This article is written by Akanksha Singh who is pursuing a Certificate Course in Competition Law, Practice And Enforcement from LawSikho.

Introduction

It would not be wrong to say that digital era, online platforms are greatly influencing the economy and the markets in ways that could not be imagined previously. They have become an essential tool for people all around the world. In the EU alone, there are more than 10,000 online platforms currently operating. Due to their larger presence in the market, a need is felt to regulate the same due to various competition concerns.

In pursuance of this, the Federal Parliament of Germany, on 14th January, 2021 has adopted the 10th Amendment to its German Act against Restraints of Competition known as the Gesetz Gegen Wettbewerbsbeschränkungen (“GWB”). It is popularly called the Digitalisation Act as it has significantly brought about various regulatory requirements to digital platforms in the country. It has been regarded as a very important step and Germany has been hailed as one of the first major countries to have separate competition rules for regulating digital platforms. This article will analyse these new rules and the possible effect of these rules in the competitive sphere. 

Before we delve further, let’s first understand what is meant by digital gatekeepers. 

Definition of Digital Gatekeepers

As stated above, online platforms have occupied a very important position in economies all around the world. These platforms are sometimes also regarded as ‘digital gatekeepers’. There is no clear definition of digital gatekeepers as such. However, in general terms, we may define the same as platforms providing varied services online or controlling or by some means influencing access to online services and thereby having control over the relevant markets and various stakeholders. Therefore, they would necessarily have the power to impact competition in the digital and allied fields. 

To understand this term more clearly, we may look at the European Commissions’ draft of the Digital Markets Act (“DMA”) released on 15th December 2020 to address the imbalances which may be created by such platforms and to make sure that the digital economy operates fairly. Accordingly, while talking about digital gatekeeper’s, the DMA states that online platforms can be deemed to be s gatekeeper’s when they fulfil the following conditions, namely:

1. have a significant impact on the internal market;
2. operate one or more important gateways to customers; and 
3. enjoy or are expected to enjoy an entrenched and durable position in their operations.

Rationale behind regulating Gatekeepers

Various reports have shown that large online platforms become some sought of gatekeepers, regulating not only the terms of use of access to the customers but also other key factors due to their strong position as an intermediary between the sellers and the customers, having access to huge data and even due to their strong network position and goodwill in the digital market. In this regard, we may even look at the Furman report of the Digital Competition Expert Panel which proposed several recommendations to address concerns of competition in the Digital Market. The report observed that some digital platforms have a ‘strategic market status’ which allows them to be in a position to exercise market power over a gateway or bottleneck in a digital market, where they have the power to control and regulate others’ market access.

Therefore, due to having such a dominant and if not, an important and crucial position in the digital ecosystem, they are in the position to cause unwanted and detrimental effects to free and fair competition.  In a paper released by European Parliamentary Research Service in the year 2020, certain exploitative concerns,  to these platforms have been identified which may warrant the regulation of the same. They are as follows:

1. Self-practicing i.e. favouring one’s  services unfairly such as default setting exclusively of gatekeepers’  services or products to the detriment of competing businesses.
2. Preferencing of a third party without any reasonable cause.
3. Unjustified denial of access to data or functionalities necessary to conduct businesses.
4. The imposing exclusionary terms and conditions for access which may include unfair blocking of certain platforms.
5. Tying of other products such as adding applications to the main service.
6. Imposition of unclear or unreasonable terms and conditions which may include charging excessive pricing for providing access.
7. Unwarranted restriction or refusing of data portability i.e. refusing or in some way restricting customers from using their data for their own purposes. This would effectively result in locking in customers to that platform itself.
8. Restricting or even refusing interoperability i.e. the ability of the system or platform to interact with other systems or platforms.

It is due to these competition concerns that various jurisdictions are moving towards regulating these digital gatekeepers. If we take the example of the United Kingdom, a separate unit, known as the Digital Market Unit is sought to be set up as a part of the Competition and Markets Authority specifically dedicate enforce new code and regulate online platforms. The contents of the new code to be enforced on the online platforms are yet to be drawn up, however, it is said that the main objective behind such a step by the Government of the United Kingdom is due to lack of competition as a result of tech giants like Google and Facebook which in turn is resulting in “reduced innovation” and a “lack of consumer control” over data use.

Similarly, in the year 2019, Japan Fair Trade Commission had published guidelines to regulate digital platforms having ‘Superior Bargaining Position’ over the customers. Even in Australia, a Digital Platforms Branch has been established by the Australian Competition and Consumer Commission to conduct an inquiry into digital platform markets and has even drafted the draft of the Treasury Laws Amendment (News Media and Digital Platforms Mandatory Bargaining Code) Bill, 2020 with the view to regulate such powerful online platforms. Therefore, it can be seen from the above examples that countries all around the world are now framing or at least seriously considering framing rules to govern such powerful digital platforms. 

German Rules on Digital Platforms

The Digitization Act has brought about several changes to the antitrust laws of Germany. It has not only greatly increased the power of the Competition Authority of Germany i.e. the Federal Cartel Office (“FCO”) when it comes to digital gatekeepers but also brought about changes to the merger control thresholds and infringements provisions.

Two reasons may have inspired the Government of Germany to bring about such a step. Firstly, FCO has recently inquired into the conduct of various big tech companies such as Facebook and Amazon. The issues arising from these cases led the German Government to realise the big regulatory gap in addressing the competition concerns which are raised due to the conduct of big and powerful digital companies. 

Secondly, it was felt that the traditional legal framework of Germany was not adequate to regulate and bring about effective action against big tech companies which may be engaged in anti-competitive conduct. This can be seen from the words of Andreas Mundt, the President of the Bundeskartellamt who, while talking about the present amendment to the GWB stated that “The amendment to the German Competition Act will allow us to take a major step forward. In future, we will be able to prohibit big tech companies from engaging in certain types of conduct much earlier and, so to speak, shut the stable door before the horse has bolted. We will be allowed to take preventive measures which can contribute decisively to curbing the market power of the large digital platforms.”

It is due to these reasons that the Government of Germany brought about restrictions to the digital platforms vide the present amendment to GWB. They are as follows:

Amendment of Section 18(3b)

Vide the 9th Amendment of GWB, a new criteria had been added to assess the dominance of a company, namely direct and indirect network effects in multi-sided markets or platforms. Now the concept of intermediary power has also been introduced vide the amendment.

The new Section 18 (3b) of GWB provides that while assessing the market position of an entity that operates as an intermediary on multilateral markets, the intermediary services provided by it for accessing supply and sales channels must be taken into consideration.

Introduction of Section 19(a)

Arguably, the most important provision of the Digitization Act and the most relevant section in light of the present topic is Section 19(a). According to this provision, FCO has been given the power to restrict the anti-competitive conduct of companies which may function on multisided markets.

Accordingly, FCO has been given the power to pass a separate order declaring a company to have that a company has a “paramount significance across markets” (“PCMS”). This will depend on various parameters including:

1. dominant position in other markets;
2. strategic position and resources;
3. vertical integration;
4. access to competitively relevant data;
5.  influence on third-party businesses by virtue of facilitating access to procurement or sales markets.

It is pertinent to note that the order declaring that a company has PCMS is limited to only 5 years. After determining PCMS, FCO may, by a separate second-order may prohibit certain conduct of such companies including:

1. preferencing services provided by itself;
2. per- setting or installing its own products or services or integrating them into the offer given by the platform;
3. preventing other companies from advertising or reaching customers by any other means via access points other than those facilitated/preferred by the company;
4. denying access to data;
5. tying in one offer to the other;
6. processing data, which may affect competition, without the consent of the customers;
7. restricting interoperability or data portability;
8. demanding data or rights which is not justifiable;

Even though on the face of it, the same may not seem like an exhaustive list, it is clear that these are the major anti-competitive activities carried on by such digital gatekeepers in the online ecosystem. By reading the said provision, it is clear that only the larger and more dominant gatekeepers will come under the preview of this provision which either have the resources and are in the position to significantly influence the activities of other competing businesses. 

Amendment to Section 20

The scope of Section 20(1) of GWB has also been expanded vide the amendment. Originally, Section 20(1) of GWB prohibited entities having relative or superior market power from using this power to the detriment of small or medium-sized suppliers or purchasers. Now this protection has been extended to all undertakings, regardless of their size. 

By expanding the scope of this provision, companies, even large ones, which may be dependent on such digital gatekeepers will also be provided this protection. Therefore, such gatekeepers, which have relative market power and which act as intermediaries will also be brought under this provision.

Additionally, a new provision namely Section 20(3a) has been added vide the amendment. According to this new provision. This provision prohibits platforms having relevant market power from interfering the independent achievement of network effects by competitors with the objective of creating their own positive network effects. This provision has been brought about specifically to address the problem of ‘tipping’ of markets monopolising strategies which are usually seen in multi-sided markets. 

Other amendments

Other amendments not directly relating to digital gatekeepers has also been brought. Some of them are notable are as follows:

1. Pursuant to section 32a, the requirement of passing an interim order has been lowered. Additionally, significant changes to merger control has also been brought about vide the Amendment. 
2. The de minimis market threshold under section 36(2) of GWB, which exempted minor markets from merger control, has also been raised from EUR 15 million to 20 million. The limit for domestic turnovers under section 35(1a) of GWB, which when crossed came under the merger control regime has also been significantly increased. It has been increased to 50 million and 17. 5 million from 25 million and 5 million respectively. 
3. The period allowed for phase 2 proceedings has been increased to 5 months from 4 months.
4. The requirement of filling completion notice for a notified concentration has been removed.
5. FCO has been given the power to order the notification of any future mergers or ‘concentration’ in a particular economic sector with the view to prevent killer acquisitions. 
6. More specific criteria for calculating fines has also been introduced which include the economic impact of the products affected, the turnover linked to the breach directly or indirectly etc.
7. For the first time, legislative framework for leniency application has been introduced vide the amendment under the new sections 81h to 81l of GWB. It is important to note that rules had been already laid down by FCO. However, vide the amendment, these provisions are now reflected in GWB and have been expanded to reflect the directives of ECN+ Directive given by the European Parliament.  

Analysis of the provisions

The Act has introduced various new concepts in the German Competition law including the terms PCMS which will bring under the regulation not only the dominant digital gatekeepers but also other powerful digital companies which necessarily may not hold a dominant position in the relevant market but has the capacity to influence other competing entities. By reading the provisions, it is clear the Legislature has taken into account the unpredictable nature of the digital sector.

The provisions will enable FCO to intervene, when it is of the opinion that any unfairness in competition is being caused by these big digital companies, at an early stage. 

The Amendment is definitely a result of the recent steps taken by the FCO. As already mentioned earlier, the FCO had already started proceeding against Facebook which was announced on 10th December, 2020. However, vide the amendment FCO has also announced on 28th January, 2021 that it will be examining the market position of Facebook in order to determine whether it has PCMS in pursuance to the new section 19a of GWB. Therefore, the intention behind these new provisions is clear i.e. to modernize GWB  to keep a track of the ever-growing digital sector and to put in place stricter abuse controls on digital companies. 

However, the same has not come without its issues. Firstly, the criteria given to determine PCMS is not exhaustive. Secondly, the order which may be given by FCO in pursuance to Section 19a is only prohibitory. FCO has not been given the power to impose behavioural obligation on such companies which, according to the author, slightly undermines the objective of the provision. Thirdly, the FCO cannot impose the prohibitory order if the same can be objectively justified by the entity which has been declared to have PCMS.  This not only reverses the burden of proof but is a big lacuna in the Amendment Act. Lastly, the order under Section 19a can be reviewed only by the Federal Supreme Court of Germany in pursuance of  Section 73(5) of GWB. Even though the intention is for the speedy adjudication of the issues, the same has also been regarded as unconstitutional by many.

Conclusion

The Digitization Act is quite dynamic and can be said to be extremely apt for the digital era. It is not only groundbreaking and in line with international findings but is also well drafted.  It seems, by reading the provisions, that the Legislature is fully aware of the issues which may be associated with the practical application of the same. It is due to this fact that the Federal Ministry of Economics and Technology has been given the duty to report on the experiences with Section 19a, 4 years after its implementation. Therefore, the new law will be observed very closely by the Government of Germany to determine its practicality and effectiveness in controlling abusive conduct in the digital sector.

However, it is pertinent to note that governments all around the world are seriously considering implementing similar rules to regulate such digital gatekeepers. Examples of the United Kingdom, Japan and Australia have already been discussed. So where does India stand in all of this? There is no specific regulation governing digital gatekeepers in India. The competition issues arising from digital companies all around the world are reflected in India also. Various cases have been initiated in the Competition Commission of India (“CCI”) against various digital companies such as Google, Facebook and Amazon alleging abusive conduct in the year 2020 itself. CCI is doing its bit to ensure fairness in the digital sector, however, only limited steps can be taken by CCI in the absence of  guiding legislation to that effect. 

CCI has flagged concerns on the behaviour of digital markets in the study conducted by it in E-Commerce sector in India. Various concerns regarding the lack of neutrality, imposition of unfair contractual terms, exclusive agreement, price parity issues have been raised against the digital platforms in the study. Therefore, rules for regulating such powerful digital gatekeepers is the need of the hour to maintain stability and ensure fair competition in the Indian markets. In this regard, the new German Digitization Act can act as a guide to countries like India which may, to some extent borrow or formulate similar provisions to regulate the digital sector.

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