.Those criteria could consist in: dominant position on a set of neighboring markets, the existence of massive network effects, multisided market, financial capacities, independence, accumulation of data and ecosystem structureAccording to them, theyshould be linked to a more flexible mechanism of index bundling coupled with the intervention of the legislator to set the threshold above which the firm could be considered as structuring (guidelines, nominative list). In addition to the problems of harmful competitive interaction on the market, many reports show that allowing these platforms to grow without operating a detailed regulation could prove dangerous in the long run,not only politically speaking (e.g the phenomenon of capture) but also democratically speaking by considerably annihilating the plurality of opinions associated with critical field spaces.

 

II – An inadequate competition law

 

  1. A) French law as a precursor law?

 

Competition law as it stands does not therefore allow for the sanctioning and control of all anti-competitive practices occurring on structuring digitalplatforms.

While the provisions on the abuse of dominant position havealready allowed the apprehension ofsome behaviors – notably through the sanction of abuseof exploitation and eviction abuses in Google shopping[6], Google Android [7] or WindowsMediaPlayer[8]this remains intrinsically insufficient.

The “petit droit de la concurrence” (small competition lawin French law already makes it possible to apprehend some of these anti-competitive behaviors. Indeed, Article L442-1 of the French Commercial Code particularly grantsthe Minister of Economy an action as the guardian ofthe economic public order. The originality of this system stems from the fact that there is no need to demonstrate the existence of a dominant position or to establish any definition of the market. Thus, various players such as Expedia, Booking, Amazon, Apple and Google have already been sanctioned by the French authorities on the ground of this article.

The traditional tools, in particular the notion of relevant market, are inappropriate and obsolete, due to the various factors specific to this type of platform.

Most of those platforms build their business model on free products for the consumer. Most of the time, the services are not actually free and are granted in exchange for the collection of prolific personal information. Those personal data can be used to feed the databases necessary for the development of artificial intelligence (see Alexa audio listening scandal[10]). In the case ofa two-sided market (e.g. Linkedin, Facebook), user capture necessarily leads to the enrichment of the platform on the other side of the market. Moreover, there is a real porosity between digital marketsand their contours are oftenextremely difficult to establish. This also leads to the development of conglomerate activities, with significant leverage effects.

The structuring digital platforms must therefore be apprehended as a wholeThat is to say that it is necessary to look at their ecosystem and the emerging interdependencies between the different markets in which they are involved[11](notion of coopetition). We recently witnessed the “merger” of messaging services between Facebook and Instagram.We also learntof the arrival in France of the “Apple One” service, which brings together in one subscription the accessory services offered by Apple in the music (Music), film (TV), news (News) and video game (Arcade) sectors, to the detriment of the various players specifically involved in each of these fields (Newspapers[12], Spotify[13], Microsoft Xbox Cloud Gaming[14]).

Therefore, the real “threat” necessarily lies in the ecosystem developed by these platforms, within which the user unconsciously evolves and locks himself in, leaving little room for the arrival of potential competitors.

The notion of consumer well-being must also be redefined. Indeed, we must move away from the purely economic and pricing scheme and promote the plurality of services instead as well as the preservation of personal data in the era of GDPR (Cambridge Analytica scandal[15]; Google Fitbit mergers[16]).

The report also demonstrates that the sanctions provided for by competition law are neither sufficient nor dissuasiveIn fact,“these sanctions can be integrated as mere operating expenses within the overall budget of the platforms concerned[17]. Moreover, most of the tools available to the authorities are most of the time misused or completely ignored. Competition law is too slow[18], cases in this area are complex and sanctions often come too late. The digital platform then has all the scope it needs to slowly oust its potential competitors. Indeed, the average length of a proceeding varies between5 and6 years.

The report therefore recommends prioritizing certain procedures. It would also be advisable to develop precautionary measures to “avoid irreparable damage”[19]while awaiting a decision on the merits. In this respect, Article L464-1 of the French Commercial Code is a precursor, and it would therefore seem appropriate to take it as a modelto strengthen their effectiveness at the European level.

Merger control is based on a turnover threshold[20], but this does not enable the apprehension of“consolidating acquisitions” which allow the “appropriation of innovation by certain dominant players”[21], thereby increasing their market position. In addition to the issue of killer acquisitions, the real question in this area concerns the practice of predator acquisitions. As a consequence of those acquisitions,innovation is no longer annihilated but is now captured.

This new merger control should also allow a wider use of ex-post sanctionsin addition to what is already provided for in Article L. 430-9 of the French Commercial Code. However, this type of control has several drawbacks in terms of legal certainty and predictability and would only be deployed exceptionally in the event of excessively serious harm to competition.

Finally, the French Authority stands out in Europe for its frequent use of behavioral commitments. These behavioral remedies are fitto these structuring platforms because “they have the advantage of being adaptable, reversible and proportionate”[22]. European law should favor balancing structural remedies that are certainly less costly in terms of monitoringbut less flexible and therefore less efficient. It will be useful to note that this report is formally opposed tothe hypotheses of dismantling put forward notably by our American counterparts;[23]and deem this solution inappropriate. Indeed, not only does such a measure violate constitutional principles; it also stand as quite complex and would foreseeably lack effectiveness.

B) The creation of a pilot authority

The rapporteurs also advocate for the creation of a pilot authority at a national level, which would be in direct and constant contact with the French competition authority. Simplicity therefore dictates that existing institutions should not be multiplied any further.

The pilot authority would bring its expertise in the field and act as the privileged interlocutor with the actors of the sector. Ultimately, this new regulatory law should allow the creation of a real ecosystem between the different public authorities competent in this field.

The ARCEP[24] (France’s Electronic Communications, Postal and Print media distribution Regulatory Authority) is presented as the ideal candidate to fulfill this role, due to itsprior publications on the subject[26].Although it already hasa solid and recognized expertise in the field, itseems to be preparing its ascent by multiplying its contributions in this area[27].

In addition to its powers of control and supervision,it could also be given powers of sanction. Another possibility evoked is the establishment ofa mediation mechanism between the authority and the platforms in order to develop appropriate solutions together and to help those platforms to comply while ensuring that the regulator is prevented from being captured.

This ecosystem of authorities would also allow for better coordination and a facilitated flow of information so that other institutions can contribute in their area of competencethe CNIL (National Commission for Data Protection and Liberties) for data or the CSA (High Council for Audiovisual), HADOPI ( High Authority of Diffusion on the Art Works and Protection of Rights on the Internet) and the DGCCRF. Finally, in order to understand these new competitive challengesbetter, the recruitment of talent and specialists in the sector is necessary to develop centers of expertise.

 

III – An ex ante regulation law

Competition law regardingthese platforms must change paradigm and become ex ante regulatory law. It must prevent the monopolistic rise due solely to the economic characteristics of these platforms. This regulation must necessarily be asymmetrical and limited to the most important players listed by the legislator. This should allow the implementation of preventive and proportionate remedies in the future.

A) The enactment of a principle of accountability in competition law?

It is easy to understand from this report that the main objectiveis to make the structuring digital platforms the actors of compliance.

The promotion of transparency is one of the advanced means to contribute to the regulation of these digital platforms (platform to business[28]), the main objective being to break the informational asymmetry existing between these platforms and their users (online referencing systems). The report goes so far as to evoke the communication of algorithms to institutions, which in the light of their relative complexity could prove to be inappropriate and totally inefficient from a technical and competitive point of view. This control would only be useful to establish the absence of algorithmic bias. However, the existence of algorithmic bias must be understood at its source, as according to the Montaigne Institute “the main source of bias comes from the data used to train an algorithm”[29].

The creation of a standard facilitating data portability and interoperability is also mentioned. It would have as a goal to “fluidify the competition between the targeted players and the possibilities for new players to flourish”[30], which seems at the very least difficult to apply because of the complexity of data cross-oversparticularly on small platforms, if not technically impossible (creation of a global standardized system), then economically speaking (exponential cost). However, there already are initiativesfromthese platforms to promote the export of this data (Data Transfer Project[31]).

The issue of critical infrastructures for certain data is also raised without further details. It should simply be noted that this would be in total contradiction with the objectives of preservation and protection of personal data provided by the GDPR. The neutrality of terminals and the principle of non-discrimination are also discussed, but it should be noted that operators seem to be moving towards the opening up of OS systems by giving operators more and more choice in the default use of home-made or competing applications. Indeed, Apple now offers to choose its default email client and should soon allow its connected speakers Homepod to privilege Spotify to the detriment of Apple MusicHowever,a certain arbitrariness seems to persist, for example in Apple’s favoritism towards amazon[32].

Regarding merger control, it would also be more interesting to introduce a specific notification obligation (ex ante) of all merger operations envisaged by the structuring platforms. The report puts forward a possible reversal of the burden of proof for this type of platform as recommended by the Stigler[33]center and the Crémer[34]report.

Highlighting such objectives would therefore encourage platforms to build up evidence of their good will in order to avoid any sanction from the competent authorities.

This principle of respect for the rules governing competitive mechanisms is also approached from the angle of the concept of “monopolization”, which is taken up again in Lina Khan’s writings in an extremely succinct manner without any further elaboration in this report.

B) The basis of a new European digital competition law

Finally, the report reflects the need to rapidly[35]develop ex ante regulatory law at the European level. The current President of the European Commission, Ursula Von Der Leyen, said as early as 2019 that “A new Digital Services Act would upgrade our liability and safety rules for digital platforms, services and products, and complete our Digital Single Market.”[36]In an article from June 22, 2020, the European Commissionstates on its website that:

 The new Digital Services Act package should modernize the current legal framework for digital services by means of two main pillars:

 First, the Commission would propose clear rules framing the responsibilities of digital services to address the risks faced by their users and to protect their rights. The legal obligations would ensure a modern system of cooperation for the supervision of platforms and guarantee effective enforcement.

Second, the Digital Services Act package would propose ex ante rules covering large online platforms acting as gatekeepers, which now set the rules of the game for their users and their competitors. The initiative should ensure that those platforms behave fairly and can be challenged by new entrants and existing competitors, so that consumers have the widest choice and the Single Market remains competitive and open to innovations”.

It should be noted, however, that a lack of promptness would not, according to the rapporteurs, prevent national initiatives from being taken initially in order to serve “as a spur to the regulation of digital platforms in Europe”[37].

ARCEP is currently playing an active role, sending its contribution[38]following a public consultation opened by the European Commission between June 2 and September 8 in order to speed up the enactment of this new regulation, which is supposed to update the principles laid down by the “Ecommerce directive” of June 8, 2000.

The European Commission’s first proposals for the DSA are now expected in December 2020 !

To be continued…

 

Tom Drivot

 

[1]Ass. Nat., June 2020 Background Report on Digital Platforms, submitted byMme Valéria Faure-Muntian et M. Daniel Fasquelle

[3]AFP, La Tribune, Bruno Le Maire, les géants du numérique sont “les adversaires des États », november 2020

[4]Ibid

[5]Règlement (UE) 2019/1150 of the European Parliament and of the Council of 20 June 2019 promoting fairness and transparency for companies using online intermediation services; LOI n° 2016-1321 of October 7, 2016 for a Digital Republic (France)

[6]  ADLC, Décision 19-D-26, 19 December 2019; Comm. Euro. Google Search (Shopping), Case AT.39740, 27 June 2017; Google Android

[7]  Comm. Euro Case AT.40099, 18 July 2018 and Google Search (AdSense)

[8]Comm. Euro Affaire COMP/C-3/37.792 — Microsoft, 24 may 2004

[10] « Des employés d’Amazon écoutent les conversations des utilisateurs avec Alexa », Kesso Dialo, Le Figaro, 11 April, 2019.

[11]  « Ecosystem logic leads to multiple interdependency mechanisms on the digital platform. Among them, it is possible that the platform may take advantage of its position to impose abusive rules on its partners, for example by authorizing or not authorizing actors to join the platform or by constraining their behavior. » réguler les plateformes numériques : pourquoi ? comment ?, Renaissance numérique, May 2020

[12]« Apple News, la boîte noire qui fait la pluie et le beau temps sur les sites d’infos », Les Echos, Marina Alcaraz, Nicolas Madelaine, november 30, 2018

[13]« Apple says its new Apple One services bundle isn’t unfair to Spotify », The Verge, by Sean Hollister, Sept 15, 2020.

[14]« Cloud gaming sur iOS : Apple confirme sa réticence, Microsoft et Facebook passent à l’offensive », Les numériques, Florian Agez, augus 10t, 2020.

[15]« Ce qu’il faut savoir sur Cambridge Analytica, la société au cœur du scandale Facebook » William Audureau, Le Monde, march 22, 2018

[16]  « Mergers: Commission opens in-depth investigation into the proposed acquisition of Fitbit by Google » European Commission, august 4, 2020

[17]According to the report, p.47

[18]“If we are very honest with ourselves as competition scholars, we have to admit that competition law, in the digital field, proved rather ineffective: Procedures take very long, many remedies lack some bite…”

Marie Cartapanis, Rupprecht Podszun, “Restoring Balance to Digital Competition – Sensible Rules, Effective Enforcement” : Interview with Rupprecht Podszun”, Competition Forum: Law & Economics, 2020, art. n° 0007

[19]According to the report, p.12, p.55

[20]  As the law currently stands, the rules governing merger control are provided for at the European level by Regulation 139/2004 on merger control and at the French level by Article L. 430-2 of the French Commercial Code.

[21]According to the report, p.50

[22]According to the report, p.58

[23]  « Reduce Conflicts of Interest Thorough Structural Separations and Line of Business Restrictions » p.377, investigation of competition in digital markets majority staff report and recommendations, subcommittee on antitrust commercial and administrative law of the committee on the judiciary, October 6, 2020

[24]  https://www.arcep.fr/larcep.html

[26]  For instance rapport « Smartphone, tablettes, assistants vocaux… les terminaux, maillon faible de l’ouverture d’internet », february 2018

[27]  Remedies to the problems posed by structuring digital platforms, Elements for reflection – September 2020 https://www.arcep.fr/uploads/tx_gspublication/plateformes-numeriques-structurantes-remedes_reflexion_sept2020.pdf

[28]Regulation (EU) 2019/1150 of the European Parliament and of the Council of 20 June 2019 on promoting fairness and transparency for business users of online intermediation services

[29]« Digital Services Act : vers des algorithmes responsables ? » https://www.institutmontaigne.org/blog/digital-services-act-vers-des-algorithmes-responsables

[30]According to the report, p.77

[31]https://datatransferproject.dev/

[32]“App Store : Amazon aurait été favorisé par Apple pendant des années », Frandroid, Melinda Davan-Soulas, july 31, 2020

[33]« when an acquisition involves a dominant platform, authorities should shift the burden of proof, requiring the company to prove that the acquisition will not harm competition » Stigler Committee on Digital Platforms, Final report p.17

[34]  « in the context of highly concentrated markets characterised by strong network effects and high barriers to entry (i.e. not easily corrected by markets themselves), one may want to err on the side of disallowing potentially anticompetitive conducts, and impose on the incumbent the burden of proof for showing the pro-competitiveness of its conduct. » Competition Policy for the digital era A report by Jacques Crémer, Yves-Alexandre de Montjoye and Heike Schweitzer

[35]  « your rapporteurs consider that the cost of inaction outweighs the benefits of waiting for a European text to enter into force. » p.99

[36]  political guidelines for the next european commission 2019-2024 « A union that strives for more », Ursula Von Der Leyen

[37]According to the report, p.99

[38]  Arcep’s contribution to the public consultation on the DSA Package and the New Competition Tool – An asymmetric ex-ante regulation of structuring digital platforms for open digital infrastructures

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