Structural remedies to counter overpowering digital platforms
- Digital Law
Small group of big tech companies
Over the past few years, platform providers such as Google, Facebook and Amazon have become unassailable market leaders thanks to their successful business models. Today, they are among the world's leading companies. In their market segments, these tech giants increasingly act as gatekeepers between commercial users and end consumers. Through targeted acquisition of other competitors and preferential treatment of their own services on their platforms, they are suspected of preventing a functioning competition.
Therefore, the question of how to "properly" deal with those big tech companies has become a key issue, not only in the US, but also in Australia, China and across Europe. In response, the European Commission presented two draft regulations in December 2020: the Digital Services Act (DSA) and the Digital Markets Act (DMA) (see also The European Digital Strategy). In addition to enormous fines, online platforms would now also face structural remedial measures for violations of the proposed obligations under the DMA. With this step, the European Commission seems to open up the possibility of breaking up tech giants as a last resort.
Structural remedies in use
The term structural remedy includes regulatory changes to the corporate structure of the market participants concerned. Structural remedies may, for example, result in the sale of individual business units, company shares or subsidiaries as well as in the release and waiver of (industrial) property rights.
Remedies of a structural nature are particularly known from the US antitrust. Already in the 1980s, the US telecommunications company AT&T was broken up and divided into several individual companies in order to promote fair competition. The US authorities also pushed for the break-up of the software company Microsoft but were ultimately unable to prevail in court. Microsoft and the US Department of Justice settled out of court - without structural remedies imposed.
In Europe, structural remedies within the framework of antitrust law have so far been imposed reluctantly. However, the overwhelming market power of those few digital platforms has forced the authorities to take a new approach. Structural measures are being discussed increasingly to counteract the currently perceived anti-competitive behaviour, also and especially in connection with data protection considerations.
US authorities call for the break-up of Facebook and Google
Meanwhile, in the US calls for stronger regulation and the break-up of Amazon, Apple, Facebook, and Google are increasing. Primarily at the instigation of Democratic Senator Elisabeth Warren, antitrust proceedings were initiated against Google and Facebook at the end of 2020. The Facebook lawsuit in particular aims to unbundle Instagram and WhatsApp. However, an actual break-up of the group is considered to be unlikely. Instead, strict behavioural obligations are expected, which could, however, have a strong role model effect.
Developments in Europe - DMA opens up new opportunities
Under European antitrust law, the acquisition and retention of market power and dominance does not in principle violate competition law. As long as no actual abusive conduct is established, the provisions of competition law do not provide for intervention. This, however, might now change due to the reform proposals of the European Commission. France and the Netherlands in particular had spoken out in favour of stricter sanctions, up to and including the break-up of digital platforms. This approach is also remarkable since the Netherlands had previously acted with a certain restraint in the battle against the US internet giants.
In addition to large fines, the recently published DMA would also provide for behavioural as well as structural remedies as potential sanctions in the event of a repeated offence. The recitals explicitly mention legal, functional, or structural separation, including full or partial divestment of business units, as a possible remedy. As such, the sale of business units, assets, and intellectual property rights such as brands are specifically identified. These measures may be considered, inter alia, if a market investigation indicates that the size of the gatekeeper in the internal market has continued to grow or that the economic dependence of users on core platform services has increased. However, a precondition for the imposition of structural remedies is always a systematic breach (at least three fines or decisions for non-compliance within five years). Behavioural remedies have priority; structural remedies are to be used only as a last resort.
Will structural remedies have the intended impact?
There are conflicting views whether or not structural remedies can actually bring about the intended increase in competition. The vociferous calls for the break-up of large digital companies are contrasted by counter-opinions that consider such measures as too aggressive - in particular since their long-term consequences are difficult to assess. Due to their disruptive effect on market activity, distortions can go as far as to undermine the intended advancement of consumer interests. Even the break-up of AT&T - often cited as a successful case for structural measures - is now viewed critically from an economic perspective. In Europe, for example, the competition (enforced through other means) between telecommunications providers resulted in lower prices for consumers than the break-up in the USA. Consequently, a more moderate approach with greater focus on behavioural measures has been proposed by some. For example, EU-Competition Commissioner Vestager's proposal to force dominant companies to share their collected data rather than breaking them up has been widely supported in the past.
Another criticism raised against the DMA is the fact that structural remedial action can only be taken once the conditions of a systematic breach have been met. At this stage, the risk of significant and lasting harm is already present. Also, the question of effective action against third country operators has not yet been conclusively clarified. In this respect, international cooperation in combating digital companies will be an essential factor in the future.
As the regulatory digital framework is still under negotiation by the European Parliament and the European Council, applicability is earliest to be expected in 2023. It therefore remains to be seen in which direction the discussion about structural remedies will evolve in Europe, the USA and worldwide.
Please note: This blog merely provides general information and does not constitute legal advice of any kind from Binder Grösswang Rechtsanwälte GmbH. The blog cannot replace individual legal consultation. Binder Grösswang Rechtsanwälte GmbH assumes no liability whatsoever for the content and correctness of the blog.