Chapter 17

ABUSES IN DIGITAL PLATFORM MARKETS

17.1 INTRODUCTION The context. The digitisation of society is one of the most significant economic and social changes over the last decade or so. It increasingly pervades most aspects of human activity, such as eating, shopping, banking, travel, transport, finance, media, etc., and has been transformative (and will increasingly be so) across many of these sectors. Indeed, this pervasiveness is not merely economic, but is impacting on some of the deepest and most intimate aspects of human existence, e.g., social interaction, healthcare. An important basic economic insight into many of these digital markets is that they are “multi-sided” or “platforms.”1 In essence, this means that a group of buyers and sellers are brought together by an intermediary, such as a platform, to interact. Examples include credit card systems (a card system operated by banks bringing together retailers and consumers), search engines (search engine operator, advertisers, and consumers searching for products), and online property portals (property sellers, retailer estate agents, and property buyers). There may also be multiple players operating in between such as developers of mobile or software applications (apps). Many such digital platform markets are described as “eco-systems” due to the large number of complex interactions and inter-dependencies between multiple players within them. Whilst economic progress has always posed challenges for competition law to adapt, the step changes which are occurring in digital markets are, perhaps, more significant than previous major phases of industrial progress.2 First, for physical goods, costs in the form of transport costs and customs duties place real limits on the geographic scope of markets. By contrast, most digital goods can be distributed worldwide in milliseconds with no transport costs. Second, the incremental costs of scaling up digital product/service volumes are close to zero for established operators, thus leading to potentially extreme returns to scale. Whilst building a new physical factory can also increase returns to scale, these returns are, in general, not as extreme as those for most digital goods. Third, the scope to catalogue digital information is virtually limitless. For example, previously record stores would need to hold inventory in a physical medium whereas now streaming services like Spotify have virtually every song commercialised available instantly. Fourth, by competing for attention, platforms can easily and quickly add large volumes to the “matching” groups on the two sides of the market. The same is not true of “physical” matching exercises.3 Indeed, this issue is so acute that there is

1 For an excellent non-technical overview, see J Tirole, Economics For The Common Good, Chapter 14, Princeton University Press (2017). 2 See generally OECD Report, Rethinking Antitrust Tools for Multi-Sided Platforms (2018). 3 In Ireland for centuries there were professional matchmakers (who still exist) and the two sides of this market, intermediated by the matchmaker, would convene at summer festivals in often remote parts 1047 Abuses In Digital Platform Markets a problem of too much information in digital markets and the ability to discern quality in digital goods becomes difficult. Finally, in part because of network effects, the speed by which enormous market power can be acquired and extended (and lost) in multi- sided/platform markets is remarkable. Witness the growth of Facebook from a public launch in 2006 to over 1 billion users by 2012, and now over 2.5 billion and the ascent and demise of Google and Altavista, respectively. The role for Article 102 TFEU. As with any major economic or socio-economic change of this kind, EU competition law in general, and Article 102 TFEU in particular, is starting to contend with myriad issues that arise in the context of multi-sided digital platform markets. But it is fair to say that the challenges arising in this regard under Article 102 TFEU are probably the most profound, difficult, and interesting, for several reasons. First, as discussed in Section 17.3 below, the economic characteristics of many digital platform markets will tend to produce very high levels of concentration among a very small number of firms, or even a single firm, due inter alia to network effects, extreme returns to scale, the importance of data, and competition for the market. Dominance is therefore frequently present, thus naturally activating Article 102 TFEU issues. Second, many of the key practices of interest under EU competition law as respects multi- sided/platform markets tend to involve unilateral conduct, thus precluding the application of Article 101 TFEU. Third, as discussed in more detail in Section 17.2 below, the growth of multi-sided/platform markets by acquisition activity is less likely to be constrained by ex ante intervention under EU merger control, thus making ex post control under Article 102 of greater importance. As matters stand, the Commission and most national merger control authorities operate turnover and/or market share thresholds that are not always apt to capture acquisitions of start-up firms with little or no turnover or market share. Fourth, multi-sided platforms can give rise to unique counterintuitive problems under Article 102 TFEU. For example, selling below a reasonable measure of cost may be an abuse of dominance.4 But many platforms offer products for free to one side of the market in an effort to increase the size, and therefore interest, of the platform for the other group, to whom “high” prices are then charged. The instinctive reaction is to regard this as predatory pricing, but, as discussed in Section 17.4 below, this mechanical application of Article 102 TFEU is generally incorrect.5 Finally, as discussed in more detail in Section 17.6 below, the approach to multi-sided or platform markets under Article 102 TFEU can in some respects fairly be characterised as “regulatory,” and there is a long, and in many respects unsatisfactory, history of using Article 102 TFEU to pursue regulatory ends.6 Definitional issues. The terms “multi-sided” market and “digital platform” lack precision, and there is a danger that, without further precision, the principles under of the country, e.g. Lisdoonvarna, to see if marriage could be brought about. Now, millions of people can be matched online instantaneously across a large range of features or variables. 4 See further Ch. 6 (Predatory Pricing). 5 Similarly, whilst an owner of a valuable pharmaceutical patent may wish to limit competition among licensees, a digital platform whose success depends on its ability to attract a first user group that is of interest to a second will in principle welcome competition among sellers or licensees. For example, many platforms have open-source licensing for this reason, e.g., Android. 6 See further Ch. 1 (Introduction, Scope of Application, and Basic Framework), Section 1.4.5. 1048 The Law and Economics of Article 102 TFEU

Article 102 TFEU end up being applied by label rather than substance.7 A number of points bear mention in this regard. First, there is, currently, no legal definition of multi- sided digital platforms under Article 102 TFEU.8 Second, public authorities in the EU have offered definitions based on the factual circumstances of what digital platforms typically do. An EU Communication on online platforms notes the following specific characteristics:9

“Online platforms share some important and specific characteristics. In particular:

- they have the ability to create and shape new markets, to challenge traditional ones, and to organise new forms of participation or conducting business based on collecting, processing, and editing large amounts of data;

- they operate in multisided markets but with varying degrees of control over direct interactions between groups of users;

- they benefit from ‘network effects’, where, broadly speaking, the value of the service increases with the number of users;

- they often rely on information and communications technologies to reach their users, instantly and effortlessly;

- they play a key role in digital value creation, notably by capturing significant value (including through data accumulation), facilitating new business ventures, and creating new strategic dependencies.” Third, the key characteristic of a multi-sided platform is that it intermediates to match the interests of two or more distinct, non-competing groups of users. For example, a search engine competes to acquire “eyeballs” (or attention) from users searching for information, e.g., on products, on one market side and to then match those users to vendors or advertisers on the other side who have services or products to sell. As discussed in more detail in Section 17.3 below, this gives rise to a “chicken and egg” problem of balancing the respective interests of the two user groups. For example, if a search engine has too many ads, and not enough relevant information, users would switch off, which in turn would make it less interesting as an outlet for advertisers. Fourth, an obvious but important point is that not all digital goods involve multi-sided or platform markets. For example, PayPal is simply a digital form of convenient and secure payment. It does not match two groups together. By the same token, not all platforms are digital. Tirole gives the example of a fruit and vegetable market where sellers interact directly with customers through the marketplace.10 A nightclub is another oft-cited example.

7 See generally M Katz and J Sallet, “Multisided Platforms and Antitrust Enforcement,” 127 Yale Law Journal, 2142 (2018). 8 In the United States, Justice Breyer stated “…there are four relevant features of such businesses…they (1) offer different products or services, (2) to different groups of customers, (3) whom the ‘platform’ connects, (4) in simultaneous transactions.” See Ohio v. Am. Express Co., 138 S. Ct. 2274, 2298 (2018). 9 Communication From The Commission To The European Parliament, The Council, The European Economic And Social Committee And The Committee Of The Regions, “Online Platforms and the Digital Single Market Opportunities and Challenges for Europe,” COM/2016/0288 Final, pp. 2-3. 10 J Tirole, Economics For The Common Good, Princeton University Press (2017), pp. 190-191. 1049 Abuses In Digital Platform Markets

Fifth, the different but inter-dependent nature of the interests of the two user groups create so-called “externalities” between them whereby, if one side benefits a lot from interaction with the other side, it can pay much more for it. For example, search engines typically offer online search services for free in an effort to attract users’ attention so that that can be monetised by selling adverts. Sixth, the co-existence of two distinct but related groups on a platform means that the operator may have to perform various “regulatory” roles that a non-platform would not.11 For example, maintaining the quality of a search platform by preventing spam or other low quality results is usually central to its success. It may also have dispute resolution functions in terms of the impact of platform changes on its users and beneficiaries. Similarly, apps running on a particular platform “ecosystem” may be adversely affected by changes to it and need a way of airing and resolving such grievances. Finally, it is important to appreciate that the terms “digital platform” or “multi-sided” market are not some sort of binary “switch” that, once activated, leads to a distinct set of legal or economic principles automatically applying. Rather, these terms are largely conceptual aids that assist with an appreciation that, depending on the particular facts of a case, certain issues may be of more or less significance. For example, extreme returns to scale, network effects, and the importance of data are common features of digital platform or multi-sided markets. Similarly, as discussed in Chapter Three (Market Definition), the fact that the platform has two or more non-competing user sides can have a significant bearing on market definition. Equally, as discussed in Section 17.4 below, the presence of a free service offered by a dominant firm in a multi-sided market is not itself a “red flag” in a way that it might be in the context of other markets. It may simply be an efficient way to generate a group on one side of the market of interest to the group on the other side. The salient point is that these issues are something to be factored into the analysis rather than being normative rules in themselves. Structure of this chapter. Section 17.2 starts by setting out the wider context in which the issues of multi-sided platforms fall to be considered. The benefits created by multi- sided platforms are manifest. But serious concerns have also been expressed about multi-sided platforms across a broad spectrum of issues. It is important to distinguish and disentangle these effects before considering what role Article 102 TFEU does, and should, play in this context. Section 17.3 considers the economics of multi-sided platforms. Section 17.4 discusses the decisional practice and case law in respect of exclusionary abuses by multi-sided platforms, followed in Section 17.5 by a discussion of exploitative abuses. Section 17.6 considers certain of the more controversial, difficult, and unresolved questions in the area of multi-sided platforms and Article 102 TFEU. A conclusion is set out in Section 17.7. 17.2 THE WIDER CONTEXT Pro-competitive aspects of multi-sided platforms. It is trite to observe the enormous benefits that multi-sided platforms have created for consumers and wider society. Most consumers in developed economies use a search engine every day and usually find what

11 Ibid. 1050 The Law and Economics of Article 102 TFEU they are looking for, all of which is free—at least in terms of a direct cost to the user. Much the same applies to social networks, email, digital maps, video-streaming, e- commerce, and a whole range of other digital products and services. Most of the global information available digitally has been catalogued for search purposes. Information hitherto available only in physical format is also increasingly being made available and searchable in digital format. Communications have also become seamless and, in many cases, free (e.g., WhatsApp) compared to swingeing charges applied in the recent past for international communications. In addition to these functions, smart mobile devices running on digital platforms can now perform a range of complex and diffuse tasks on a single device, in particular through mobile apps, e.g., navigation, photography. The consumer surplus generated by these (generally) free services is manifestly enormous. It has been calculated that, in the US, Facebook provides substantial value to consumers who would require median compensation of about $40-$50 per month for leaving this service.12 The same authors replicated these figures across other services and found similar benefits. So, it can be confidently said that the consumer surplus generated by free services provided by platforms could run to thousands of Euros per annum per consumer. Of course, in many cases, the users are effectively selling a raw material to the digital platform in the form of access to their data, which can then be monetised by the platform. So, the service may not in truth be “free,” and the price could indeed be negative in some instances. It is also trite to observe the great innovation benefits created by multi-sided platforms. Products and services that did not exist at all a decade ago have now become so essential to daily life that large swathes of people would apparently struggle to go without them. These benefits have been created in large part through enormous spending on research and development and innovation by multi-sided platforms. As a recent UK report on digital competition notes:13

“Digital companies invest large sums in research and development…Amazon, Alphabet (the parent company of Google), Microsoft and Apple all featured in the top 10 companies for global spending on research in 2018, with Facebook not much further behind in 14th. These high levels of investment in research and innovation will deliver significant benefits for these businesses, their consumers, and society as a whole.

Companies such as Uber and Zipcar in transportation, Airbnb in hotel and hospitality, and Deliveroo and Uber Eats in takeaway food delivery, are just a few examples of firms that have each used digital technology to innovate within areas of existing service provision. Growing user numbers suggest these transformative changes are hugely popular with consumers.” Because data acquisition, processing, and use is central to many multi-sided platforms, these data can generate enormous value for the economy. As the recent UK report on digital competition puts it:14

12 See E Brynjolfsson, F Eggers, and A Gannamaneni, Using Massive Online Choice Experiments To Measure Changes In Well-Being, NBER Working Paper Series, Working Paper 24514, available at http://www.nber.org/papers/w24514. 13 Unlocking Digital Competition, Report of the Digital Competition Expert Panel, March 2019, p.20. In an Australian context, see Australian Competition and Consumer Commission, “Digital Platforms Inquiry-Final Report,” June 2019. 14 Ibid., p.23. 1051 Abuses In Digital Platform Markets

“Such detailed knowledge about consumers’ behaviour or purchasing intentions, in some cases held in near-real time, can be valuable. This data makes targeted advertising possible, for example to be deployed when a consumer is considering making a purchase. It also allows services to be tailored towards groups or individuals.

Access to data enables companies to engage in data-driven innovation which helps them improve their understanding of customers’ demands, habits and needs, thus cementing their advantage. Some studies have found that companies that use data-driven innovation have experienced between 5% and 10% faster productivity growth than companies that do not. The new insights gained from data can improve decision making in a variety of ways, across industries, and can lead to a wide range of benefits, such as:

• improvements to the quality of products or services – through a greater understanding of feedback, explicitly through comments and implicitly through what customers buy

• improvements to productivity – an increased ability to forecast demand and market trends enables organisations to produce and distribute their goods and services in a more efficient manner

• exploitation of new business opportunities – data gathered in the context of one service can be reused for a different purpose, which may lead to a more efficient understanding of gaps in supply

• more target-oriented business models – for example personalised promotions.” It also bears emphasis that the benefits of digital products go far beyond the purely venal or convenient. For example, mobile applications such as SkinVision running on digital mobile platforms such as Android and iOS may allow immediate diagnosis of skin cancers and related problems. The same applies to large-scale healthcare in the public and private systems. Artificial intelligence and machine learning are being used to increasingly significant effect in the area of healthcare to collect and evaluate patient data and improve diagnosis and treatment.15 As the consulting firm McKinsey note:16

“The US healthcare system generates approximately one trillion gigabytes of data annually. These prodigious quantities of data have been accompanied by an increase in cheap, large-scale computing power. Together, they raise the possibility that artificial intelligence— and machine learning, in particular—can generate insights both to improve the discovery of new therapeutics and to make the delivery of current ones more effective.” Similarly, the use of location data and other forms of permanent digital information has had dramatic effect in convicting the guilty and ensuring the innocent go free in the sphere of criminal law,17 and more generally in ensuring the safety of the population through, e.g., emergency location devices. Finally, societies have benefitted from the fact that the largest global platforms have had a dramatic impact on the GDP/GNP or other measures of national wealth in those

15 In a recent world first, artificial intelligence was used to develop a new antibiotic to treat highly drug-resistant bacteria. See JM Stokes et al, “A Deep Learning Approach to Antibiotic Discovery,” Cell, Volume 180, Issue 4, 20 February 2020, pp. 688-702. 16 McKinsey, Machine Learning And Therapeutics 2.0: Avoiding Hype, Realising Potential, December 2018. 17 See J Valentino-DeVries, Tracking Phones, Google Is a Dragnet for the Police, New York Times, 13 April 2019. The author does note, however, some potential false positive issues. 1052 The Law and Economics of Article 102 TFEU countries in which they operate or have corporate or tax domicile. Amazon, Apple, Google, Facebook, and Microsoft have at various points in recent years been the top five most valuable companies worldwide, with revenues exceeding the wealth of most countries. Concerns expressed about multi-sided platforms. A wide range of disparate concerns have been expressed in connection with multi-sided platforms. First, perhaps the most frequently-stated concern is that the markets concerned are typically very heavily concentrated. Concentration of course depends on the definition of the relevant market but it is trite to observe heavily concentrated positions in, e.g., online search, online retail (e.g., E-books), certain forms of online advertising, and social networks. Markets have always had instances where they tended towards monopoly. But there are particular features of multi-sided platforms that make very high levels of concentration more likely to arise. As the Stigler Committee on Digital Platforms states:18

“Digital Platforms tend to monopolies: The markets where [digital platforms] operate exhibit several economic features that, while not novel per se, appear together for the first time and push these markets towards monopolisation by a single company. These features are: i) strong network effects (the more people use a product, the more appealing this product becomes for other users); ii) strong economies of scale and scope (the cost of producing more or of expanding in other sectors decreases with company’s size); iii) marginal costs close to zero (the cost of servicing another consumer is close to zero); iv) high and increasing returns to the use of data; and v) low distribution costs that allow for a global reach. This confluence of features means that these markets are prone to tipping; that is, they reach a point where the market will naturally tend towards a single, very dominant player (also known as ‘winner takes all markets’). An entrant will most likely be unable to overcome the barriers to entry represented by scale economies and data control, as they are difficult to achieve in a quick, cost-effective manner.” The upshot of this level and persistence of concentration is summarised as follows by the recent UK report on digital competition:19

“The barriers to entry that exist in established digital platform markets mean that they cannot generally be considered freely contestable, and as such the largest incumbents’ positions are not imminently under threat. This means that they can exert significant market power over their users, meaning they are not required to deliver the same level of positive outcomes as they would if facing normal competitive market conditions.

There are a number of a priori economic reasons to believe that this market power could be persistent under the current policy regime. The more rapid turnover in the earlier days of the consumer expansion of the internet has given way to a greater degree of stability and continued consolidation in market shares in the major activities.

It is impossible to assess and predict future technologies and how they might affect the current incumbents. But in general, it appears that the large incumbent digital companies are in the best position to lead in the next waves of technologies as well, with many of them likely to be based on machine learning and artificial intelligence that is powered by the large data sets that the incumbents have greatest access to. This includes technologies like smart speakers and other Internet of Things devices as well as technologies like voice and image recognition.”

18 Stigler Committee on Digital Platforms, Final Report (2019), p.7. 19 Unlocking Digital Competition, Report of the Digital Competition Expert Panel, March 2019, p.41. 1053 Abuses In Digital Platform Markets

Second, concern has been expressed about the scope for multi-sided platforms with market power to cause direct and indirect harm to competition and consumers through various practices. The recent UK report on digital competition notes that these concerns are ambiguous:20

“Although many digital markets tend towards concentration, the welfare effects are not entirely clear. As economies of scale reduce costs for larger firms, and network effects raise the benefits of single platforms being used, then a concentrated market may be an efficient outcome. However, this is only satisfactory if consumers receive a sufficient share of the benefits of these efficiencies. When a single platform faces limited competition for the market and many fragmented users with limited bargaining power, this is unlikely to be the case over the long term.

Absent an effective competitive constraint on the market, economic theory suggests that optimal decisions by a dominant platform will not consistently deliver optimal outcomes for consumers. This can affect consumers directly, through variation of prices and quality of services provided by platforms to consumers. Or, it might result in indirect consumer impacts, as the effects of unfair terms and unfair access for business users of platforms filter through to consumers in the prices, quality, and range of services they receive from those businesses.

The following forms of conduct by large digital platforms towards smaller firms could indirectly lead to consumer harm:

• Business users of strategically important platforms can be charged unfair access fees, commissions, or be required to accept other unfair contractual terms. This conduct might also have an exclusionary effect if the platform is itself competing with its own business users to supply via its platforms, as the high charges can limit its rivals’ ability to compete.

• Businesses may not be given fair access to consumers, either because they are denied access to the platform entirely, or through an unbalanced ranking structure, which can distort competition and result in sub-optimal outcomes for consumers. Business users may also be restricted from competing freely elsewhere through anti-competitive conduct or clauses in contracts.

• Strategically important platforms could have scoring power over their users, meaning they are able to influence their reputation.

Behaviour by platforms that restricts the margins of smaller businesses could limit their ability to invest and innovate. Restricting the growth of businesses users can also limit their potential to become direct competitors over time. Consumers could ultimately be expected to face higher prices, lower quality, or reduced choice in future as a result.” Third, there is a concern that merger control laws are not particularly well equipped to deal with acquisitions of start-ups by large multi-sided platforms.21 The concern is essentially two-fold. The first is a jurisdictional question. Since most merger controls laws are based on turnover or market share thresholds (which trigger a merger notification obligation or regulatory intervention), these metrics may not capture situations in which a dominant multi-sided platform acquires a start-up with limited or no market presence/turnover. This has led some countries to consider adding

20 Ibid., pp.42, 45. 21 For a detailed discussion see J Crémer, YA de Montjoye, and H Schweitzer, Competition Policy For The Digital Era, Final Report (2019), Chapter 6. 1054 The Law and Economics of Article 102 TFEU transaction value thresholds,22 which can raise further measurement issues and other problems of its own. The second issue is substantive assessment of mergers.23 Some have expressed the concern that the substantive test for mergers is too “static” and does not easily capture situations where a dominant platform and/or ecosystem, which benefits from strong positive network effects and data access that act as significant barriers to entry, acquires a target with a currently low turnover but a large and/or fast-growing user base and a high future market potential.24 This view is not universally shared, however, since assessments of innovation markets are frequently conducted by merger control authorities. Accordingly, the issue may be the inherent general difficulties of predicting the future in a highly dynamic space. Merger control authorities do not have omniscience in predicting the future. One potentially important difference, however, is that where digital platforms compete for “attention,” the sources of potential competitive threats are subject only to the limits of human imagination and addiction. For example, it was not self-evident that Angry Birds, Candy Crush, and posting pictures of your supper (Instagram) would be among the most effective attention-grabbing tools in recent years in the digital world. In such a context, the prospective assessment made by the merger control authority is potentially much more difficult, since radically different out-of-market options may displace current platforms. By contrast, in most other innovation markets, the lines of potential competition tend to be more linear. For example, in pharmaceutical innovation, the paths to innovation are typically quite clear due to the long regulatory approval process, even if the ultimate success of such products remains uncertain.25 A pharmaceutical molecule is ultimately only likely to be outcompeted by another molecule or, maybe, some form of biotechnology. Fourth, the flip-side of the benefits created by online advertising and other forms of monetisation of users’ attention is a concern about so-called “surveillance capitalism” being visited upon users.26 This argument foreshadows a dystopian world in which digital platforms’ access to deeply personal, sensitive, and real-time information can be used significantly to modify consumer behaviour and create preferences ab initio. Historically of course, advertising has tried to influence the target audience’s behaviour. But as the merchant John Wanamaker famously said “half the money I spend on advertising is wasted; the trouble is I don’t know which half.” This reflects the problem

22 Austria and Germany have recently done this. See Sec. 35(1a) GWB (Germany) and Sec. 9(4) KartG (Austria). 23 Notable merger cases in this area include Case M.4731 Google/Doubleclick, Commission Decision of 11 March 2008; Case M.7217 Facebook/WhatsApp, Commission Decision of 3 October 2014; Case M.8124 Microsoft/LinkedIn, Commission Decision of 6 December 2016; and Case M.8788 Apple/Shazam, Commission Decision of 6 September 2018. See generally N Levy and C Cook, European Merger Control Law: A Guide to the Merger Regulation, Matthew Bender Elite Products, Chapter 10. 24 See J Crémer, YA de Montjoye, and H Schweitzer, Competition Policy For The Digital Era, Final Report (2019), Chapter 6. 25 See Charles River Associates, Competition Memo, “Roche/Spark And Pharma Mergers: Acquiring A ‘Pipeline’ Potential Competitor And ‘Killer Acquisition’ Concerns,” 5 March 2020. 26 See S Zuboff, The Age of Surveillance Capitalism: The Fight for a Human Future at the New Frontier of Power, Profile Books (2019). 1055 Abuses In Digital Platform Markets that, in a physical medium addressed to consumers in general (or even as a category), it is very difficult to discern which ads are effective and why. But in a digital world where ads can be completely bespoke and targeted by a data-based algorithmic, assessment of the particular individual’s characteristics, mood, and foibles, there is a risk that human behaviour becomes fundamentally modified and affected. As the Stigler Committee on Digital Platforms put it:27

“Digital businesses not only have more information than traditional firms, but they have more variations of products or services and the ability to control the environment and the timing of choices and offers. For example, a firm can hide a component of a good’s price to let consumers discover prices only once they have invested significant time and effort into buying the good. This strategy can be differentially employed depending on the consumer’s past willingness to pay. Framing, nudges, and defaults can direct a consumer to the choice that is most profitable for the platform. A platform can analyse a user’s data in real time to determine when she is in an emotional ‘hot state’ and offer a good that the user would not purchase when her self-control was higher. Consider a supercomputer tracking a consumer, via her cell phone, around the town until she is tired and frustrated in some way, and at that moment presenting her ads and information about junk food. This type of exploitation could depend on input from devices such as eye-tracking sensors, the ability of AI to understand the emotion expressed in texts and email, and all the other data the platform has about the consumer combined at a very large scale. This same tactic can be used to gain advantage against an independent contractor, e.g. a driver, whose behaviour and location can be tracked for long periods. In addition, machine learning applied to big data may help differentiate well- informed and sophisticated consumers or workers from poorly informed or more naïve consumers, raising the possibility of further exploitation of those least prepared to resist it.

With big data and machine learning, firms are able to understand and manipulate individual preferences at a scale that goes far beyond what is possible in traditional markets. This capability is qualitatively new. The environment is characterised by extreme asymmetries of information and analytical capacity between the platform and the user. This enables firms to charge higher prices (for goods purchased and for advertising) and engage in behavioural discrimination, allowing platforms to extract more value from users where they are weak. The problem is only growing; platforms continue to make investments to extract data, encourage stickiness and addiction, and promote ever-greater use, in order to run data analytics and enable more precise targeting.” This of course is a significant economic efficiency for the advertiser and the supplier whose goods it is advertising, since advertising becomes more effective. It may or may not be a consumer efficiency, and there are philosophical, environmental, and other societal issues28 about encouraging unnecessary consumption. But the concern expressed is about the cost to human behaviour of such efficiency in terms of impacts on fundamental concepts such as individual liberty and freedom of choice that define the very essence of human existence. Fifth, concerns about the role of multi-sided digital platforms extend beyond the purely venal issue that a consumer might purchase a product that he or she would not have but for the intervention of an online ad or some other form of attention seeking tool. Concern has also been expressed about the scope for online advertising, social media,

27 Stigler Committee on Digital Platforms, Final Report (2019), pp.61-62. 28 Whether the efforts of the world’s cleverest mathematicians, statisticians, and computer engineers should be so focused on selling ads is a legitimate question. 1056 The Law and Economics of Article 102 TFEU and other forms of multi-sided platform attention-seeking to impact upon democratic elections and other major democratic events. These impacts are potentially positive or negative. Social media platforms played a prominent role in the so-called Arab Spring.29 Social media could also increase voter turnout,30 which must be a good thing. But an obvious concern would be if social media could be used effectively to gerrymander elections, i.e., not merely by increasing general turnout, but also directing that increased turnout to a particular candidate or outcome.31 In many democracies, advertising in physical and other traditional media is subject to election laws on truthfulness etc. But in many of the same countries, the same standards do not apply to activities on certain multi-sided platforms, e.g., social media. Sixth, the issue of disinformation, colloquially known as fake news, is considered to be more problematic on social media platforms.32 The Stigler Committee on Digital Platforms states:33

“Recent research and multiple investigations by news organisations support the assertion that platforms do not have incentives to prioritise quality content. A recent study found that disinformation can spread faster than true news on social media such as Twitter. Not only are users not good at distinguishing reliable and unreliable news; digital platforms at the same time have access to private information about users, enabling them to selectively target visceral, addictive and at times extremist content. This, coupled with the fact that digital platforms are not held accountable for the published content, has made digital platforms powerful tools of influence, having insight into people’s private behaviour, but enjoying immunity from any consequences.” Seventh, with masses of digital data being stored by digital platforms there are concerns about both inadvertent breaches of security34 and deliberate efforts by platforms to gather data in ways largely or entirely unknown to the data subjects. In 2019, Facebook agreed to pay a fine of $5 billion concerning tactics that “allowed the company to share users’ personal information with third-party apps that were downloaded by the user’s Facebook ‘friends’.” The FTC alleged that many users were unaware that Facebook was sharing such information, and therefore did not take the steps needed to opt-out of sharing. In a related but separate development, the FTC also announced law enforcement actions against the data analytics company Cambridge Analytica, alleging they used false and deceptive tactics to harvest personal information from millions of Facebook users.35 In England, a High Court judgment records that, for a period until

29 See PN Howard and MM Hussain, Democracy’s Fourth Wave?: Digital Media and the Arab Spring, Oxford University Press (2013). 30 See RM Bond et al., “A 61-Million-Person Experiment in Social Influence and Political MobiliSation,” 489 Nature 7415 (2012). 31 See J Zittrain, “Engineering An Election: Digital Gerrrymandering Poses A Threat To Democracy,” 127 Harvard Law Review, 335, (2014). 32 See S Vosoughi, D Roy and S Aral, “The Spread Of True And False News Online”, Science Vol. 359, Issue 6380, pp. 1146-1151, 9 March 2018. 33 Stigler Committee on Digital Platforms, Final Report (2019), p.150. 34 For perspective, in the UK alone in November 2019 1,341,147,383 records were exposed in 87 incidents. See L Irwin, “List Of Data Breaches And Cyber Attacks In November 2019 – 1.34 Billion Records Breached,” https://www.itgovernance.co.uk/blog/list-of-data-breaches-and-cyber-attacks-in- november-2019-1-34-billion-records-breached. 35 See FTC Press Release, 24 July 2019, “FTC Imposes $5 Billion Penalty and Sweeping New Privacy Restrictions on Facebook.” On 30 January 2020, Facebook also announced that it had reached a 1057 Abuses In Digital Platform Markets

March 2012, measures were in place for certain devices that enabled:36

“…Google to set the DoubleClick Ad cookie on a device, without the user’s knowledge or consent, immediately, whenever the user visited a website that contained DoubleClick Ad content. This enabled Google to identify visits by the device to any website displaying an advertisement from its vast advertising network, and to collect considerable amounts of information. It could tell the date and time of any visit to a given website, how long the user spent there, which pages were visited for how long, and what ads were viewed for how long. In some cases, by means of the IP address of the browser, the user’s approximate geographical location could be identified. Over time, Google could and did collect information as to the order in which and the frequency with which websites were visited. It is said by the claimant that this tracking and collating of BGI [browser generated information] enabled Google to obtain or deduce information relating not only to users’ internet surfing habits and location, but also about such diverse factors as their interests and habits, race or ethnicity, social class, political or religious views or affiliations, age, health, gender, sexuality, and financial position.” There are also concerns that even when the user has ostensibly turned off a digital platform’s ability to access its browsing history and other data, it is not actually turned off, or at least is not turned off for some time.37 The EU is fortunate in this regard to have probably the most developed and sophisticated data privacy laws of any major bloc, which stems in large part from its historic experience with breaches of privacy under totalitarianism. Notably, the EU General Data Protection Regulation (GDPR) provides for directly-applicable measures across EU Member States.38 The legislation is complex and detailed but at its core sets out when and how personal data may be processed, accessed, traded, and shared,39 and incorporates a principle that personal data shall be “adequate, relevant and limited to what is necessary in relation to the purposes for which they are processed (‘data minimisation’).”40 But inadvertent and deliberate data security and privacy breaches do still occur in the EU. Eighth, there are concerns around the extent to which users who agree—usually by tick box—to the terms and conditions of digital services are giving informed consent and understand the scope and scale of the agreements they have signed up to. A striking, but almost certainly common, example is the Nest-connected smart thermostat. Two scholars calculated that, if a user signs up to this product, and “if you add to Nest legals

$550 million settlement related to a class action lawsuit that claimed it illegally collected and stored biometric data for millions of users without their consent. 36 The background is set out in detail by the Court of Appeal in Lloyd v. Google LLC [2019] EWCA Civ 1599. 37 Wired noted that, in relation to a particular Facebook feature called “Off-Facebook Activity,” “even if you turn off Facebook’s ability to use your browsing history for ads, Facebook will still collect that information, and it will still be connected to your account for up to two days.” See L Matsakis, Facebook’s New Privacy Feature Comes With a Loophole, Wired, 20 August 2019, https://www.wired.com/story/off-facebook-activity-privacy/. 38 Regulation (EU) 2016/679 of the European Parliament and of the Council of 27 April 2016 on the protection of natural persons with regard to the processing of personal data and on the free movement of such data, OJ 2016 L119/1. 39 Ibid., Article 8(1). For an overview, see J Crémer, YA de Montjoye, and H Schweitzer, Competition Policy For The Digital Era, Final Report (2019), pp. 76-91. 40 Ibid., Article 5(1)(c). 1058 The Law and Economics of Article 102 TFEU those of the connected devices, apps and appliances, the result is that for what appears to be a single product, a thousand contracts may apply!”41 The Stigler Committee on Digital Platforms notes the various techniques used by digital operators in this connection:42

“Internet firms make frequent use of digital defaults, framings, and nudges. When a user is signing up for a new service, the sign-up form may automatically check the box that permits the service to send the user emails. A user can opt-out of receiving emails by unchecking the box, but doing so is harder than sticking with the default. The results of a search that fits onto one page may all be sponsored, whereas finding the organic links requires paging down. Homo economicus is hardly influenced by defaults—to a rational agent, scrolling down or unchecking a box is trivial—but real people are influenced. Nudges are not unique to digital products; for example, an employer offering a default health care plan to its employees nudges employees towards choosing that plan—employees can select a different plan, but doing so is harder than sticking with the default. What is noteworthy, however, is the platform’s detailed, personalised, minute-by-minute control over their interface. This control enables platforms to create a façade of competition, choice, and autonomy when in fact users are being directed with behavioural techniques.” Ninth, concerns have been expressed about major digital platforms funding academic research in an effort to foster favourable policy positions or outcomes in regulation or competition law.43 This of course is not unique to digital platform companies and is defended on the basis of free speech and fostering public debate. Finally, digital platforms can raise a host of wider legal issues, including:44 (1) the use of end-to-end encryption and its impact on public law enforcement; (2) intermediary liability over harmful content transmitted over their platforms; (3) the arbitration of disputes within platforms;45 (4) whether digital platforms are, in law, agents of their suppliers and how this impacts on whether their actions are those of a single undertaking under competition law;46 and (5) the use and abuse of tax laws. The limits of Article 102 TFEU. It will be apparent from the foregoing that a good deal of the concern expressed about multi-sided digital platforms extends far beyond any reasonable notion of the compass of Article 102 TFEU. It is difficult for example to imagine what Article 102 TFEU could do about concerns as regards the impact of multi-sided platforms on democratic elections and other events, or media plurality more generally. Likewise, Article 102 TFEU seems generally inapt to deal with issues of data

41 G Noto La Diega and L Walden, “Contracting For The 'Internet Of Things:’ Looking Into The Nest,” European Journal of Law and Technology, Vol 7, No 2, 2016. 42 Stigler Committee on Digital Platforms, Final Report (2019), pp.59-60. 43 See B Mullins and J Nicas, “Paying Professors: Inside Google’s Academic Influence Campaign,” Wall Strret Journal, available at https://www.wsj.com/articles/paying-professors-inside-googles- academic-influence-campaign-1499785286 and more generally R Feldman, MA Lemley, JS Masur and AK Rai, “Open Letter On Ethical Norms In Intellectual Property Scholarship,” Harvard Journal of Law and Technology, Volume 29, Number 2, Spring 2016. 44 For an overview, see Lord Anderson QC, “Taming The Wild West: Government And The Internet,” The David Vaughan CBE QC Annual Antitrust Litigation Lecture Clifford Chance, 14 November 2019, available at https://www.daqc.co.uk/wp-content/uploads/sites/22/2019/11/lecture- 1.pdf. 45 See R van Loo, “The Corporation as Courthouse,” 33 Yale Journal of Regulation, 547 (2016). 46 See P Akman, “Online Platforms, Agency, and Competition Law: Mind the Gap,” (2019) 43(2) Fordham International Law Journal, 209. 1059 Abuses In Digital Platform Markets privacy law and consumer protection or contract laws. Even the concerns raised about the ability of merger control laws to deal with acquisitions by digital platform are not directly related to Article 102 TFEU concerns (even if Article 102 TFEU is sometimes relied upon in a merger control context as an ex post bulwark to deal with the abuse of market power). Instead, the role of Article 102 TFEU should be firmly anchored in concerns around the abuse of market power that limit output to the prejudice of consumers or involve some other harm to consumer welfare or impact on the structure of competition. It is undoubtedly the case that the application of Article 102 TFEU in the area of multi-sided platforms presents particular challenges that stem in large part from unusual or unique features of these markets. But the need to resolve these challenges should not have the idiomatic result of the baby being thrown out with the bathwater.

17.3 THE ECONOMICS OF MULTI-SIDED PLATFORMS 17.3.1 Basic Economic Characteristics/Effects Platform-mediated markets. Platform-mediated markets, or simply platform markets, consist of sets of users, individuals or firms, whose interactions are subject to network effects, along with one or more intermediaries (known as platforms) who facilitate users’ interactions. Platform businesses are characterised by the existence of within-group and/or cross- group network effects. A communication platform (e.g. a messaging app) is more valuable to consumers when the number of consumers that can be reached through that platform is greater. Such a platform features within-group network effects and constitutes an example of a one-sided platform. Amazon and Facebook were initially one-sided platforms. Instead, an operating system platform (such as iOS or Android) links users with app developers. Users value the platform more as the number of app developers increase and vice versa. Such a two-sided platform thus exhibits cross- group network effects. Two or more sided markets. Multi-sided platforms may have more than two sides. They enable two or more types of customers, who could engage in a mutually valuable exchange, to find each other through search and matching, in order to transact, create and exchange value. These platforms create value by reducing search frictions and transaction costs. Many businesses are based on multi-sided platforms – these include both tech platforms (e.g., Google Search47) and traditional firms (e.g., physical newspapers and magazines). A one-sided firm turns inputs into outputs and sells them onto customers. Instead, a multi-sided platform recruits one type of customer and makes those customers available to another type of customer. Customers on either side of the platform are the inputs and the output sold to each side is access to customers on the other side.

47 A search engine is therefore a multi-sided platform: it is more attractive to users if the search results are relevant and fast, and if the ads are well targeted; it is more attractive to advertisers, vertical search engines and web publishers the more users they gain access to. 1060 The Law and Economics of Article 102 TFEU

Platforms may feature membership and/or usage externalities.48 A (positive) membership externality exists when the value received by a member of one side increases with the number of members on the same or another side. In the case of social networks, users benefit from being able to reach out to a larger number of users. As another example, consumers benefit more from a restaurant reservation platform if they have more restaurants to choose from when making a reservation. This is a traditional indirect network externality. A (positive) usage externality exists when the members of a group benefit when members of the same or other group intensify their use of the platform. For example, users of a social network may benefit when other users post additional content. Because for multi‐sided platforms the demand by one customer group depends on the demand by the other customer group, they need to have both sides on board to create value for either side. But neither type of participant will join if the other type of participant is not already on board. This gives rise to a so-called “chicken and egg” problem.49 Platforms seek to address this problem by designing an attractive platform to get customers on board thereby optimising their experience, or by adopting a governance structure, rules and regulations, which prevent misbehaviour and eliminate negative externalities among customers.50 Platforms also set prices for each side of the platform in a coordinated fashion in order to address the chicken and egg problem.51 17.3.2 Pricing In Multi-Sided Markets The “Goldilocks” problem with pricing. It is difficult to get the price “just right” in a multi-sided market. Setting a price on one side that is too high will reduce the number of customers on both sides of the platform. Setting a price on one side that is too high will reduce the number of customers on both sides of the platform. Platforms will thus choose their price structure considering both the price elasticity of each side as well as the magnitude of the externalities or network effects linking both sides. Hence, the profit maximising price on one side may fall below its marginal cost. It may be zero or even negative. This is true in theory and in practice. The side where prices are below cost is known as the subsidy side, while the other, from which the platform derives its revenues, is the money side.52 Single versus multi-homing and impacts on price competition. The intensity of competition among platforms normally depends on whether customers single- or multi- home. Customers “single-home” when they use only one platform and, as a consequence, restrict themselves to interact only with the customers on the other side of

48 An externality arises when someone accrues a benefit (or a cost) as a result of the decision by others that have not been contracted upon by this other party. 49 See B Caillaud and B Jullien, “Chicken & Egg: Competition among Intermediation Service Providers,” (2012) RAND Journal of Economics 34(2), pp. 309-328. 50 See DS Evans, “Governing Bad Behaviour by Users of Multi-Sided Platforms,” Berkeley Technology Law Journal, (2012) 2(27), pp 1201-1250. 51 See JC Rochet and J Tirole, “Platform Competition in Two-Sided Markets.” Journal of the European Economic Association (2003) 1(4), pp.990 –1029. 52 In some cases, both sides are charged a positive price but often below the prices offered by one- sided competitors. For example, Apple charges both app developers and consumers. 1061 Abuses In Digital Platform Markets that platform (e.g., many consumers use a single search engine). Customers “multi- home” when they use two or more platforms and therefore can access customers on any of the platforms they use. (e.g., many people go to multiple shopping malls or join several social networks). Whether there is multi-homing or not will often depend on how costly it is for users to do so. For instance, multi-homing is likely to be present if in order to use two different services it is sufficient to install two different apps. In other cases, such as when contracts have to be signed, multi-homing might be less common. When customers single-home, competition for them is intense, because the platform they use has a monopoly on accessing them.53 This bottleneck can lead to low prices for single-homing customers. They are likely to be subsidised. When customers on one side of the market single-home, customers on the other side are likely to multi-home (if they want to reach out to all the other side customers). Each platform may then be able to charge more to the multi-homing side. In other words, the single-homing side may benefit more than the multi-homing side, though both sides may benefit if multi-homing produces an expansion of demand on both sides of the platform.54 17.3.3 Market Structure And Tipping Risk Persistence. Long-lived platform monopolies are not that common – many successful platforms face direct competition from other platforms and from one-sided businesses. Positive feedback or network effects do not ensure a single winner: they limit the number of successful firms, but multiple platforms may thrive by appealing to different types of customers on both sides. Furthermore, positive feedback effects can work in reverse: while they may drive rapid growth, they may also lead to a death spiral when a platform starts to lose customers on one or more sides. Platforms need critical mass to ignite. Whether they manage to do so depends on scale and balance, but also on the presence of relevant customers on each side. Platforms implode if they cannot reach critical mass. Tipping. Multi-sided platform markets with more than one platform are likely to tip to monopoly when there are positive and strong cross-group effects, platforms are not differentiated and both sides of the market single home. In order to win the competition for the market, platforms play “divide and conquer” strategies, subsidising one group by offering a deal that induces (most) members of that group to join the platform even when they hold the pessimistic belief that they will find no counterparties on that platform, and charging positive fees to the those counterparties since they have no better

53 This is not just a question of customers’ behaviour. For some platforms there is no choice for users. For instance, the operating system is always associated to the device. So, a user can never multi- home. There are platforms that are by nature single-homing. 54 See M Armstrong “Competition in Two-sided Markets.” (2006) Rand Journal of Economics. 37(3), pp. 668-691; A Hagiu and J Wright, “Multi-sided platforms,” (2015) International Journal of Industrial Organisation, 43, pp.162-174; P Belleflamme and M Peitz, Industrial Organisation: Markets and Strategies, 2nd Edition (2015), Cambridge University Press; and P Belleflamme and M Peitz. “Platform Competition: Who Benefits from Multi-homing?” Working Paper (2017), University of Mannheim. 1062 The Law and Economics of Article 102 TFEU option than joining the platform.55 17.3.4 Platform Strategies “Winner takes all” competition. Due to network effects, competition in platform markets tends to be characterised by winner-take-all battles for dominance. Often, as Evans and Schmalensee put it, these battles are fought “through R&D competition to develop the ‘killer’ product, service or feature that will confer market leadership and thus diminish or eliminate actual or potential rivals.”56 Platforms operating within a market compete using different strategies. Some compete head-to-head using the very same business model. For example, Facebook and Myspace competed head-to-head until Facebook prevailed and the social media market tipped. Others employ intersecting business models. Rival platforms have different sides and possibly a different pricing structure: Free-to-Air (FTA) TV channels compete for users but do not charge them and then sell their audiences to advertisers. On the other hand, pay TV platforms acquire content and sell it to users using subscription fees. Both FTA TV and pay TV platforms compete for users by providing different products. One subsidises users, while the other uses a user-pays model. Finally, some platforms try to envelop others, taking advantage of an extra side. For example, Microsoft competed with a two‐sided user/developer software platform in the mobile operating systems market, while Google combined a two-sided search/advertising platform with a two‐sided user/developer software platform. Google could therefore provide free software (Android) to users, while Microsoft could not, because that was its only revenue source. The notion of platform envelopment57 refers to the entry of a platform (the “origin” or enveloping platform) into another’s platform’s market (the “target” or enveloped market). The two platform markets may have in common at least one side of the market with some overlap among potential users. Platform envelopment theory suggests that platform markets often evolve, not through Schumpeterian innovation, but rather through the leveraging of market power, user base and resources into a target market by a platform who is already successful in another platform market (the origin market).58 Pro-competitive and anti-competitive leveraging. Two products, A and B, are sold in separate platform markets when they are sold through platforms and there is separate demand for each of them; i.e., when there are consumers who want to purchase A but not B and others who want to purchase B but not A. Products sold in separate platform markets are demand-side complements if the value that customers attach to jointly consuming both products is higher than the sum of the values from consuming them separately. Otherwise, we say that the two products are independent or unrelated. A

55 See B Jullien “Competition in Multi-Sided Markets: Divide and Conquer” (2011) American Economic Journal: Microeconomics 3 (4), pp. 186-220. 56 See DS Evans and R Schmalensee, Some Economic Aspects of Antitrust Analysis in Dynamically Competitive Industries (2002) NBER Chapters, National Bureau of Economic Research, Inc. 57 First developed in T Eisenmann, G Parker, and M Van Alstyne, “Platform Envelopment” (2011) Strategic Management Journal 32(12), pp.1270–85. 58 A third strategy to market dominance involves mergers and acquisitions: see further Section 17.2 above. 1063 Abuses In Digital Platform Markets special case of complements is that of system goods, that is two or more goods that are always consumed in fixed proportions or not at all.59 While platform envelopment is most commonly successful when the products in the origin and target platform markets are complements (e.g., operating systems and browsers), it also occurs in cases where the products are unrelated (e.g., operating systems and search engines). Platform envelopment is a form of “tying,” as it involves the concerted selling of different products. Three types of common tying strategies employed in envelopment can be distinguished: 1. Bundling. Pure bundling is when the two products are only offered for sale jointly whereas mixed bundling is when the two products are also sold individually, in addition to being sold as a bundle. Bundling is accomplished either by product design or contractually. It is achieved by product design, when several products or services are combined by the seller into a single product that is impractical to unbundle or to reproduce from purchasing its components in isolation. Contractual bundling, which is instead more easily reversible, occurs when two products are kept separate but purchasing a product commits the client to also acquire a different one. 2. Virtual bundling. Even if each product is sold separately, price coordination might still achieve some or all the effects of tying if the products exhibit complementarities (e.g., when consumers prefer to concentrate their purchases of interoperable software from a single supplier due to bundled discounts). This is referred to as “virtual bundling.”60 3. Self-preferencing. When the terms of trade in the target market, including the possibility of trade, are affected by the behaviour of the enveloping platform in the origin market, the enveloper might enter the target market and, at the same time, bend the origin platform’s rules in order to provide a better outcome for its own products or services. This practice has been referred to as self- preferencing in recent EU case,61 and is discussed in more detail in Section 17.4 below. All these tying or envelopment strategies may facilitate the entry of new players in a target platform market, where entry would otherwise be difficult, or even blockaded, due to significant network effects and switching costs.62 Platform envelopment may thus result in increased competition in the target market to the ultimate benefit of customers from all sides of that market, at least in the short term. Moreover, the enveloper will price very aggressively, since it will not only factor in the usual trade-off

59 There are also system goods where the primary product can be consumed separately but the complementary product is only valuable in conjunction with the primary one. 60 See D Carlton and M Waldman, “The Strategic Use of Tying to Preserve and Create Market Power in Evolving Industries,” (2002) RAND Journal of Economics 33(2),pp.194 – 220. 61 Case AT.39740 Google Search (Shopping), Commission Decision of 27 June 2017 (currently on appeal). 62 See P Klemperer and J Farrell. “Coordination and Lock-In: Competition with Switching Costs and Network Effects.” See Armstrong, Mark and Robert Porter (eds.), Handbook of Industrial Organization, Chapter 11, for a discussion of the impact on entry of both switching costs and network effects. 1064 The Law and Economics of Article 102 TFEU between margins and volumes in the target market but will also internalise the positive effect on the origin platform’s profits of additional volumes in the origin market. Entry by the enveloper is thus bound to be disruptive, i.e., have a significant impact on market structure. But anticompetitive leveraging effects may also arise. Fighting the enveloper in the target market may be very difficult, if not impossible, for firms which operate only in that market, even when they are as efficient or even more efficient than the enveloper. As all their revenues originate from that market, they may not be able to afford adopting a price structure where their revenues fall short of their long-run incremental costs. Instead, the enveloper can use the rents derived in the origin market to cross-subsidise its offerings in the target market. The enveloper’s advantage does not lie in its deep pockets, but rather in its unique position to combine the products sold in the origin and target markets, which is the result of its market power in the origin market. A dominant player in the origin market may have the ability to cross-subsidise its entry into the target market in order to monopolise it. It may be able to do so because its market power in the origin market will provide the funds needed to invest in the target market.63 Perhaps more importantly, by entering and monopolising the target market, the dominant player in the origin market may be able to entrench its dominant position in that market in the long term. Of course, whether an exclusionary incentive to envelop exists needs to be established case by case. It will depend, among other factors, on the cost of entry into the target market, the risk of entry into the origin market in the counterfactual (i.e., in the absence of entry in the target market), the reaction of users, etc. When the enveloper succeeds in monopolising the target market and entrench its dominant position in the origin market, the reduction in competition may harm platform users by exposing them to higher prices, lower quality, loss of privacy, and reduction in innovation. As a matter of economics, the envelopment will only be anticompetitive when: (1) it distorts the competitive process, because the enveloper’s actions cannot be contested by an as-efficient competitor in the target market; and (2) the envelopment results in consumer harm. 17.4. EXCLUSIONARY ABUSES 17.4.1. Overview EU decisions/case law most developed. The EU has unquestionably been at the vanguard in enforcing competition law, and particularly the laws on abuse of dominance, in the area of multi-sided digital platforms for the last several years. This contrasts with a situation of practical non-enforcement in the case of multi-sided digital platforms in the United States to date. The EU’s intellectual leadership in this area has, predictably in an increasingly globalised competition law world, led to a large number of “me-too” type decisions by authorities and courts outside the EU. This section discusses the main Article 102 TFEU cases of interest at the EU and national levels in

63 However, it may face opposition from other multi-platform entrants also capable to engage in platform envelopment. Some of those may even operate a similar business model where data is monetised in their origin platforms. 1065 Abuses In Digital Platform Markets the sphere of exclusionary abuses, with Section 17.5 dealing with exploitative abuse cases. The approach taken in this section is largely neutral and descriptive. Some of the more difficult, polemical, and unresolved issues are discussed in Section 17.6 below.

17.4.2 Shopping64 Search and online advertising. At a basic level, the core of the case concerns two related aspects of Google’s activities. The first is general search services, where users enter a search query in a search engine, which then quickly returns a large number of ranked responses from the search services provider. The results are generated by complex algorithms based on numerous signals or triggers that seek to return the most relevant and useful results by “crawling” and indexing web pages and then ranking them according to relevance and utility to the query concerned. This is a complex task. In most cases, there is rarely a single “right” answer to a search result and in principle there may be millions of websites that are potentially responsive. For example, if a user types in “9/11” he/she could be interested in: (1) the day of the week the 11th September falls in the United State (or, in Europe, the 9th November); (2) information about emergency services; (3) the terrorist attacks in the United States; or (4) the New York memorial museum, etc. Success in search is founded on giving users relevant, useful, fast, and high-quality results to queries. Google is currently the best known search engine, albeit it faces multinational rivals such as Bing and Yahoo. Local rivals in particular national markets also have decent, and sometimes strong, positions as well (e.g., Yandex in Russia). Google does not charge users a fee for general search. In terms of Google’s display of general search results, the response format has varied over time but its essence is blue font, with limited text giving an indication of content (Figure 1). Figure 1: Google general search result

64 Case AT.39740 Google Search (Shopping), Commission Decision of 27 June 2017 (currently on appeal). 1066 The Law and Economics of Article 102 TFEU

The second side of activity is online advertising. Google seeks to recover the substantial costs of investing in a general search engine service by selling online advertising. For example, a retailer can bid on Google’s AdWords auction mechanism in order to have a relevant and useful ad displayed when a user enters a particular query. So, if one enters a query for “Apple iPhone,” the results might include: (1) a Wikipedia page in the general search results on the history of the iPhone; and (2) ads from retailers selling iPhones (displayed usually towards the top or on the right-hand side). If the user clicks on the ad, Google may be paid a small fee by the retailer offering the promotional ad. This is no different to free-to-air television stations selling ad breaks to pay for the television content or a free newspaper (e.g., Metro) carrying ads to cover its costs and make a profit. Google’s Shopping Units/Product Universals. The Shopping decision in part concerns a series of historic services offered by Google. The internet exploded in the early 2000s, with numerous consequences. In the first place the sheer volume of websites grew exponentially so there was much more material to be crawled, indexed, and ranked. Second, richer media content and formats emerged online such as videos and images. Third, ecommerce took off with many retailers and other merchants offering online sales in parallel with physical retailing. Finally, content became more interactive with users being able to purchase goods and services or make bookings online. Users therefore became interested in seeing in the search results responsive information on the offerings of retailers and other product and service providers, both online and in respect of offerings in bricks and mortar shops. These developments presented a significant challenge to general search engines, with the result that the historic approach of merely returning a link to a website in the search results was no longer optimal in the case of many queries. In particular, the specialised information desired by the user was not necessarily, or at least readily, contained in the general search results. Examples included news, weather, and maps. The market therefore reacted by seeking to introduce new product innovations that would identify and display relevant and useful “specialised” search results in tandem with “general” search results, in order to provide more tailored results for the user. This required new forms of search technology that would, based on a user query, apprehend that the user was, potentially, interested in a more specialist type of search result. Altavista was a pioneer in the area of specialised search services but others such as Yahoo and, later, Microsoft, quickly followed. Google’s response in the early 2000s was to develop specialist technology to generate new and better results for different types of queries, e.g., news, local businesses, or products. In the area of product results, Google did not crawl web pages (as it does for general search) and index and rank them. Instead, it built complex new systems that could receive and process data in a specified format directly from merchants—so-called merchant feeds. These feeds were then organised in a dedicated database called a product index, which allowed the results to be structured around variables such as price and stock availability. As with general search results, Google had to apply quality controls to the merchant feed, e.g., to ensure that the prices displayed were correct. Since the merchant feeds came directly from merchants (as opposed to websites generally), the quality control mechanisms used by Google were not identical to those applied to general search services, albeit their overall objective was similar. 1067 Abuses In Digital Platform Markets

Google experimented with earlier versions of specialised product results, such as Froogle (launched in 2002) and then the Product One Box (launched in 2003). The first key innovation, however, was Google’s Product Universals, launched in certain parts of the EU in 2007. The major innovative feature of the Product Universals was based on single unified ranking framework for both general search results and specialist search results, known as Universal Search. Until then, a specialist product result would be shown when the algorithms predicted that such results would be useful to the user’s query. However, the issue was that because the specialised results relied on different signals and data to general search results (i.e., merchant feeds as opposed to webpages), it was not possible directly to compare their relevance to generic results. Google wanted to solve this problem to improve the ranking and quality of its results. Google’s Product Universals were gradually replaced in certain EU countries from 2013 by Google’s Shopping Units. This was because it was potentially confusing to have product ads showed alongside Product Universals and the general search results page was also becoming increasingly cluttered. In response to a user query, the new Shopping Units displayed groups of ads for product offers with pictures and prices, usually at the top of the first general search results page. They were marked as “Sponsored” to distinguish them from free search results (see Figure 1 above), with an accompanying explanation in an information icon next to the “Sponsored” indication (Figure 2 below):65 Figure 2: Shopping Units

Comparisons shopping services. The final piece of background of interest to Shopping is the role of comparison shopping websites. Comparison shopping services are specialised search services that: (1) allow users to search for products and compare their prices and characteristics across the offers of several different online retailers and merchant platforms (e.g., Amazon Marketplace); and (2) provide links that lead (directly or via one or more successive intermediary pages) to the websites of such online retailers or merchant platforms. These third parties are often called “aggregators” because they aggregate the offers of multiple retailers and/or merchant platforms into a single set of results, allowing the user to make price and non-price

65 This figure is taken from a public (image) source. 1068 The Law and Economics of Article 102 TFEU comparisons of the offers available. In general, comparison websites of this kind are remunerated according to users’ use of their websites, e.g., clicks through to the relevant retailer. Separate to its Shopping Units, Google launched a standalone “Google Shopping” website in various EU countries starting in 2013. This was Google’s own price comparison service, since it allowed the results to be filtered by the user by a potentially wide range of criteria, e.g., price, size, weight, proximity of vendor, etc. This was a separate sub-domain that required the user wishing to avail of these services to click away from the general search results page into the Google Shopping sub-domain (Figure 3). Figure 3: Google Shopping

Commission’s findings. The Commission defines two markets: (1) general search services; and (2) comparison shopping services.66 In relation to market (1), the Commission finds that it is distinct from specialised search services (e.g., “vertical” searches for, e.g., products, news, etc.) and social networking sites due inter alia to limited substitutability. The Commission goes on to conclude that the provision of comparison shopping services constitutes a distinct relevant product market. This is because comparison shopping services are not interchangeable with the services offered by specialised search services, online search advertising platforms, online retailers, merchant platforms, and offline comparison shopping tools.67 It finds that Google is dominant in various national general search services markets in the EEA.68 It is not suggested, however, that Google is dominant in comparison shopping services. On abuse, the Commission’s findings are, in essence, quite simple. The Commission concluded that Google abused its dominant position in the various national markets for general search services where Google launched the Product Universal (or, if the Product

66 Case AT.39740 Google Search (Shopping), Commission Decision of 27 June 2017, para. 154. 67 Ibid., para. 192. 68 Ibid., para. 271. 1069 Abuses In Digital Platform Markets

Universal was never launched in that market, the Shopping Unit) by “the more favourable positioning and display, in Google’s general search results pages, of Google’s own comparison shopping service compared to competing comparison shopping services.”69 The Commission found that this constituted a practice falling outside the scope of competition on the merits as it: (1) diverted traffic in the sense that it decreased traffic from Google’s general search results pages to competing comparison shopping services and increased traffic from Google’s general search results pages to Google’s own comparison shopping service; and (2) was capable of having, or likely to have, anti-competitive effects in the national markets for comparison shopping services and general search services. A number of the Commission’s more specific findings bear mention in this regard. First, the Commission concludes that third party price comparison websites were prone to be demoted in Google’s general search results by an algorithm called “Panda” (and another unnamed algorithm) due to the characteristics inherent to those third party price comparison services.70 In particular, the Commission cited internal Google documents showing that “searchers are more likely to see the sites that wrote the original content rather than a site that scraped or copied the original site’s content.”71 The Commission also relies on certain data said to show that the vast majority of the most important comparison shopping services in terms of traffic, their visibility in Google’s general search results pages: (1) was at its highest at the end of 2010 and beginning of 2011; (2) was followed by a sudden drop after the launch of the Panda algorithm in the respective EEA country; and (3) no sustainable recovery occurred afterwards. Second, in addition to the “demotion” of third party comparison shopping services in Google’s general results, the Commission lies on the “promotion” of Google’s comparison shopping services. The Commission relies on two main differences in the way that Google’s own comparison shopping service and competing comparison shopping services are positioned in Google’s general search results pages: (1) Google’s own comparison shopping service is not subject to the same ranking mechanisms as its competitors, including adjustment algorithms such as inter alia Panda; and (2) when triggered, Google positions result from its own comparison shopping service on its first general results page in a highly visible place (i.e., either above all generic search results or, in the majority of cases, within or at the level of the first generic few search results). Third, a central part of the Commission’s reasoning is the (trite) point that user traffic is important for comparison shopping services.72 It found that traffic enhances the ability of comparison shopping services to convince merchants to provide them with data about their products—thus generating revenue that can be used to invest in order to improve the usefulness of the services provided—and allows machine learning effects and experiments, thereby improving the relevance of the results of comparison shopping services and the usefulness of the service they offer to users. Fourth, in concluding that Google’s conduct diverted traffic,73 the Commission looked

69 Ibid., para. 341 (and heading). 70 Ibid., para. 358. 71 Ibid. 72 Ibid., Section 7.2.2. 73 Ibid., Section 7.2.3. 1070 The Law and Economics of Article 102 TFEU at three main items of evidence. First, an analysis of user behaviour that indicated that generic search results generated significant traffic to a website when they were ranked in the first three to five generic search results on the first general search results page. Second, Google’s challenged conduct led to a decrease in generic search traffic from Google’s general search results pages on a lasting basis to almost all competing comparison shopping services in each of the thirteen EEA countries in which an infringement was found. Finally, the challenged Google conduct led to an increase in traffic to Google’s comparison shopping service on a lasting basis in each of the thirteen EEA countries in which an infringement was found. Finally, on anticompetitive effects, the Commission found that the challenged Google conduct:74 (1) had the potential to foreclose competing comparison shopping services, which may lead to higher fees for merchants, higher prices for consumers, and less innovation; and (2) was likely to reduce the ability of consumers to access the most relevant comparison shopping services. In this context, it rejected Google’s arguments that the fact that no competing comparison shopping service had ceased to offer its service, and that hundreds of aggregators remained active, showed an absence of anti- competitive effects. The Commission argued that it was not required to show an actual anticompetitive effect and that, in the absence of the challenged conduct, the number of comparison shopping services might have been greater. Issues in the appeal. In terms of the issue of abuse, the following main issues arise in Google’s appeal:75 1. No “favouring” of Product Universals. Google argues that the Commission erred in finding that Google favoured a Google comparison shopping service by showing Product Universals. This has three aspects. The first is that the Commission is wrong to state that Google did not always show to users the most relevant results (as ranked by its algorithms). In the case of Product Universals, Google argues that the changes it made were specifically intended to, and did, improve the search results compared to what they replaced. In particular, it developed specialised technologies and algorithms that better identified and measured the relevance of product results. In short, it was a procompetitive product improvement. Second, Google argues that the Product Universals received no favourable treatment. “Favouring” implies that the same things are treated differently (or different things the same). Generic results and product results shown in Product Universals are not the same, and the ranking technologies for products in Product Universals created superior results over generic algorithms. Moreover, Product Universals were shown only when they were more relevant for a query than generic results below them. In other words, when shown, they had “earned” their placement in a more prominent position than generic results. Finally, Google argues that the Commission did not rebut its argument that, at the time of Product Universals, it would not have been technically possible for Google to show results from competing price comparison websites. For example, Google said it knew nothing about how price comparison websites ranked and scored their results, which was essential

74 Ibid., Section 7.2.4. 75 The pleas are summarised in OJ 2017, C 369/37. 1071 Abuses In Digital Platform Markets

information for a “unified” ranking. 2. No “favouring” of Shopping Units. In respect of the later Shopping Units phase of its product ads, the Commission makes similar arguments to those made as respects the Product Universals. Google’s appeal thus contains some similar points to its plea on the Products Universal. However, there is also a more specific point in respect of the Shopping Units. Recall from the above background that, at the time of Product Universals, Google did not have its own shopping comparison service. This service, called Google Shopping, was introduced only in 2013 (alongside Google’s product search results, Google Shopping Units), and is a separate sub-domain that requires the user to click on the “Shopping” icon and navigate away from the general search results page. The Commission argues that “clicks on links within the Shopping Units that lead the user directly to a webpage of a merchant should be counted as visits to Google Shopping because Google’s comparison shopping service benefits economically from clicks on those links in the same manner as if the user had taken the intermediary step of going through the standalone Google Shopping website before clicking on the product of that merchant partner.”76 Thus, the Commission treats a click on the Shopping Unit product ad on the generic results page as if it were, in effect, a click on the separate Google Shopping comparison site. Google says that this is wrong, since a click on the Shopping Unit product ad goes to a third party (e.g., a retailer), not Google. Moreover, it explains that the revenue from Shopping Units goes to investing in Google’s general search results, and not its Shopping comparison sub-domain. In short, contrary to what the Commission finds, Google argues that its product comparison service does not “benefit economically” from clicks on its Shopping Units product ads. 3. Causation/counterfactual. It will be recalled that the Commission concluded that Google’s conduct diverts traffic by: (1) decreasing traffic from Google’s general search results pages to competing comparison shopping websites; and (2) increasing traffic from Google’s general search results pages to Google’s own comparison shopping service.77 Google challenges these conclusions essentially on causation grounds: the Commission does not consider what would have happened to traffic of competing comparison shopping websites in the absence of the challenged conduct. Furthermore, Google argues that in circumstances where the Commission does not find that ranking falls in comparison shopping websites in Google’s generic search results—the Panda and other confidential algorithm discussed above—were the result of unlawful behaviour,78 this effect cannot therefore be attributed to the conduct in respect of Product Universals/Shopping Units that is considered unlawful. Finally, Google conducted a difference-in-difference analysis which Google says shows that traffic developed similarly, regardless of whether Product Universals and

76 Ibid., para. 630. 77 Ibid., Section 7.2.3. 78 As noted above, the Commission’s abuse findings concern certain EEA countries where Google introduced Product Universals or Shopping Units. Since the Decision finds no abuse in countries where Google did apply quality-control mechanisms for generic results, such as Panda, but did not show Product Universals or Shopping Units, it follows that the drop in price comparison website rankings in Google’s generic results were not themselves unlawful. 1072 The Law and Economics of Article 102 TFEU

Shopping Units were present or not. 4. The “favouring” paradigm is legally wrong. Google also argues that the Commission’s “favouring” or “self-preferencing” objection to its conduct ignores basic legal principles. In the first place, Google’s Product Universals and Shopping Units were improved product search results that were displayed only where the algorithms concerned determined that they were a more useful and relevant result to a generic search result. Calling such conduct “favouring” should not alter this fundamental point, still less make it unlawful. Furthermore, the Commission compelled Google to give third parties access to the Shopping Units portion of the general search results page. Google submits that access can only be ordered under Article 102 TFEU where the (strict) conditions for a duty to deal are met and that favouring is neither necessary nor sufficient in this regard. These issues are discussed in more detail in Section 17.5 below. 5. No anti-competitive effects. Finally, Google challenges the Commission’s findings on competitive effects. First, Google argues that in circumstances where the Commission has perfect hindsight in the market for over a decade, speculating in the abstract that Google might gain the ability to raise prices or diminish innovation is hollow. Second, Google criticises the Commission for failing to have proper regard to the role of major merchant platforms such as Amazon and eBay, who Google regards as particularly close and strong competitors on product searches. If the market is defined to include these alternatives, Google’s market share is tiny. Finally, Google argues that the Commission fails to consider sources of traffic other than free clicks from Google for comparison websites, such as their own advertising.

17.4.3 Android79 Background. Google started out life as a search engine that functioned mainly on personal computers allowing users to search for information—the ubiquitous Google Search service. At the time, web browsers were the main port of entry for the internet, and Google thus developed its own internet browser, Chrome. It also concluded deals with non-Google browser makers. For example, Google entered into an agreement with Apple to become the default general search service for the Safari browser on Apple’s smart mobile devices. In the late 2000s, it was clear that consumers were switching in large numbers to smart mobile devices where internet searches and a large range of other commercial and non- commercial activities would be conducted. Google recognised the potential for a significant increase in the use of Google’s services on smart mobile devices and the collection of valuable user data, in particular related to location, for inter alia advertising purposes. But the shift to mobile was also a risk. Google’s 2007 Annual Report pointed out that “if we are unable to attract and retain a substantial number of alternative device users to our web search services or if we are slow to develop products and technologies that are more compatible with non-PC communications devices, we

79 Case COMP/AT.40099, Google Android, Commission Decision of 18 July 2018 (currently on appeal). 1073 Abuses In Digital Platform Markets will fail to capture a significant share of an increasingly important portion of the market for online services, which could adversely affect our business.” One of Google’s responses was to develop a new operating system for smart devices known as Android. This was first rolled out in 2007. Google made the source code of Android available for free via the Android Open Source Project allowing anybody to access the source code and create modified versions of Android. Google also licensed Android for free to smart device OEMs. In parallel, Google rolled out its Play Store in 2008, a mobile applications store where Android users could download, install, and manage a large variety of mobile apps that run on Android mobile devices. Unlike other Google apps, the Play Store is not downloadable and thus needs to be pre-installed by OEMs in order for users to have access to it. Finally, Google also sells its own- branded Pixel and Nexus smart devices, albeit most smart devices are sold by major OEMs, e.g., Samsung. Google concluded a series of Mobile Application Distribution Agreements (MADAs) with smart device OEMs. These contained a variety of rights and obligations. Among the obligations on OEMs were:80 (1) once a hardware manufacturer decides to pre- install one or more Google proprietary apps on its devices, it must pre-install all mandatory Google apps; (2) OEMs must place on the smart device’s default homepage the icons which give access to the Google Search app, the Play Store and a folder labelled “Google” which provides access to a collection of icons for a number of mandatory Google apps; (3) any other pre-installed Google apps should be placed no more than one level below the home screen; (4) hardware manufacturers are required to “set Google Search as the default search provider for all Web search access points, albeit this was largely removed over time;” and (5) OEMs must ensure that direct access to Google Search is provided by either “(a) long pressing the ‘Home’ button on Devices with physical navigation buttons, or (b) swiping up on either the navigation bar or ‘Home’ button on Devices with soft navigation buttons.” Commission’s findings. In Google Android the Commission found four separate infringements that formed part of a single and continuous infringement. Two of the infringements—the tying of the Google Search app with the Play Store and the tying of Google Chrome with the Play Store and the Google Search app—were analysed as a tie. The third infringement—making the licensing of the Play Store and the Google Search app conditional on the anti-fragmentation obligations in the anti-fragmentation agreements—had certain elements of a tie but, in substance, turned on the question of the objective justification for the clause in question. The fourth infringement concerned granting revenue share payments to OEMs and mobile network operators on condition that they preinstall no competing general search service on any device within an agreed portfolio, i.e., a type of exclusivity payment. In respect of the tying of the Google Search app with the Play Store and the tying of Google Chrome with the Play Store and the Google Search app, the Commission’s case on anticompetitive foreclosure rests mainly on the following elements:81 (1) the number of general searches via smart mobile devices has grown significantly, accounting for

80 Case COMP/AT.40099, Google Android, Commission Decision of 18 July 2018, paras. 172 et seq. 81 Ibid., paras. 775-876. 1074 The Law and Economics of Article 102 TFEU example for 50-60% in 2016; (2) pre-installation is an important channel for the distribution of general search services on smart mobile devices, creating a degree of “stickiness;” (3) it is impossible to uninstall the Google Search app on devices subject to the MADA pre-installation obligations; (4) competing general search services cannot offset the competitive advantage that Google ensures for itself through tying; and (5) Google’s competitive advantage resulting from the tying and the inability of competing general search services to offset that advantage is consistent with the evolution of market shares. The Commission’s overarching case is that the ties helped “Google to maintain and strengthen its dominant position in each national market for general search services, increases barriers to entry, deters innovation and tends to harm, directly or indirectly consumers.”82 In particular, the Commission concluded that the tie “makes it harder for competing general search services from gaining a sufficient volume of queries to expand and become or remain viable competitors” and “increases barriers to entry by shielding Google from competition from general search services that could challenge its dominant position.”83 The third aspect of the infringement is the finding that Google made the licensing of the Play Store and the Google Search app conditional on agreements that contain anti- fragmentation obligations, preventing hardware manufacturers from: (1) selling devices based on modified versions of Android (so-called “Android forks”); (2) taking actions that may cause or result in the fragmentation of Android; and (3) distributing a software development kit derived from Android. In order to build an Android compatible device, hardware manufacturers must comply with the Android Compatibility Definition Document (CDD) and pass the Compatibility Test Suite (CTS) (together the “Android compatibility tests”). The CDD enumerates the software and hardware requirements of a compatible Android device. The CTS is an automated testing tool that can be run on a target device or simulator to determine compatibility. Only hardware manufacturers that pass the Android compatibility tests can use the “Android” name on hardware, packaging or marketing materials of devices. Issues in the appeal. In terms of the issue of abuse,84 the following main issues arise in Google’s appeal:85 1. No anticompetitive foreclosure under the ties. Google’s appeal strongly contests the Commission’s anticompetitive foreclosure findings in respect of the two ties found by the Commission. The over-arching point is that the agreements only provide for pre-installation of Google Search or Chrome, and not default setting. Google argues that distinction between pre-installation and default setting is critical in several respects. First, OEMs are not required to sign a MADA to

82 Case COMP/AT.40099, Google Android, Commission Decision of 18 July 2018, para. 773. 83 Ibid., paras. 860-861. 84 Google also raises an important appeal ground on market definition/dominance, namely that it competes fiercely with other operating systems for the market (notably Apple’s iOS), which the Commission wrongly does not consider as falling within the relevant product market. This issue is discussed in more detail in Ch. 3 (Market Definition) and Ch. 4 (Dominance). 85 The pleas are summarised in OJ 2018, C 445/21. 1075 Abuses In Digital Platform Markets

license Android. In principle therefore they can decide not to pre-install any Google apps. Second, if they choose to sign a MADA, it is non-exclusive. They can therefore pre-install rivals’ apps alongside the Play Store and other Google apps. Third, the pre-installation takes up very little screen space—in the case of Search it is usually a bar at the top of the screen; in the case of Chrome or the Play Store it is only a small icon. Fourth, a critical issue is that users can and do download non-pre-installed apps in their billions—in 2018 circa 76 billion apps were downloaded on the Play Store.86 In other words, it is argued that the “download barrier” identified in the Microsoft Internet Explorer case over a decade ago has for practical purposes disappeared.87 Fifth, most users can easily disable the Search and Chrome apps if they want (albeit if these are merely pre- installed it is not obvious why they would need to). 2. Supporting free open-source Android. Google argues that its Search and Chrome pre-installation conditions were objectively justified because they allowed Google to provide Android (and the Play Store) free of charge by giving reasonable and proportionate promotional opportunities for Google’s revenue- generating services, Search and Chrome. Google invested billions in the development of Android and has provided it free of charge and on an open source basis to OEMs and mobile operators (and, therefore, users). The way that Google can recoup some of these investments is by giving some promotional space to its Search and Chrome apps on the smart device. A user may click on the pre-installed apps and may then click on an advertisement on Search, for which Google may get paid. In simple terms, Google is “trading” a free operating system and app store—costing billions to develop—in return for non- exclusive pre-installation promotional possibilities. Google argues that short of not promoting Search, Chrome, and the Play Store at all via these Android licences, the limited pre-installation required is a reasonable and proportionate measure to support a free product/service.88

86 See statistics available at https://www.businessofapps.com/data/app-statistics/ 87 Case COMP/C-3/39.530, Microsoft (tying), Commission Decision of 16 December 2009. There is some support for this in more recent case law: see Case T-79/12 Cisco Systems Inc. and Messagenet SpA, EU:T:2013:635, para. 79 (“…there are no technical or economic constraints which prevent users from downloading”). 88 The Commission rejected this argument in the Decision. It argues that: (1) absent pre-installation, Google would still have been able to monetise substantially the Play Store given the revenues it generated: the business model of many app stores is to provide their services for free to OEMs, with monetisation resulting from the revenues generated from the download of apps by users; (2) Google would still have benefitted from the valuable user data it gathers via Google Android devices, namely the information about the characteristics of the devices, such as hardware identifiers, the information about the device carrier, the device’s time zone and which Google Accounts the user chooses to add to the device, location data as well as data from the usage of Google Play Services (e.g. contact information, demographic information, transactional records, etc.); (3) Google has not demonstrated that it would not in any event have had an interest in developing Android in order to counter the risks to its search-advertising business model resulting from the shift to mobile; and (4) users would benefit if OEMs had the flexibility to pre-install (exclusively) competitive products for some or all of their devices, allowing them to differentiate their products. See Case COMP/AT.40099, Google Android, Commission Decision of 18 July 2018, paras. 995 et seq. 1076 The Law and Economics of Article 102 TFEU

3. Anti-fragmentation obligations objectively justified. Google argues that the anti- fragmentation obligations contained in its licences were objectively justified because they imposed minimum and common technical standards to ensure that Android will run properly on the large number of different Android variants. It argues that with the great benefit of a free, open-source model for Android technology comes the responsibility for licensees to protect Android against incompatible or malfunctioning Android variants. This is necessary due to thousands of Android device types in the market (which continue to grow) and different brands, each of which could in principle have their own adapted Android variant. In the Decision the Commission rejected this defence.89 It argues inter alia that: (1) anti-fragmentation obligations were not limited to promoting interoperability but also prohibited OEMs from supporting through different means Android forks that could be pre-installed on devices competing with the devices that had pre-installed Android; (2) Google profited significantly from the open-source distribution of Android and so cannot now claim that the anti-fragmentation obligations are necessary to minimise the negative consequences for Google resulting from greater competition from Android forks; (3) Google did not define precisely what “fragmentation” means: whilst the obligation to sell only compatible devices could be interpreted in light of the CDD and CTS compatibility requirement, the same cannot be said for the clause according to which the licensee “will not take any actions that may cause or result in the fragmentation of Android;” and (4) one of the benefits of developing an Android fork instead of a full-fledged alternative smart mobile OS would be to have access to the wide pool of apps developed for Google Android, meaning that fork developers have an incentive to minimise incompatibilities.

17.4.4 AdSense90 Background. As noted above in the context of the Shopping and Android decisions, Google’s business consists of two sides of the market: (1) one side involving free search services for users searching for product or other information; and (2) a second side where the attention grabbed from Google’s search users is monetised through offering online advertising services. The Commission’s AdSense decision concerns a particular segment of this second side of the market. Google engages in two broad types of monetisation activity in online advertising. The first is AdWords. Depending on the query, a search on Google’s general search results pages may also return search ads (called Google search ads) drawn from Google’s auction-based online search advertising platform, AdWords. AdWords results are not limited to specific categories of products, services or information. Currently, they typically appear above or below Google’s generic search results with a label informing users of their nature as search ads (e.g., “Ads”). Any advertiser can purchase AdWords results because such results are not limited to particular categories of advertisers. The second area is AdSense, an online advertising intermediation platform that Google

89 Case COMP/AT.40099, Google Android, Commission Decision of 18 July 2018, paras. 1156 et seq. 90 Case AT.40411, Google Search (AdSense), Commission Decision of 20 March 2019. 1077 Abuses In Digital Platform Markets has offered since 2003. The distinction with AdWords is that AdSense involves Google providing its search and advertising functionality on the websites of publishers of information, such as newspapers or media outlets. In essence, users of the publisher’s website with AdSense can use Google technology to search on that website and, where appropriate, receive ads.91 Google shares the revenue generated by Google search ads between it and the publishers. Publishers receive a Traffic Acquisition Cost (TAC) from Google, which is a percentage of the revenue generated by users’ clicks on the search ads shown on the publisher’s website. There are different types of AdSense products, including: 1. AdSense for Search (AFS). AFS delivers Google search ads on the websites of publishers in response to search queries typed by users in a search box on those websites. Users can type the queries on desktop and mobile devices. While Google typically provides the technology powering the search box, publishers wishing to rely on non-Google technology can take AFS on a stand-alone basis. 2. AdSense for Content (AFC). AFC delivers Google ads that relate to the content of a given publisher’s website and to certain website properties pre-selected by the advertiser. When a publisher implements AFC on a webpage, AFC periodically crawls the content of that page and delivers Google ads that are relevant to the partner’s audience and to the partner’s site content. Google also shares the revenue generated by those ads between it and the publisher. 3. Mobile versions and applications. Google also allows its partners to generate earnings from the display of Google ads on their websites on mobile devices using its intermediation network via mobile AFS (mAFS) and mobile AFC (mAFC). There is also AdMob, which provides advertising solutions for mobile applications which inter alia allows publishers to monetise their mobile applications with ads placed through Google’s intermediation network. In respect of AdSense the Commission’s concerns focus on three main categories of AFS agreements Google has entered into with publishers: (1) individually negotiated, paper-based Google Services Agreements (GSAs) with Direct Partners, who are typically the larger publishers; (2) standard form, non-negotiable, online agreements with a large number of other generally smaller publishers (Online Contracts); and (3) paper-based simplified agreements (Simplified Contracts). The essential concern the Commission found was a series of exclusivity-type clauses requiring the counterparty (1) to source all or most of their search ads) requirements from Google; (2) to reserve the most prominent space on their search results pages for a minimum number of search ads from Google; and (3) to seek Google’s approval before making changes to the display of competing search ads. Commission’s findings. The Commission concluded that the relevant product markets were various national markets for online search advertising and the EEA-wide market

91 Google also offers AFSh, a service allowing partners to place paid product results from Google’s comparison shopping service (Google Shopping) on their websites. Paid product results, which Google calls Product Listing Ads (PLAs), show product information (e.g. product name, price and company name). 1078 The Law and Economics of Article 102 TFEU for online search advertising intermediation. It found that Google was dominant in most national online search advertising markets in the EEA and that Google held a dominant position in the EEA-wide market for online search advertising intermediation between at least 2006 and 2016.92 In terms of the abuse findings the following points bear emphasis: a. Exclusivity clause in the GSAs. For the GSAs, the Commission considered the clause whereby Direct Partners agreed to source all or most of their search ads requirements from Google to be akin to an exclusivity clause under Article 102 TFEU.93 Importantly, the Commission took the position that the obligation on the Commission to consider evidence tending to suggest an absence of material anti-competitive foreclosure effects per the Intel judgment94 did not apply to an exclusivity obligation. Its position was that that judgment applied only to rebates paid for exclusivity, and not an exclusivity obligation absent a rebate.95 Nevertheless, the Commission in any event found that the challenged GSA clauses were capable of restricting competition because:96 (1) they deterred those Direct Partners from sourcing competing search ads; (2) they prevented access by competing providers of online search advertising intermediation services to a significant part of the EEA- wide market for online search advertising intermediation; (3) they may have deterred innovation; (4) they helped Google to maintain and strengthen its dominant position in each national market for online search advertising in the EEA, except Portugal; and (5) they may have harmed consumers. Finally, the Commission also considered that Google had not demonstrated that the GSA exclusivity clause was either objectively justified, or that the exclusionary effect it produced was counterbalanced or outweighed by advantages in terms of efficiency gains that also benefit consumers.97 One of Google’s main arguments was that the exclusivity clause in GSAs with Direct Partners was necessary to support Google’s customer-specific investments in Direct Partners, including attractive monetisation terms, such as minimum revenue guarantees, minimum revenue shares, individual customisation or technical support. The Commission rejected this argument finding that: (1) Google had submitted no evidence demonstrating that, but for the exclusivity clause in GSAs with Direct Partners, it would not have made customer-specific investments in Direct Partners and in running a search advertising intermediation platform; (2) if the exclusivity clause had been necessary to finance minimum revenue guarantees or minimum revenue shares, Google ought to have removed that clause when it ceased to provide minimum revenue guarantees to Direct Partners; and (3) in depositions to the US Federal Trade Commission a senior Google executive stated that, even in the start-up period when

92 Case AT.40411, Google Search (AdSense), Commission Decision of 20 March 2019, para. 120. 93 Ibid., para. 330. 94 Case C-413/14 P, Intel Corp. v Commission, EU:C:2017:632. 95 Case AT.40411, Google Search (AdSense), Commission Decision of 20 March 2019, para. 343. This conclusion is not self-evidently correct, and is being challenged on appeal. See further Ch. 8 (Exclusive Dealing and Related Practices). 96 Ibid., Section 8.3.4. 97 Ibid., Section 8.3.5. 1079 Abuses In Digital Platform Markets

Google may have lacked experience in running a search advertising intermediation platform, Google did not need to require Direct Partners to source all or most of their search ads requirements from Google in order to invest in running a search advertising intermediation platform. b. Premium placement and minimum Google ads clause. The Commission also concluded that the premium placement and minimum Google ads clause which required Direct Partners: (1) to reserve the most prominent space on their search results pages covered by the relevant GSA for Google search ads; and (2) fill the most prominent space on their search results pages covered by the relevant GSA with a minimum number of Google search ads was abusive.98 The Commission reasoned that when Google served search ads on the search results pages of Direct Partners covered by the relevant GSA, the Direct Partner could not show any competing search ad either above or immediately next to the Google search ads. This meant that the Direct Partner had to show Google ads in the most prominent position, normally at the top left position, above the search results. Where a Direct Partner did not show any search ads at the top left position, above the search results, it had to show Google search ads in the search advertising space that users viewed first when scrolling down the page – which for some users was the bottom of the page. Using similar reasoning to that used for the exclusivity provisions in the GSAs (see above), the Commission also found that the clauses in question were (1) capable of restricting competition; and (2) not objectively justified by Google’s claims that: (a) Google required some degree of revenue assurance to justify its substantial and ongoing investments in Direct Partners’ websites and (b) the clauses were necessary to help maintain the relevance of Google’s search advertising intermediation service by ensuring a greater degree of consistency in the placement of Google search ads by Direct Partners. c. Ads modification clause. The Commission found that a clause whereby Direct Partners had to seek Google’s approval before making any change to the display of competing search ads on their search result pages was abusive.99 It found that the consequence of the clause was that Direct Partners needed to seek Google’s approval before they could make any change to the display of competing search ads on their search results pages. Again, the Commission found that the clauses were capable of restricting competition, using similar lines of argument to those set out above for the other two categories of clauses. Finally, the Commission rejected two objective justification defences, namely that the clauses (1) provided a mechanism for Direct Partners to ensure that their display of competing search ads complied with Google’s quality standards; and (2) helped to avoid deceptive practices on sites that also displayed Google search ads, which had negative implications for Google’s brand and users. Issues in the appeal. On the issue of abuse the main issues on appeal to the EU Courts are as follows:100

98 Ibid., Section 8.4. 99 Ibid., Section 8.5. 100 The pleas are set out in OJ 2019 C 255/60. 1080 The Law and Economics of Article 102 TFEU

1. Exclusivity clause. Google makes three main arguments. First, it argues that the clause in question is not an exclusivity clause imposed on Direct Partners. The clause challenged by the Commission involved Direct Partners who independently chose to have all of their sites within the GSA. They had the option of not doing so.101 Second, Google challenges the Commission’s conclusion that the obligation set out by the Court of Justice in Intel to look at “all the circumstances” applies equally to exclusivity, and not only exclusivity rebates.102 Finally, Google challenges the Commission’s findings on capability to foreclose, both in terms of the facts the Commission relies upon (and omits) and more specifically in terms of the as-efficient competitor test—which it argues would be satisfied in that case based on factual and economic arguments, e.g., coverage, duration. 2. Premium placement and minimum Google ads clause. As with the exclusivity clause, Google challenges the Commission’s underlying characterisation of this clause. It argues that the placement clause only applied to individual websites which Direct Partners chose to include in their GSA and in any case did not prevent them from using competing ads. In particular, competing ads could be placed anywhere on the same webpage other than above or directly next to the Google search ads, which were also profitable positions. Similar to the exclusivity clause, Google also challenges the premium placement clause on the basis of failure to prove anti-competitive effects and the as-efficient competitor test. 3. Ads modification clause. Google makes two main arguments. The first is that the modification clause did not in fact deter Direct Partners from using rival ads. Arguments include the point that the clause only applied to selected websites which the Direct Partner had chosen to include in the GSA, that Google’s consent could not be withheld for commercial reasons, and that the purpose of the clause was to have policies in place concerning offensive, unsafe, undesirable or deceptive ads. The second argument is again the as-efficient competitor test based on its coverage, Google’s market shares, and other factual and economic arguments.

17.4.5 Non-Infringement Cases Streetmap.103 Streetmap concerned Google’s development of its Google Maps product, and whether the impacts of this development on existing online mapping providers was an abuse of dominance. The case concerned two distinct activities: (1) search services; and (2) online mapping services. When Google initially developed its general search services they did not have a Google-

101 The Commission considered that the fact that a Direct Partner was free to choose which of its websites displaying search ads to include in the GSAs did not matter, since once a Direct Partner had committed certain sites to the obligation in the GSA, it was required to source all or most of its search ads requirements from Google for the duration of the GSA. See Case AT.40411, Google Search (AdSense), Commission Decision of 20 March 2019, para. 353. 102 See further Ch. 8 (Exclusive Dealing and Related Practices). 103 Streetmap.EU Limited v Google Inc. and others, [2016] EWHC 253 (Ch). 1081 Abuses In Digital Platform Markets developed mapping product. Google Maps was launched in the UK around April 2005, and until late 2011, Google licensed UK mapping data from TeleAtlas. Since then, it has used its own mapping data (while continuing to license related data, such as satellite imagery, from third parties). At the time Google launched Google Maps, there were already established third party online mapping services, such as Streetmap and Multimap. Initially, under a so-called old-style Maps OneBox, Google allowed users to choose between Google Maps and other online mapping providers by clicking on the underlined address. An example from the US is set out below (Figure 4): Figure 4: Old-style Maps One Box

A new-style Maps OneBox was launched in 2007 in the UK and elsewhere. This included for the first time a clickable thumbnail map, initially with the address as a further hyperlink displayed to its right. The thumbnail was an extract from Google Maps, and clicking on it took the user directly to the relevant Google Maps page. A corresponding example of the new-style Maps OneBox from the US is set out below (Figure 5):104 Figure 5: Newer-style Maps One Box

104 Subsequently, the dimensions of the thumbnail map were enlarged so that it spread across more of the page. That is the style which largely continues today.

1082 The Law and Economics of Article 102 TFEU

In mid-July 2007, Google introduced in the UK a further development called “Local Universal” search results. This encompassed: (1) a specific location query, where the user seeks an individual business or entity (e.g., a named restaurant or hospital); and (2) a general location query, where the user is seeking a category of business or entity (e.g. “Indian restaurants in Birmingham”). In either case, the search engine results page (SERP) would display a thumbnail map on which the location(s) were marked with an indicator. Streetmap’s claim for damages was that by the visual display at or near the very top of its SERP of a clickable image from Google Maps, and no other map, in response to certain geographic queries, and the consequent relegation of a link in the general search results to Streetmap to lower down the page, Google was abusing its dominant position in the market for online search and online search advertising, contrary to Article 102 TFEU and its domestic law analogue. The claim was rejected by the English High Court. The main findings of interest bear mention. First, the High Court noted that whilst it is obviously important that competition law should apply fully and effectively to multi-sided platforms “the appropriate application of some of the concepts of competition law must have regard to the particular characteristics of this new environment.”105 Second, the High Court found that there was “no reason, as a matter of principle, why the preferential promotion by a dominant company, by means of its power on the market where it is dominant, of its separate product on a distinct market where it is not dominant, may not constitute an abuse if that has the effect of strengthening its position on that other market and is not otherwise objectively justified.”106 This issue is addressed in more detail in Section 17.6 below. Third, because it was not alleged that Google was dominant in a market defined as online maps, but only in the “upstream” market for general search services, the High Court held that, for Google’s conduct at issue to constitute an abuse, it must have been reasonably likely to have a serious or appreciable effect in the market for online maps. Fourth, the High Court rejected Google’s argument that the increased clicks on Google Maps merely reflected the confidence which consumers had in Google: they trusted Google to place the most relevant result at the top because Google Search does such a good and careful job in ranking the answers it provides to a search query. The High Court found that: (1) since Google’s algorithms were not applied to the Maps OneBox at all—there was no evidence as to where a link to Google Maps would have been placed if subjected to the ranking algorithms along with competing online maps; and (2) just because Google Search generally did a good job, that in itself cannot entitle Google to give the most prominent visual display to its own related products.107 Fifth, the High Court found that Streetmap had not made out its case on anti- competitive foreclosure. In particular, while Streetmap may have been an innovative pioneer in online mapping which led to its early success, Google Maps quickly became

105 Ibid., para. 3. 106 Ibid., para. 60. 107 Ibid., para. 105. 1083 Abuses In Digital Platform Markets significantly more advanced in developing functionality, with the result that the relative success of Google Maps in the UK during the relevant period was explained by a range of factors involving competition on the merits and was wholly unrelated to the introduction of the new-style Maps OneBox on the Google SERP.108 Finally, the High Court concluded that, in any event, Google’s conduct was objectively justified. In particular, the High Court considered that an obligation to display competing online maps side-by-side with Google Maps or allowing users to choose among several mapping providers on some analogous basis would slow down the speed of generating the SERP for users, which could render Google less competitive.109 Bottin Cartographes.110 This case concerned a challenge by a competitor of Google alleging predatory pricing in respect of Google’s offering its Google Maps product for free to certain users. The Paris Court of Appeal overturned a first instance finding by the Commercial Court of Paris that Google’s pricing was predatory. In 2007 Google introduced its eponymous Google Maps product in France. In parallel with this product, Google offered companies publishing their own websites a Google Maps API (Application Programming Interface) service. This was free to companies that were clients of its basic version and but other users paid for an enhanced service, known as “Google Maps API Premier.” The mapping products created by Bottin Cartographes were similar to those offered without charge by Google via Google Maps API. Bottin contended that providing companies with the Google Maps API without charge constituted a predatory practice by Google, as it did not finance this service by advertising and did not therefore receive any income for a service which necessarily had a cost. The Paris Court of Appeal rejected Bottin’s claim. It made three findings of particular interest. First, the court held that the relevant costs were long-run average incremental costs (LRAIC), thus excluding common costs. This is consistent with the approach of the Commission in predatory pricing/margin squeeze to multi-market situations where products may have high levels of common costs.111 Second, the court held that where essentially the same underlying product was offered in a basic, free version and a premium, paid-for version, the relevant revenues were those associated with all versions (paid and unpaid) of the product, which, overall, it found they were in the case of Google Maps and the Google Maps API. In the small number of cases where the revenues were below LRAIC, the court found that they exceeded average avoidable costs, and so it was in principle worthwhile to continue to offer the services. Finally, and perhaps most interestingly, the court found that offering free and premium services was quite common in the markets concerned and, in the case of a multi-sided market, could be a rational strategy for non-exclusionary reasons, notably increasing the number of users on one side of the market.

108 Ibid., para. 119. 109 Ibid., para. 166. 110 Bottin Cartographes v. Google Inc., Paris Court of Appeal, 25 November 2015. 111 See further Ch. 5 (Predatory Pricing), Section 6.2.1. 1084 The Law and Economics of Article 102 TFEU

Verband.112 In this case the District Court of Hamburg rejected as a matter of principle the argument that a dominant platform operator committed an abuse merely because displaying in a prominent position in its search display results its own “vertical” product (in casu Google’s One Box weather) would reduce traffic to the websites of competitors, even if it reduced competitors’ profits and threatened their viability. The court first reasoned that preventing Google from improving its products by offering a convenient One Box for weather (and it seems in principle any other vertical) would both reduce innovation and require competition law to be used to support “outdated business models.” In this regard, the court reasoned that it was reasonable for a search engine to provide direct access to a (weather) search query rather than links to third party pages. It also characterised the third party websites as “free riders” since they received clicks from the general search results without payment. Finally, the court noted that Google, as the operator of the search engine, should be afforded some “decisional discretion” as to how to increase the overall attractiveness of its search engine, since it would directly bear the consequences of a wrong decision.

17.5. EXPLOITATIVE ABUSES

Overview. Chapter 16 (Other Exploitative Abuses) discusses the role played by Article 102 TFEU—and in particular the prohibition on “unfair” terms in Article 102(a)—in sanctioning certain types of contractual clauses. It makes two broad points. The first is that Article 102 TFEU is neither a piece of consumer protection legislation nor a code of conduct for trading standards. Such objectives are best pursued by specific legislation with a broader remit than the relatively narrow consumer welfare concerns that underpin Article 102 TFEU. The second point is that the decisional practice and case law show that Article 102(a) does provide a certain basis for assessing abusive contractual clauses. In certain circumstances, the existence of market power, and the degree of independence of action that dominance confers, may lead to the imposition of contractual terms that could not be imposed by a non-dominant firm. In other words, if a clause could not be imposed under competitive conditions, it may well be abusive, albeit such cases have been rare under Article 102 TFEU. As discussed in Section 17.2 above, serious concerns have been expressed about the extent to which multi-sided platforms’ obvious interests in acquiring as much data as possible on users can lead to abusive and unfair contractual terms. As a matter of contract law, there is concern as to whether the contracts that users agree to involve proper consent under the law applicable to the contract. This can raise both contractual and consumer protection issues. There are also concerns in the sphere of privacy law as

112 Verband der Wetterdienstleister v. Google, District Court of Hamburg, 4 April 2014. An unofficial translation is available at https://www.taylorwessing.com/fileadmin/files/docs/pdf- german/Google_Weather_InBox_-_Court_Order_2013-04-04_Unofficial_Translation.pdf. Other non- EU examples of non-infringement or no action decisions involving Google include: (1) Taiwan Fair Trade Commission decision to close the investigation in July 2015; (2) BUSCAPE v. Google, 18th Civil Court of Sao Paulo, Lawsuit No. 583.00.2012.131958-7; (3) Statement of the Federal Trade Commission Regarding Google’s Search Practices, In the Matter of Google Inc., FTC File Number 111-0163, 3 January 2013; and (4) Canadian Competition Bureau, Statement Regarding Its Investigation Into Alleged Anti-Competitive Conduct By Google, 19 April 2016. 1085 Abuses In Digital Platform Markets to whether data is being gathered in a manner which is lawful. This backdrop has created an obvious interest in terms of whether and to what extent Article 102 TFEU can play a role in this regard. Facebook Germany: BKA decision. In 2019, the German Bundeskartellamt (BKA) adopted a preliminary decision that prohibited Facebook from combining user data from different sources on the basis that doing so would constitute an exploitative abuse of a dominant position under national abuse of dominance laws.113 The BKA claimed that, under Facebook’s terms and conditions, a user could only use the social network on the precondition that Facebook could collect user data originating from outside the Facebook website and assign such data to the user’s Facebook account. The BKA believed that all data collected on the Facebook website, by Facebook-owned services such as WhatsApp and Instagram, and on third party websites as well as smartphone apps, could be combined and assigned to the Facebook user account. The BKA found that Facebook was dominant in the market for social networks. In December 2018, Facebook had 1.52 billion daily active users and 2.32 billion monthly active users. In Germany, it had 23 million daily active users and 32 million monthly active users, giving it a market share of 95%+ (daily active users) and 80%+ (monthly active users). The BKA did not consider any other social network to be included in the relevant product market. It relied in this context on the fact that its competitor Google+ announced it was going to shut down its social network and that services like Snapchat, YouTube, Twitter, and LinkedIn only offered partial social network services. Nevertheless, the BKA found that, even if these services were included in the relevant market, the Facebook group, with its subsidiaries Instagram and WhatsApp, would still achieve very high market shares that would very likely be indicative of dominance. On abuse, the BKA found that private use of Facebook was subject to the company being able to collect an almost unlimited amount user data from third party sources (e.g., Instagram or WhatsApp and third party websites including interfaces such as the “Like” or “Share” buttons), allocating these data to the users’ Facebook accounts, and using them for numerous data processing purposes. Where such interfaces appeared on websites and apps, it was not even necessary for the user to activate the data flow to Facebook, e.g., by scrolling over or clicking on a “Like” button: merely using a website with an embedded “Like” button would start the data flow. Millions of such interfaces were encountered on German websites and on apps. The BKA found that even when no Facebook symbol was visible to users of a website, user data would flow from many websites to Facebook, e.g., if the website provider used the “Facebook Analytics” service in the background in order to carry out user analyses. The BKA considered that its approach of treating such conditions as an exploitative abuse was not novel but based on established principles banning use of inappropriate contractual terms. Interestingly, it also noted that “Facebook’s terms of service and the manner and extent to which it collects and uses data are in violation of the European data protection rules to the detriment of users,” a conclusion reached after having “closely cooperated with leading data protection authorities in clarifying the data

113 See BKA press release, Bundeskartellamt Prohibits Facebook From Combining User Data From Different Sources, 7 February 2019. 1086 The Law and Economics of Article 102 TFEU protection issues involved.”114 Commenting on the remedy it imposed, the BKA stated that:115

“With regard to Facebook’s future data processing policy, we are carrying out what can be seen as an internal divestiture of Facebook’s data. In future, Facebook will no longer be allowed to force its users to agree to the practically unrestricted collection and assigning of non-Facebook data to their Facebook user accounts. The combination of data sources substantially contributed to the fact that Facebook was able to build a unique database for each individual user and thus to gain market power. In future, consumers can prevent Facebook from unrestrictedly collecting and using their data. The previous practice of combining all data in a Facebook user account, practically without any restriction, will now be subject to the voluntary consent given by the users. Voluntary consent means that the use of Facebook’s services must not be subject to the users’ consent to their data being collected and combined in this way. If users do not consent, Facebook may not exclude them from its services and must refrain from collecting and merging data from different sources.” Facebook Germany: preliminary court ruling. On appeal, the Düsseldorf Higher Regional Court suspended the BKA decision pending its assessment of the main appeal.116 Despite this only being an interim assessment, the court reached the strident conclusion that “the assumption of an abuse of exploitation in the form of an abuse of conditions to the detriment of the users of the social network of Facebook encounters far-reaching legal concerns.”117 The judgment is of interest since, although it applies domestic competition law, it notes “the desired alignment of national competition law with that of the European Union.”118 Whilst this is only an interim assessment, a number of its findings bear mention. First, a central finding on abuse is that the court did not see the causal connection between the use and abuse of Facebook’s (assumed) market power and the challenged contractual clauses. It reasoned that the fact that 80% of Facebook users did not read the controversial terms of use—since they would have to accept them anyway—is reflective of the fact that Facebook offers an advertising-financed network that makes network access dependent on the user’s consent to the processing and linking of his or her additional data for advertisers. It found that this was an inherent part of the business model for all such networks and did not indicate the use of market power by Facebook. Put another way, the (unread) acceptance of the conditions of use for the additional data was not an expression of user dependence or of the network operator’s market power, but a reflection of users’ individual decisions that participation in the social network was more important to them than the question of whether and to what extent additional data was processed and linked to their Facebook data.119 Second, the court criticised the BKA for failing to develop a benchmark for what would

114 Ibid. 115 Ibid. 116 Decision of the Higher Regional Court of Düsseldorf (Oberlandesgericht Düsseldorf) in interim proceedings, 26 August 2019, Case VI-Kart 1/19 (V). An unofficial translation of the judgment is available at https://www.d-kart.de/wp-content/uploads/2019/08/OLG-D%C3%BCsseldorf-Facebook- 2019-English.pdf 117 Ibid., p.6 (page references are to the unofficial translation). 118 Ibid., p.7. 119 Ibid., p.26. 1087 Abuses In Digital Platform Markets be the “competitive” outcome for contractual clauses of the kind at issue. Its reasoning was that the case law on exploitative contractual conditions was predicated on “exploiting a structural inferiority of the business partner,” i.e., “it is certain that they would not have been formed in a hypothetical competitive scenario.”120 In other words, the court believed that there needed to be a proper counterfactual of what would occur under conditions of competition before the clauses in question could be said to be only or mainly the product of an abuse of a dominant position. Third, the court criticised the BKA for failing to explain how the challenged clauses created or increased entry barriers for Facebook’s rivals and harmed competition. It described the BKA’s view as “incomprehensible.”121 Whilst the court said it could not be ruled out that the processing of additional data could help secure Facebook’s market position—since the network was financed by advertising, and the scope and quality of user data was relevant for the generation of advertising revenue—it stated that whether a market entry barrier actually was created or reinforced in a concrete manner required closer examination and detailed explanation. The court noted in this connection that: (1) Facebook’s market position was also significantly shaped by direct network effects on the part of private users; (2) Facebook had an enormous lead over rivals with around 32 million users per month; and (3) as a result, it was not self-evident whether and to what extent the collection, processing, and use of the challenged data impeded the market entry of Facebook’s competitors. In short, such a challenge by the BKA required a detailed examination that was lacking in its decision. Fourth, the court was critical of the BKA’s conflating a breach of data protection laws with an abuse of a dominant position. It held that the BKA’s “view that the collection, linking and further processing of user data generated from other Group-owned services or the use of Facebook Business Tools—which is presumed to be contrary to data protection law—represents an exploitation of consumers participating in the Facebook social network that is relevant to antitrust law meets with serious reservations.”122 Finally, the court was circumspect about the ability of abuse of dominance laws to control issues that were fundamentally the result of informational market failure or information asymmetry. It reasoned that “unfairly disadvantageous conditions can also be agreed on markets with ‘fierce price competition,’ whereby the exploitation does not have to be attributable to the exercise of market power, but can also be based on an ‘informational market failure’ and a ‘systematic asymmetry of information’ to the detriment of the customers brought about as a result, which in turn justifies the illegality or unreasonableness and legitimises the right to control general terms and conditions as well as large parts of consumer protection law.” But it was very sceptical as to whether the laws on abuse of dominance should operate as consumer protection measures in contracts, still less as measures designed to off-set problems of consumers’ psychology, e.g., not reading or caring about terms and conditions.

120 Ibid., p.13. 121 Ibid., p.29. 122 Ibid., p.11. 1088 The Law and Economics of Article 102 TFEU

17.6. UNRESOLVED ISSUES AND AREAS OF CONTROVERSY

The duty on digital platforms to grant access to third party “verticals.” A number of the cases discussed in Section 17.4 above involve the question of whether a dominant digital platform in a multi-sided market can be compelled under Article 102 TFEU to give access to third parties. For example, in Google Shopping123 the Commission required Google to give third party comparison service providers access to its Shopping Units results by allowing them to appear, following an auction mechanism, in the Shopping Unit results that are sometimes displayed at the top of the general search results page. In Streetmap124 and Verband125 Google was found not to have abused its dominant position in refusing to give third party online mapping (Streetmap) and weather (Veband) service providers access to its specialist results box sometimes appearing at the top of the general search results page. a. Issue stated. Because these cases involve a duty to give third party competitors’ access, an obviously important legal question is whether the legal conditions for a duty to deal—notably as set out in the Bronner case126—should apply to such conduct. This would inter alia require a demonstration of the “indispensable” nature of the access as an input and the elimination of all effective competition as a result of the refusal—self- evidently demanding conditions. In particular, the existence of “alternative [access] solutions, even if they are less advantageous” rule out indispensability.127 Refusal to deal is discussed in detail in Chapter Eight but the basic insight is that competition law does not compel mandatory access to assets or facilities save in exceptional circumstances. The rationale is that it is in general pro-competitive for a firm, including a dominant firm, to keep its facilities for its own use. Equally, rivals should in general be encouraged to build their own facilities, since competition is more likely to be enhanced by inter-facility competition than intra-facility sharing. As the Commission has itself stated “there is no obligation placed on a dominant producer to subsidise competition to itself.”128 b. The Commission’s position in Google Shopping. In Google Shopping the Commission rejected the argument that the Bronner conditions should apply, albeit this legal issue remains on appeal to the EU Courts. The Commission gave four main reasons.129 First, it stated that it “is not novel to find that conduct consisting in the use of a dominant position on one market to extend that dominant position to one or more

123 Case AT.39740 Google Search (Shopping), Commission Decision of 27 June 2017 (currently on appeal). 124 Streetmap.EU Limited v Google Inc. and others, [2016] EWHC 253 (Ch). 125 Verband der Wetterdienstleister v. Google, District Court of Hamburg, 4 April 2014. An unofficial translation is available at https://www.taylorwessing.com/fileadmin/files/docs/pdf- german/Google_Weather_InBox_-_Court_Order_2013-04-04_Unofficial_Translation.pdf. 126 Case C-7/97, Oscar Bronner GmbH & Co KG v Mediaprint Zeitungs- und Zeitschriftenverlag GmbH & Co KG, Mediaprint Zeitungsvertriebsgesellschaft mbH & Co KG and Mediaprint Anzeigengesellschaft mbH & Co KG [1998] ECR I-7791. 127 Case C-418/01, IMS Health GmbH & Co OHG v NDC Health GmbH & Co KG [2004] ECR I- 5039, para. 28. 128 Case IV/32.279 BBI/Boosey & Hawkes OJ 1987, L 286/36, para. 19. 129 Case AT.39740 Google Search (Shopping), Commission Decision of 27 June 2017, paras. 649 et seq. 1089 Abuses In Digital Platform Markets adjacent markets can constitute an abuse” and “such a form of conduct constitutes a well-established, independent, form of abuse falling outside the scope of competition on the merits.” It is not clear how this assists. It is true that leveraging may (or may not) be an abuse. But refusal to deal cases are also leveraging cases so merely saying that a case concerns leveraging does not itself allow one suddenly to side-step the duty to deal legal conditions. It simply begs the question of what legal conditions should apply to determine whether the conduct is lawful or unlawful. Second, the Commission states that “the conduct does not concern a passive refusal by Google to give competing comparison shopping services access to a proportion of its general search results pages, but active behaviour relating to the more favourable positioning and display by Google, in its general search results pages, of its own comparison shopping service compared to comparison shopping services.”130 It is not clear that this point is decisive either. A refusal to deal is also active: it involves refusing third party access. Even if the refusal is “constructive” rather than actual or active, it still amounts to no more than a refusal and does not itself de-activate the other duty to deal legal conditions. The Commission does implicitly make a further point here about “favouring” or “self-preferencing”—where this is present, the Commission appears to consider this capable of being an abuse in its own right. This is discussed in detail below in the next section. But suffice to note here the duty to deal conditions under Bronner imply that, in general, a dominant firm can favour itself, and access is only required in exceptional circumstances. Third, the Commission states that “the Bronner criteria are irrelevant in a situation, such as that of the present case, where bringing to an end the infringement does not involve imposing a duty on the dominant undertaking to ‘transfer an asset or enter into agreements with persons with whom it has not chosen to contract,’” citing the Van den Bergh Foods case.131 But the Commission plainly does require Google to give third party comparison service providers access to the Shopping Units part of its search results—the consequence of the finding of Google “favouring” itself by not giving access to third parties is an obligation to grant such access. Moreover, the auction rules governing such access are clearly also an agreement between Google and the participating comparison shopping service bidders setting out the terms of access. Finally, the Commission argues that there “is no indication in the case law that alleged improvements in product designs should be assessed under a different legal standard to that developed to assess the use of a dominant position on one market to extend that dominant position to one or more adjacent markets.”132 This essentially repeats the Commission’s first point above that leveraging may be an abuse. It is obviously correct that anti-competitive leveraging may be an abuse. But this observation does not itself answer the question of what legal conditions should apply to determine whether conduct is abusive, and in particular whether it should be the duty to deal conditions under Article 102 TFEU or some other legal conditions. “Leveraging” is an omnibus term that simply describes the common feature that conduct spans two markets. It does not itself tell one whether that conduct is lawful or unlawful, still less which legal

130 Ibid., para. 650. 131 Ibid., para. 651, citing Case T-65/98, Van den Bergh Foods, EU:T:2003:281, para. 161. 132 Ibid., para. 652. 1090 The Law and Economics of Article 102 TFEU conditions govern the determination of this question. c. TeliaSonera and related case law. This issue turns in part on the interpretation of TeliaSonera, where the Court of Justice held that “…it cannot be inferred from [Bronner] that the conditions to be met in order to establish that a refusal to supply is abusive must necessarily also apply when assessing the abusive nature of conduct which consists in supplying services or selling goods on conditions which are disadvantageous or on which there might be no purchaser.”133 In Google Shopping, the Commission cites this judgment in support of the proposition that “the specific conditions to be met in order to establish the abusive nature of one form of conduct covered by Article 102 [TFEU] must not necessarily also apply when assessing the abusive nature of another form of conduct covered by those articles.”134 This merits a number of comments. First, the ratio of TeliaSonera is quite narrow. The abuse at issue in TeliaSonera was a margin squeeze. As the Court of Justice made clear in TeliaSonera,135 margin squeeze had already been classified in Deutsche Telekom as an independent form of exclusionary pricing abuse. What TeliaSonera was really about therefore was an attempt by TeliaSonera to ask the Court of Justice to revisit that question, and in particular to argue that unless TeliaSonera had a legal duty to supply, the prices on which it actually supplied could not be abusive. This argument was rejected.136 But the issue in the digital platform cases is at its core a question of third party access, so the same point of distinction does not arise. Second, whilst it is correct that TeliaSonera refers not simply to margin squeeze not being subject to the Bronner conditions, but also to “conduct which consists in supplying services or selling goods on conditions which are disadvantageous or on which there might be no purchaser,”137 it is important that what is, in substance, a refusal to deal should not be “repackaged” as something else simply to avoid the Bronner conditions. If not, the correct legal conditions could be avoided by applying labels and not substance. Third, whilst in Slovak Telekom the Commission relied on TeliaSonera to conclude that the Bronner conditions did not apply to ST’s constructive refusal to give wholesale access to its local loops,138 the reasons relied upon in this regard do not appear to have any necessary implications for multi-sided digital platforms. The Commission relied on three main reasons why the Bronner conditions, and in particular the second condition of “indispensability,” did not apply: (1) ST was subject to a regulatory duty to supply imposed by the Slovak regulatory authority so there was no need for the Commission to (re)consider the question of the “indispensability” of ST’s inputs under the Bronner conditions;139 (2) there was a State monopoly supplier in Slovakia until 2000;140 and

133 Case C-52/09, Konkurrensverket v TeliaSonera Sverige AB [2011] ECR I-527, para. 55. 134 Case AT.39740 Google Search (Shopping), Commission Decision of 27 June 2017, para. 335. 135 Case C-52/09, Konkurrensverket v TeliaSonera Sverige AB [2011] ECR I-527, para. 31. 136 Ibid., para. 56. 137 Case C-52/09, Konkurrensverket v TeliaSonera Sverige AB [2011] ECR I-527, para. 55. 138 Case AT.39523, Slovak Telekom, Commission Decision of 16 October 2014, para. 364. The General Court broadly agreed with this conclusion: see Case T-851/14, Slovak Telekom a.s. v Commission, EU:T:2018:929. The issue remains on appeal to the Court of Justice. 139 Case AT.39523, Slovak Telekom, Commission Decision of 16 October 2014, para. 363. 140 Ibid., para. 370. 1091 Abuses In Digital Platform Markets

(3) there is no reason to extend the Bronner conditions to “all types of refusal to supply.”141 Reasons (1) and (2) obviously do not apply to multi-sided digital platforms. Reason (3) has been discussed in detail above. “Self-preferencing” and “favouring.” Recent decisions and judgments in the area of multi-sided digital platforms are premised on an argument that the more favourable positioning and display by such platforms of their own products compared to competing products may infringe Article 102 TFEU. Whilst specific legislation may impose ex ante regulatory obligations in this regard,142 the treatment of self-preferencing and favouring under Article 102 TFEU remains a controversial topic. In Google Shopping, the Commission found that the more favourable positioning and display, in Google’s general search results pages, of Google’s own comparison shopping service compared to competing comparison shopping services was abusive because it constituted a practice falling outside the scope of competition on the merits as it: (1) diverted traffic in the sense that it decreased traffic from Google’s general search results pages to competing comparison shopping services and increased traffic from Google’s general search results pages to Google’s own comparison shopping service; and (2) had anti-competitive effects in the national markets for comparison shopping services and general search services. In Streetmap, although the High Court found no abuse, it stated that it saw:143

“…no reason, as a matter of principle, why the preferential promotion by a dominant company, by means of its power on the market where it is dominant, of its separate product on a distinct market where it is not dominant, may not constitute an abuse if that has the effect of strengthening its position on that other market and is not otherwise objectively justified. To give an example raised with the economic experts, if a supermarket was dominant in a discrete market for supermarket grocery retailing but also produced its own-label brands of tea, sugar and biscuits which competed with those of third party manufacturers, it could be an abuse if the supermarket reserved the preferential display positions for its own brands, notwithstanding that customers who wanted other brands could still find them elsewhere in the store.” This merits a number of comments. First, if the duty to deal conditions under Article 102 TFEU apply to whether a dominant multi-sided platform operator is obliged to give third parties access to its ad display space, then the “favouring/self- preferencing” paradigm is neither necessary nor sufficient. The core logic of the duty to deal principles is that even a dominant firm can, in general, “favour” itself, and it is

141 Ibid. 142 Article 5 of 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 (OJ 2019 L 186/57) imposes a general obligation on providers of “online intermediation services” to “set out in their terms and conditions the main parameters determining ranking and the reasons for the relative importance of those main parameters as opposed to other parameters.” Article 7 further requires providers of online intermediation services to include in their terms and conditions “a description of any differentiated treatment which they give, or might give, in relation to goods or services offered to consumers through those online intermediation services by, on the one hand, either that provider itself or any business users which that provider controls and, on the other hand, other business users” and this must include “the main economic, commercial or legal considerations for such differentiated treatment.” 143 Streetmap.EU Limited v Google Inc. and others, [2016] EWHC 253 (Ch), para. 60. 1092 The Law and Economics of Article 102 TFEU only in exceptional circumstances obliged to grant third party access. As a recent report for DG COMP on digital platforms notes:144

“Article 102 TFEU does not impose a general prohibition of self-preferencing on dominant firms. According to a well-established case law, the owner of an essential facility must not engage in self-preferencing.” To take the example given in Streetmap above, a dominant supermarket would, under normal duty to deal principles, be entitled to keep preferential shelf display for its own products, even if that would result in competing products have “less advantageous” display opportunities. This is no different to the Bronner case where access to Bronner’s distribution network was not ordered since inter alia other methods of distributing daily newspapers, such as by post and through sale in shops and at kiosks, existed, even if they were “less advantageous.”145 By parity of reasoning, it would be surprising if a dominant newspaper that was very successful in carrying particular types of specialist ads (e.g., ads for legal vacancies) would be obliged to carry the ads of a publication that offered such ads albeit very unsuccessfully. Saying the dominant newspaper was “favouring” itself should not change the conclusion. Second, even if it is appropriate to examine what is in essence an exclusionary abuse under the lens of discrimination, it is important that all of the conditions for abusive discrimination should be satisfied. In particular, the minimum conditions under Article 102(c) include: (1) equivalent transactions; (2) dissimilar treatment; (3) a competitive disadvantage for the disfavoured party; (4) anti-competitive effects; and (5) absence of objective justification:146 merely positing a difference in treatment is not sufficient. A proper analysis of these conditions has been the approach taken in non- digital platform cases where issues of discriminatory access were said to arise.147 In Google Shopping, however, the Commission did not apply these Article 102(c) conditions in its “favouring” analysis. Third, a particular weakness in an approach where the gravamen of the abuse is said to be favouring/self-preferencing is that it would appear not to take proper account of a legitimate product improvement. Suppose a dominant search engine had historically displayed queries for product searches in its general search results. Suppose it

144 See J Crémer, YA de Montjoye, and H Schweitzer, Competition Policy For The Digital Era, Final Report (2019), p.66. The authors do, however, go on to say: “In cases of vertically integrated dominant digital platforms in markets with particularly high barriers to entry, and where the platform serves as an intermediation infrastructure of particular relevance, we propose that, to the extent that the platform performs a regulatory function as described above, it should bear the burden of proving that self-preferencing has no long-run exclusionary effects on product markets. The dominant platform would then need to prove either the absence of adverse effects on competition or an overriding efficiency rationale.” But this advocates for a change in the law rather than stating what it currently is. 145 Case C-7/97, Oscar Bronner GmbH & Co KG v Mediaprint Zeitungs- und Zeitschriftenverlag GmbH & Co KG, Mediaprint Zeitungsvertriebsgesellschaft mbH & Co KG and Mediaprint Anzeigengesellschaft mbH & Co KG [1998] ECR I-7791, para. 43. 146 For detailed treatment of the conditions under Article 102(c) see Ch. 15 (Abusive Discrimination). 147 See, e.g., Purple Parking Limited v Heathrow Airport Limited [2011] EWHC 987 (Ch). The case arose under Section 18 of the Competition Act 1998. However, its wording is virtually identical to Article 102 TFEU and there was at the time a general obligation on the UK authorities and courts to ensure consistency with EU competition law. See also Royal Mail plc v Ofcom, [2019] CAT 27. 1093 Abuses In Digital Platform Markets developed new algorithms that were: (1) much more effective at identifying a relevant and useful search result in the case of a product query; (2) could compare the relevance and usefulness of the new specific product search results with the results generated in its general search results, and would only show a specialised product search result (e.g., a product ad) where the latter was determined by an algorithm to be a more relevant and useful response to the user query than the general search results; and (3) the algorithms were subject to external and beta testing that verified their effectiveness in this specific regard. In a “favouring” analysis, this difference in treatment would, provided it had a significant enough effect on driving traffic to the dominant firm but away from those appearing in the general search results, be considered prima facie abusive. But it would on its face be a significant product improvement (i.e., a more relevant and useful search result displayed in an attractive manner to the user), and any better placement would, objectively, have been “earned.”148 This was in essence the approach taken by the German approach in Verband149 and the FTC in dismissing (albeit in a partially split decision) a complaint involving “favouring” against Google:150

“A key issue for the Commission was to determine whether Google changed its search results primarily to exclude actual or potential competitors and inhibit the competitive process, or on the other hand, to improve the quality of its search product and the overall user experience. The totality of the evidence indicates that, in the main, Google adopted the design changes that the Commission investigated to improve the quality of its search results, and that any negative impact on actual or potential competitors was incidental to that purpose. While some of Google’s rivals may have lost sales due to an improvement in Google’s product, these types of adverse effects on particular competitors from vigorous rivalry are a common by- product of ‘competition on the merits’ and the competitive process that the law encourages.

While Google’s prominent display of its own vertical search results on its search results page had the effect in some cases of pushing other results ‘below the fold,’ the evidence suggests that Google’s primary goal in introducing this content was to quickly answer, and better satisfy, its users’ search queries by providing directly relevant information. Notably, the documents, testimony and quantitative evidence the Commission examined are largely consistent with the conclusion that Google likely benefited consumers by prominently displaying its vertical content on its search results page. For example, contemporaneous evidence demonstrates that Google would typically test, monitor, and carefully consider the effect of introducing its vertical content on the quality of its general search results, and would demote its own content to a less prominent location when a higher ranking adversely affected the user experience. Analyses of ‘click through’ data showing how consumers reacted to the proprietary content displayed by Google also suggest that users benefited from these changes to Google’s search results. We also note that other competing general search engines adopted many similar design changes, suggesting that these changes are a quality improvement with no necessary connection to the anticompetitive exclusion of rivals.

148 The fact that, under objective justification, the dominant firm could put forward a defence does not appear to be an answer or panacea, since the critical point is that, if there is a genuine and material product improvement, there is nothing that requires justification in the first place. 149 Verband der Wetterdienstleister v. Google, District Court of Hamburg, 4 April 2014. An unofficial translation is available at https://www.taylorwessing.com/fileadmin/files/docs/pdf- german/Google_Weather_InBox_-_Court_Order_2013-04-04_Unofficial_Translation.pdf. 150 See Statement of the Federal Trade Commission Regarding Google’s Search Practices, FTC File Number 111-0163, pp. 2-3 (3 January 2013). 1094 The Law and Economics of Article 102 TFEU

We nonetheless recognise that some of Google’s algorithm and design changes resulted in the demotion of websites that could, collectively, be considered threats to Google’s search business. For example, for shopping queries, Google demoted all but one or two comparison shopping properties from the first page of Google’s search results to a later page. Demoting comparison shopping properties had the effect of elevating to page one certain merchant and other websites. These changes resulted in significant traffic loss to the demoted comparison shopping properties, arguably weakening those websites as rivals to Google’s own shopping vertical. On the other hand, these changes to Google’s search algorithm could reasonably be viewed as improving the overall quality of Google’s search results because the first search page now presented the user with a greater diversity of websites.

Product design is an important dimension of competition and condemning legitimate product improvements risks harming consumers. Reasonable minds may differ as to the best way to design a search results page and the best way to allocate space among organic links, paid advertisements, and other features. And reasonable search algorithms may differ as to how best to rank any given website. Challenging Google’s product design decisions in this case would require the Commission—or a court—to second-guess a firm’s product design decisions where plausible procompetitive justifications have been offered, and where those justifications are supported by ample evidence. Based on this evidence, we do not find Google’s business practices with respect to the claimed search bias to be, on balance, demonstrably anticompetitive…” But the approach of the FTC and in Verband appears at odds with the approach applied by the Commission in Google Shopping, which remains on appeal on this issue. Conflicts of interest. The positions acquired by certain multi-sided digital platforms in the market and the scope to leverage those positions into related or entirely new markets has given rise to considerable discussion about the role of conflicts of interest and rules to deal with conflicts of interest.151 Such thinking builds upon regulatory models in the sphere of utilities where problems of discrimination or conflicts of interest were dealt with inter alia by separation of wholesale and retail functions or non-discrimination obligations imposed at a wholesale level over the incumbent parts of the network in question. The notion of “network neutrality” developed by Wu concludes that “a strong stake in more than one layer of the industry leaves a firm in a position of inherent conflict of interest.”152 In the context of Article 106(1) TFEU, there is a line of cases to the effect that a State measure that places an undertaking with exclusive or privileged rights in a “regulatory” position over its competitors, or which in some other respect gives rise to a conflict of interest, that creates the potential for the firm benefitting from the State measure to act in its self-interest may be an infringement of Article 106(1) TFEU, read in conjunction with Article 102 TFEU.153 For example, in GB-Inno-BM, Belgian law allowed the dominant telecommunications operator to also conduct technical testing of its competitors’ products’ compliance with technical standards, which was held to create a conflict of interest contrary to Articles 106(1) and 102 TFEU.154 Likewise, in Raso, national rules which ensured that a dock-work company could supply temporary labour

151 T Wu, “The Master Switch: The Rise and Fall of Information Empires,” AA Knopf, New York (2010). 152 Ibid. 153 See further Ch. 1 (Introduction, Scope of Application, and Basic Framework), Section 1.4.4. 154 Case C-18/88, Régie des télégraphes et des téléphones v GB-Inno-BM SA, [1991] ECR-I 474. 1095 Abuses In Digital Platform Markets to its competitors operating at Italian ports gave the dock-work company a “dual role”: first, an exclusive right to provide temporary labour and, second, to compete with terminal operators and authorised port operators on the market for the provision of port services contrary to Articles 106(1) and 102 TFEU.155 These cases stand for a more general proposition that “[i]f inequality of opportunity between economic operators, and therefore distorted competition, results from a State measure, such a measure constitutes an infringement of Article [106](1)] in conjunction with Article [102].”156 Importantly, infringement of Article 106(1) TFEU in conjunction with Article 102 TFEU may be established irrespective of whether any abuse actually exists: all that is necessary is for the Commission to identify a potential or actual anti-competitive consequence liable to result from the State measure at issue.157 Whether these principles, or some analogous conflict of interest-type rule, can be easily transposed to produce an operational rule for abusive conduct by platforms is doubtful. First, the Article 106(1) TFEU analogy seems weak, since the gravamen in those cases is that it is a State measure which restricts competition by granting an exclusive or privileged right to exclude rivals. Second, Article 102 TFEU applied on a standalone basis plainly does require an actual abuse rather than, as occurs under Article 106(1) TFEU read in conjunction with Article 102 TFEU, the potential for an anti-competitive consequence. Third, the strictness of the conflict of interest rule in Article 106(1) TFEU usually requires that the State withdraws entirely the rule or structure that has the potential to give rise to a conflict of interest. In the context of digital platforms, this would, arguably, involve a complete structural separation between the “main” market and the market over which leverage is being exercised. But this would necessarily involve a significant loss of the very efficiencies that connect the two sides of the market in the first place. In these circumstances, the conflict of interest analysis is probably best thought of as a conceptual aid to thinking about the types of issues that can arise under Article 102 TFEU in respect of multi-sided digital platforms instead of being an operative or normative rule for assessing abusive conduct. In addition, conflict of interest considerations may come into play when fashioning remedies in Article 102 TFEU cases involving multi-sided digital platforms. For example, in Google Shopping, the Commission has put in place various measures to ensure that Google does not put in place a form of price or non-price “squeeze” on third party product comparison services compared to Google’s own Shopping comparison service.158 “Free” services. As discussed in Section 17.3 above, many multi-sided digital platforms offer services to one side for free and charge another a price. For example, the Metro newspaper is free to readers but is funded by advertising revenue from advertisers or merchants. The same is true of search engines like Google and Bing and social media platforms such as Facebook. Sometimes, the service on one side is not, technically, free. For example, the users on one side of the market receive a free service

155 Case C-163/96, Criminal proceedings against Silvano Raso and others, [1998] ECR-I 54. 156 Case C-462/99, Connect Austria Gesellschaft für Telekommunikation GmbH v Telekom-Control- Kommission, and Mobilkom Austria AG, [2003] ECR-I 297, para. 84. 157 Case C-553/12 P, Commission v Dimosia Epicheirisi Ilektrismou AE (DEI), EU:C:2014:2083, para. 46. 158 This remedy is discussed in more detail in Chapter 19 (Remedies). 1096 The Law and Economics of Article 102 TFEU but their attention is, in effect, sold to those on the other side willing to pay—their attention is akin to a raw material. Depending on the value of the first group, the price may even be negative. The “free” nature of the services offered by many multi-sided digital platforms raises a range of different issues under Article 102 TFEU. First, there is an issue as to whether the fact that a product or service is provided free of charge prevents the offering of a service from constituting an “economic activity” for the purposes of Article 102 TFEU. In Google Shopping, the Commission concluded that the provision of free search general search services was an economic activity because:159 (1) even though users do not pay a monetary consideration for the use of general search services, they contribute to the monetisation of the service by providing data with each query; (2) the level of advertising revenue that a general search engine can obtain is related to the number of users of its general search service—the higher the number of users of a general search service; and (3) even though general search services do not compete on price, there are other parameters of competition between general search services, e.g., relevance of results, speed, user interface attractiveness, and depth of indexing. Thus, the answer essentially depends on whether the “free” service is capable of being monetised through another product or service. For example, if a social media platform offers free access but monetises such access through selling ads, this is an economic activity. The situation might be different only where the platform does not monetise its activities at all. Second, the interaction of free services on one market side and monetisation on the other can have significant implications for market definition and dominance, discussed in Chapter Three and Chapter Four, respectively. One obvious issue is that where services are free, performing the small but significant and non-transitory increase in price (SSNIP) test is usually not possible, since that test depends on an analysis of the effect of a price change on the volume and profitability of switching. This inevitably shifts the focus onto non-price factors, including reductions in innovation or quality as a result of reduced competition in the assessment of market power. Finally, on the question of abuse, the multi-sided nature of a digital platform may require some adjustments to be made to reflect the free nature of products on one side. One obvious issue, discussed in Section 17.4 above, is that a free product on one market side is not necessarily predatory in pricing terms under Article 102 TFEU. In Bottin Cartographes,160 the Paris Court of Appeal held inter alia that when essentially the same underlying product is offered in a basic, free version and a premium, paid-for form, the relevant revenues are those associated with all versions (paid and unpaid). Another issue that may affect the question of both prima facie abuse and objective justification is that there may be particularly vigorous competition to acquire users’ attention on one market side since they are a valuable commodity to the other, monetised side. This phenomenon can pull in different directions. For example, growing the size of the “free” side of the market should in principle be efficiency- enhancing for the other side. On the other hand, where scale is an important facet of

159 Case AT.39740 Google Search (Shopping), Commission Decision of 27 June 2017, paras. 157 et seq. 160 Bottin Cartographes v. Google Inc., Paris Court of Appeal, 25 November 2015. 1097 Abuses In Digital Platform Markets competition, measures that unlawfully deny rivals such scale may take on particular significance in the analysis. The role of exploitative abuses and data privacy. The recent Facebook Germany proceedings raise interesting and complex issues about whether and to what extent Article 102 TFEU has a role to play as respects contractual clauses (or unilateral practices) giving dominant platform operators “excessive” access to users’ data. These types of cases are controversial, since they typically seek to analyse complex issues concerning data privacy that extend far beyond the remit of competition law (never mind Article 102 TFEU) under the lens of competition law. The starting point is that users’ data in the case of free services offered by multi-sided platforms is usually the “price” they pay for such free services. In this sense, the service is not free, and may, depending on the value of the data to the other side of the market, actually have a negative price.161 Conceptually, therefore, one could argue that there is a “transaction” of sorts and that, if one side of the bargain has a dominant position for purposes of Article 102 TFEU, it may be appropriate to consider whether the bargain is so onerous, asymmetric, and disproportionate as to raise potential abuse of dominance concerns. Or, at least, the application of Article 102 TFEU should not be a priori excluded in such cases. The second point is that it is well established under competition law that privacy may be an important parameter of competition and driver of customer choice in various multi- sided platform markets.162 This point was expressly made by the Commission in its merger decisions in Facebook/WhatsApp and Microsoft/LinkedIn.163 Indeed, in many multi-sided platform markets, if the product/service is free to one side of the market, there will, by definition, not be price competition on that side of the market, and the main or only dimension of competition will be quality. Third, it is certainly fair to say that Article 102 TFEU has, rightly or wrongly, been used for “regulatory” purposes in the past. The most notable examples are telecommunications cases such as Deutsche Telekom,164 Telefónica,165 and Slovak

161 See M Gal and D Rubinfeld, “The Hidden Costs of Free Goods: Implications for Antitrust Enforcement,” (2016) 80(3) Antitrust Law Journal, 553. 162 See P Jones Harbour and TI Koslov, “Section 2 in a Web 2.0 World: An Expanded Vision of Relevant Product Markets,” (2010) 76 Antitrust Law Journal 769. 163 See Case M.7217 Facebook/WhatsApp, Commission decision of 3 October 2014, paras. 87 and 102 and footnote 79 and Case M.8124 Microsoft/LinkedIn, Commission Decision of 6 December 2016, para. 350. For a discussion of the merger case law, see S Esayas, “Data Privacy in European Merger Control: Critical Analysis of Commission Decisions Regarding Privacy as a Non-Price Competition,” European Competition Law Review, 40(4) (2019) pp. 166- 181. 164 Deutsche Telekom AG, OJ 2003 L 263/9, upheld on appeal in both Case T-271/03, Deutsche Telekom AG v Commission [2008] ECR II-447 and Case C-280/08 P, Deutsche Telekom AG v Commission [2010] ECR I-9555. For commentary, see a series of articles in Competition Policy International Antitrust Chronicle, Spring 2008, Volume 5, Number 1 165 Wanadoo España v Telefónica, OJ 2008 C 83/5, upheld on appeal in Case T-336/07, Telefónica and Telefónica de España v Commission, EU:T:2012:172 and on further appeal in Case C-295/12 P Telefónica and Telefónica de España v Commission, EU:C:2014:2062. 1098 The Law and Economics of Article 102 TFEU

Telekom.166 In those cases, there were competent sectoral regulators with exclusive powers under ex ante regulation legislation but the Commission nonetheless intervened ex post under Article 102 TFEU. Many of these interventions seemed to be based on the notion that the competent regulator was either insufficiently active or was active but had reached a regulatory conclusion that the Commission was dissatisfied with. For example, in Deutsche Telekom, the Commission’s reasons for intervening under Article 102 TFEU in respect of margin squeeze seemed driven in large part by a concern that Germany had not engaged in tariff rebalancing—a regulatory policy objective under EU telecommunications law—as quickly or as extensively as the Commission had hoped.167 Whatever one thinks about these interventions, it is undoubtedly the case that Article 102 TFEU has frequently been used for regulatory or other purposes that are not strictly related to Article 102 TFEU. As such, the criticism made that cases such as Facebook Germany seek to import regulatory and other issues as respects data privacy into Article 102 TFEU is hardly new. Fourth, the decisional practice and case law on exploitative terms under Article 102(a) does provide the basis for a coherent overall legal test in this area, even if its application in individual cases may be complex and involve certain value-based judgments. As discussed in Chapter 16 (Other Exploitative Abuses), in cases such as BRT/SABAM,168 GEMA II,169 Tetra Pak II,170 AAMS,171 DSD,172 and Kanal 5,173 the Commission and EU Courts have put forward a multi-stage test: (1) the clause in question must be connected with the purpose of the contract and necessary for some efficiency generated by the contract; (2) if it is to be treated as objectionable, the clause in question must harm the other trading party, usually by requiring it to forego a right that it would otherwise have under competitive conditions; and (3) assuming that the clause is necessary to achieve some efficiency related to the contract, but also harms the other party in question, issues of reasonableness and proportionality may be decisive. This in practice seems quite close to the framework identified by the Düsseldorf Higher Regional Court in its preliminary ruling in Facebook Germany. Fifth, the most difficult aspect of cases such as Facebook Germany is that they involve two related points that present significant analytical difficulties under the typical assessments made under Article 102 TFEU. The first is a general issue that, in

166 Case AT.39523, Slovak Telekom, Commission Decision of 16 October 2014, on appeal Case T- 851/14, Slovak Telekom a.s. v Commission, EU:T:2018:929. The case is currently on a further appeal to the Court of Justice. 167 See R O’Donoghue, “Regulating The Regulated: Deutsche Telekom v European Commission,” Antitrust Chronicle (Spring 2008) Volume 5, Number 1. 168 Case 127/73, Belgische Radio en Televisie v SV SABAM and NV Fonior [1974] ECR 313. 169 GEMA II, OJ 1982 L 94/12. See also GEMA I, OJ 1971 L 134/15. 170 Tetra Pak II, OJ 1992 L 72/1, on appeal Case T-83/91, Tetra Pak v Commission [1994] ECR II- 755, confirmed on appeal in Case C-333/94 P, Tetra Pak International SA v Commission [1996] ECR I- 5951. 171 Amministrazione Autonoma dei Monopoli di Stato, OJ 1998 L 252/47, upheld on appeal in Case T-139/98 Amministrazione Autonoma dei Monopoli di Stato v Commission, [2001] ECR II-3413. 172 DSD, OJ 2001 L 166/1, confirmed on appeal in Case T-151/01 Der Grüne Punkt- Duales System Deutschland GmbH v Commission [2007] ECR II-1607 and Case C-385/07 P Der Grüne Punkt- Duales System Deutschland GmbH v Commission [2009] ECR I-6155. 173 Case C-52/07, Kanal 5 Ltd and TV 4 AB v Föreningen Svenska Tonsättares Internationella Musikbyrå (STIM) upa. [2008] ECR I-9275. 1099 Abuses In Digital Platform Markets considering competition based on quality, there is no single, objective measurement of quality, and its appreciation inevitably therefore involves subjectivity, which undermines predictability and legal certainty; for example, how much data privacy is consistent with effective competition based on quality? By contrast, it is easy to see in quantitative terms whether certain prices are better or worse for consumers. As the OECD notes:174

“Identifying a single exhaustive definition of quality is a challenging endeavour. Quality is a multidimensional concept that encompasses, inter alia, the durability, reliability, location, design and aesthetic appeal, performance and safety of a product. Product choice can also be treated as a quality attribute, although it remains dissociable from the individual product itself. In essence, quality is a relative concept, insofar as the level of quality found in any one product is defined by reference to the quality levels of other products. Quality incorporates a significant element of subjectivity, because certain quality aspects may be valuable only to some consumers, or more valuable to some than others. Consumers may also disagree as to ranking of product characteristics that are each viewed as desirable to a certain extent. Accordingly, while some quality attributes are certain, objective and observable (for example, the engine power of a car), others are subjective, unobserved and dependant [sic] upon the perceptions of consumers (for example, the prestige associated with a particular automobile marque). The multifaceted and indistinct nature of quality thus complicates the task of providing a robust definition of this concept.” But this issue is hardly intractable. For example, EU competition law on selective distribution is expressly based on the notion that, in such systems, quality-based competition is more important than price-based competition, which is why a manufacturer can limit the number of dealers and apply selectivity in this regard.175 Similarly, as discussed in Chapter Three (Market Definition), the Commission is already applying the significant non-transitory decrease in quality (SSNDQ) test in platform markets under Article 102 TFEU. The second issue, however, is more acute. It concerns how the competing concerns under data privacy can properly be assessed under Article 102 TFEU. The fundamental difficulty is that the balance between platform operators’ use of data and users’ privacy is a complex and multi-faceted value judgment based mainly on considerations that extend far beyond the relatively narrow consumer welfare focus of Article 102 TFEU. In an ideal world, platform operators would probably want unfettered access to users’ data, since it would help them optimise their products, particularly where there are scale and scope effects and machine-learning. For their part, many consumers might prefer both free services and complete data protection, but this is likely to be impossible in practice where a platform monetises freely-provided services through paid advertising on the other market side. It bears emphasis in this context that the elaboration of the EU General Data Protection Regulation (GDPR)176 was a lengthy, complex, and controversial process. And

174 See Organisation for Economic Co-operation and Development, The Role and Measurement of Quality in Competition Analysis (28 October 2013), Executive Summary, p.6. 175 See, e.g., Case C-107/82 AEG Telefunken AG v Commission, [1983] ECR 293, para. 33. 176 Regulation (EU) 2016/679 of the European Parliament and of the Council of 27 April 2016 on the protection of natural persons with regard to the processing of personal data and on the free movement of such data, OJ 2016 L119/1. 1100 The Law and Economics of Article 102 TFEU precisely what the legislation means in particular cases is equally complex, and is the subject of bourgeoning case law at the EU and national levels. The suggestion that the narrow focus of Article 102 TFEU can easily be overlaid into this complex, and largely non-competition law related, framework may well be heroic. It is hard enough to adopt legislation such as the GDPR setting out the general balance between privacy and the right to conduct a business, but quite another to elaborate a series of specific principles where the factual matrix is that the person using the data is in a dominant position for purposes of Article 102 TFEU and seeks to acquire additional data in ways that may or may not be compatible with the GDPR. Finally, whilst the question of whether exploitation abuses as respects data privacy should be included within Article 102 TFEU is one on which people could reasonably disagree, there is no doubt that, in an appropriate case, Article 102 TFEU should play a role where an abusive practice would lead to the marginalisation of an existing competitor which offers a greater degree of privacy protection to users than the dominant firm, i.e., an exclusionary abuse. Since quality is the main—and sometimes only—aspect of competition in many multi-sided platforms, it must follow that exclusionary practices that unlawfully reduce quality-based competition fall properly within the scope of Article 102 TFEU, assuming of course that the other necessary conditions are satisfied. Whilst it was a merger decision, Microsoft/LinkedIn noted that the transaction could restrict consumer choice in relation privacy as important parameter of competition when choosing a professional social network:177

“By way of example, the results of the Commission’s investigation revealed that, today, in Germany and Austria, Xing seems to offer a greater degree of privacy protection than LinkedIn. For instance, during the registration process, XING asks users to actively accept XING’s privacy policy and Terms & Conditions by ticking a box, whereas LinkedIn users accept LinkedIn's privacy policy automatically when they press the button ‘join now.’ Moreover, when XING introduces new services which have an implication on how it collects and/or uses its members’ data, it explicitly seeks active consent from the members. In addition, regardless of whether members give their consent in such specific cases or not, they will be able to continue to use XING as such without losing any of the functions to which they previously had access. In contrast, when LinkedIn makes changes to its collection, storing, processing or usage of personal data, LinkedIn only informs the members of those changes and considers that LinkedIn members agree with those changes, if they continue to use LinkedIn’s services after they have been notified of the changes.” Calls for modified or new rules. The last several years have seen various calls for the modification or wholesale changes to competition law rules due inter alia to concerns about their general effectiveness, over-reliance on technical economics, the alleged under-inclusiveness of a consumer welfare standard, and the growth of multi-sided digital platforms and other aspects of “big data.” These issues are linked to growing concerns about perceived rising inequality in society and a disconnect between growth in wages and firm profits. Proponents of this view have colloquially, and somewhat disparagingly, become known as “hipster antitrust.” These concerns extend far beyond the remit of abuses under Article 102 TFEU as respects digital platforms, and are therefore discussed in more detail in Chapter Five (The General Concept Of An Abuse). But, since this debate is to some extent at least driven by concerns in relation to digital

177 Case M.8124 Microsoft/LinkedIn, Commission Decision of 6 December 2016, para. 350. 1101 Abuses In Digital Platform Markets platforms, some discussion here is appropriate. The calls for rule modifications or wholesale changes have been driven by five main concerns. First, it is suggested that, in general, markets have become more concentrated with market shares and profits also increasing,178 a point that is disputed.179 Second, it is suggested that not only have firm profits increased but consumers have been harmed through general price rises.180 But this point is also disputed due to the absence of data on marginal costs.181 Third, lax enforcement of competition law is said to be a major contributory cause of rises in concentration and profit levels, particularly in the area of merger control.182 Fourth, some dispute the continued usefulness of the consumer welfare standard widely accepted in the economics and competition law literature for many years now. One report puts the issue as follows:183

“The economy faces a market power crisis. Rampant consolidation and vertical integration leave consumers, workers, suppliers, and competitors powerless and disadvantaged. In highly consolidated markets, consumers have limited choice and little power to pick their price, quality, or provider for the goods and services they need. Workers are met with massive employers and have little agency to shop around for competitive wages and benefits. Suppliers can’t reach the market without paying powerful intermediaries for the privilege or succumbing to acquisition. This market power imbalance is due, in large part, to lax antitrust law and enforcement. The Federal Trade Commission and Department of Justice are intended to monitor and prevent monopolies with market power from forming ‘in their incipiency.’ But of late, they have failed. This is due to the consumer welfare standard, which identifies and judges harm to competition only by its potential effect on consumers—and rarely with respect to anything other than prices. The consumer welfare standard fails to define ‘welfare’ and ignores adverse effects on workers, suppliers, quality, and innovation. It is not only ambiguous, but it is also inadequate to the task of preserving competition throughout the supply chain, in the labour market, and in the economy as a whole.” Finally, some authors consider the above issues to be particularly acute in the context of digital platform markets due inter alia to direct and indirect network effects, the

178 See J De Loecker and J Eeckhout, “The Rise of Market Power and the Macroeconomic Implications,” The Quarterly Journal Of Economics, (2017) (documenting the evolution of market power based on firm-level data for the US economy since 1955 and finding average mark-ups rising from 21% above marginal cost to 61% and an increase in the average profit rate from 1% to 8% (even taking account of increases in overhead costs)); J Furman and Peter Orszag, “A Firm-Level Perspective on the Role of Rents in the Rise in Inequality,” Presentation at “A Just Society,” Centennial Event in the Honour of Joseph Stiglitz, Columbia University (16 October 2015); and S Barkai, “Declining Labour And Capital Shares,” Stigler Centre for the Study of the Economy and the State New Working Paper Series 2 (2016). 179 See JD Wright, E Dorsey, J Klick, and Jan M. Rybnicek, “Requiem For A Paradox: The Dubious Rise and Inevitable Fall of Hipster Antitrust,” Arizona State Law Journal (2019), p. 293, Part II and sources collected therein. 180 De Loecker and J Eeckhout, ibid. 181 See S Ganapati, “Oligopolies, Prices and Quantities: Has Industry Concentration Increased Price and Restricted Output?,” (2017), https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3030966. 182 Furman and Orszag, ibid. 183 M Steinbaum and M Stucke, “The Effective Competition Standard—A New Standard For Antitrust,” New York: Roosevelt Institute, p.1, available at https://rooseveltinstitute.org/wp- content/uploads/2018/09/The-Effective-Competition-Standard-FINAL.pdf. For a counterargument see D Melamed and N Petit, “The Misguided Assault on the Consumer Welfare Standard in the Age of Platform Markets,” Review of Industrial Organisation, June 2019, Volume 54, Issue 4, pp. 741–774. 1102 The Law and Economics of Article 102 TFEU potential for extreme returns to scale, low or zero marginal costs, and the typically costless nature of distribution of digital products.184 To the extent the above claims have any empirical basis—which is limited and is, as noted, disputed—they are typically based on firm, industry, and other data from the United States. Only comparable empirical evidence specific to the EU could begin to answer questions such as concentration levels, impact on profits, and effect on consumer prices in the EU. A further point is that the suggestion that there has been “lax” enforcement of competition law, or Article 102 TFEU, in the EU seems well wide of the mark. The US has experienced a relatively long period in which Federal enforcement of non-merger cases has been very limited. It is difficult to think of many major antitrust cases brought by the two US Federal agencies outside the areas of mergers and cartel admissions in the last several years.185 By contrast, enforcement in the EU at the Commission and national levels is manifestly vibrant. In this context, as this chapter demonstrates, the suggestion that, in respect of digital platforms and unilateral conduct, there has been lax enforcement is particularly risible in the context of the EU. The EU has been the global leader in this regard, with a series of important infringement decisions in cases such as Shopping,186 Android,187 and AdSense,188 the commitment decision in Amazon E- books,189 as well as non-infringement decisions at a national level in cases such as Streetmap,190 Bottin,191 and Verband.192 Finally, it is not self-evident from these decisions that the legal principles applicable under Article 102 TFEU are materially deficient in capturing abuses in digital platform markets or that an entirely new paradigm is needed. For example, Android is based on tying abuse case law, as well as

184 See e.g., LM Khan, “Amazon’s Antitrust Paradox,” 126 Yale Law Journal, 710 (2017); LM Khan and S Vaheesan, “Market Power and Inequality, The Antitrust Counterrevolution and its Discontent,” 11, Harvard Law and Policy Review, 234 (2017). 185 See B Kovacic, “Kovacic challenges US enforcers’ ‘risk appetite,’” New York University School of Law, conference, 28 February 2020, reported by Global Competition Review: “During the administration of President Barack Obama, Kovacic said today, there were a lot of suggestions that the US Department of Justice’s antitrust division would bring big cases. But ‘we got basically nothing, including from a number of spokespeople that say now the system has to expand a lot more.’ ‘Why didn’t you do more then?’ Kovacic asked. ‘What was the risk appetite and does that consciously have to change and how do you transmit that to your staff?’ In more than 100 years of existence, the FTC has never prevailed at the Supreme Court in a case challenging monopolisation under section 2 of the Sherman Act, he said. ‘You might say that’s a long enough time to test whether that model was designed to do something else,’ he said, questioning if the US antitrust laws were intended for more aggressive enforcement. ‘The last time the US government appeared before the Supreme Court in a section 2 case on its own behalf was 1973,’ he said, referring to the DOJ’s challenge to Otter Tail Power’s control of transmission lines.” 186 Case AT.39740, Google Search (Shopping), Commission Decision of 27 June 2017 (currently on appeal). 187 Case AT.40099, Google Android, Commission Decision of 18 July 2018 (currently on appeal). 188 Case AT.40411, Google Search (AdSense), Commission Decision of 20 March 2019 (currently on appeal). 189 Case AT.40153, E-book MFNs and related matters (Amazon), Commission Decision of 4 March 2017. 190 Streetmap.EU Limited v Google Inc. and others, [2016] EWHC 253 (Ch). 191 Bottin Cartographes v. Google Inc., Paris Court of Appeal, 25 November 2015. 192 Verband der Wetterdienstleister v. Google, District Court of Hamburg, 4 April 2014. 1103 Abuses In Digital Platform Markets case law on exclusivity. AdSense is based on recent Article 102 TFEU case law on exclusivity. Even the Shopping case uses old case law on leveraging to support its novel theory of “favouring”/self-preferencing. It is, however, fair to say that there is currently an embryonic debate, at a largely theoretical level, in the EU about whether aspects of competition law, including Article 102 TFEU, could or should be modified in digital markets, and digital platforms in particular. Most notably, in 2019, DG COMP commissioned a study into this area containing a range of interesting ideas.193 One idea of particular relevance for Article 102 TFEU is the notion of a shift in the burden of proof:194

“We propose that competition law should not try to work with the error cost framework on a case by case basis. Rather, competition law should try to translate general insights about error costs into legal tests. The specific characteristics of many digital markets have arguably changed the balance of error cost and implementation costs, such that some modifications of the established tests, including allocation of the burden of proof and definition of the standard of proof, may be called for. In particular, 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. This may be true especially where dominant platforms try to expand into neighbouring markets, thereby growing into digital ecosystems, which become ever more difficult for users to leave.” However, as the law currently stands, this proposal, if adopted, would almost certainly require legislative change. Regulation 1/2003 places the burden of proving an infringement of Article 102 TFEU on the party alleging the infringement,195 and the EU Courts’ case law provides for a presumption of innocence and the benefit of any doubt going to the defendant due inter alia to the quasi-criminal nature of fines under Article 102 TFEU.196 A recent report for the UK Government on competition in digital markets has also concluded that a change in the consumer welfare standard is “unnecessary.”197 Similarly, the report does not “favour a radical change to antitrust enforcement to address digital markets issues,” since this “could lead to unintended and undesirable side effects.”198 Instead, the report recommends focusing work on antitrust on updating enforcement tools for the challenges of the digital economy. For example, it recommends greater use of interim measures procedures and changing domestic judicial review standards from their current “appeal on the merits” standard to a more restrictive

193 See J Crémer, YA de Montjoye, and H Schweitzer, Competition Policy For The Digital Era, Final Report (2019). 194 Ibid., p. 4. 195 Council Regulation (EC) No 1/2003 of 16 December 2002 on the implementation of the rules on competition laid down in Articles 81 and 82 of the Treaty, OJ 2003 L1/1, Article 2. 196 See, e.g., Case T-442/08 CISAC v Commission EU:T:2013:188, para. 93, citing Case C-199/92 P Hüls v Commission [1999] ECR I-4287, paras. 149 and 150 and Case C-235/52 P Montecatini v Commission [1999] ECR I-4539, paras. 175 and 176. 197 Unlocking Digital Competition, Report of the Digital Competition Expert Panel, March 2019, para. 3.21. 198 Ibid., paras. 3.144 et seq. 1104 The Law and Economics of Article 102 TFEU standard.199 One notable exception in this regard is Germany. Following a report in 2019, a new Act on Digitalisation of German Competition Law is expected to enter into force in the second half of 2020. Among other things the new law would apply new conduct rules under domestic competition law for digital platforms:200

“In essence, the Regulation may have three rules of conduct for platforms: The first is a ban on self-preferencing in relation to third-party providers. This concerns so- called hybrid platforms which both offer the platform intermediation service and provide goods and services themselves. The best example of this is Amazon, which on the one hand operates the Amazon marketplace and on the other also acts as a trader of certain goods. The case recently opened by the Commission against Amazon also deals with this problem. There is the accusation that Amazon prefers its own dealer activity on the Amazon marketplace by favouring itself in the selection of the so-called BuyBox dealer. The P2B Regulation, which came into force on 11.07.2019, requires digital platforms to disclose such selection and ranking processes. The expert commission’s proposal goes beyond this transparency requirement and would make concrete demands on the selection and ranking process. In addition, a Platform Regulation should oblige the addressees to enable the portability of user and usage data in real time and in an interoperable data format, and to guarantee interoperability with complementary services. Achim Wambach discussed this using the example of navigation instruments or music streaming services. When switching cars, it should be possible from one day to the other to access information such as last visited destinations and the like in the new car (from another manufacturer). The same should apply to your own playlists. A change of supplier should not lead to their loss. And all this at a speed that does not result in a noticeable transition period. Finally, the established platforms are to be obliged to set up alternative dispute resolution procedures for disputes over content and items offered via the platform. It is primarily a question of responsibility for breaches of obligations and rights by users of a platform. The experts reject any general liability on the part of the platforms. In the report, they explicitly refer to possible infringements of intellectual property and content that go beyond the limits of freedom of expression protected by fundamental rights. In their view, the establishment of dispute resolution bodies on established platforms could counter the risk of censorship in the form of over-blocking. According to the report, the competitive relevance arises in particular from the fact that market-dominating platforms as ‘rule-setters’ also have a ‘special obligation’ vis-à-vis users to ensure undistorted competition between users.”

17.7 CONCLUSION The core points. This chapter covers a range of diffuse points of economics and law on which the literature, decisional practice, and case law remain in a fairly embryonic state overall, with multiple cases pending before the EU Courts. Because of the diffuse nature of the issues concerned—which sit on a spectrum ranging from, on the one hand,

199 Whether changing the standard of review in appeals would be compatible with fundamental rights under Article 47 of the Charter on Fundamental Rights or Article 6 of the European Convention on Human Rights remains an open issue. Some tentative remarks were made by the Court of Appeal in Competition and Markets Authority v Pfizer UK Limited and others [2020] EWCA 339 about the importance of a proper “merits” review in penalty cases under competition law. 200 See summary “Competition 4.0,” 9 September 2019, available at https://www.d- kart.de/en/blog/2019/09/09/competition-4-0/. The law is available in German at https://www.d- kart.de/wp-content/uploads/2019/10/GWB-Digitalisierungsgesetz-Fassung-Ressortabstimmung.pdf. 1105 Abuses In Digital Platform Markets concerns over whether a dominant firm’s access to users’ data may involve an exploitative abuse against the user to, on the other, very narrow questions about cost allocation in predatory pricing cases involving multi-sided platforms—the issues concerned are not easily amenable to simple or condensed summary. However, a number of core points can usefully be made. First, the economics of multi-sided platforms may differ in material respects compared to single-sided markets. The basic point is that one cannot start and end the economic analysis by focusing on one side of the multi-sided market. To do so not only tells merely half the story, but may lead to fundamental analytical errors, such as those observed by the Court of Justice in Cartes Bancaires in the context of the analysis of multi-sided card payment systems under Article 101 TFEU.201 Second, there are market features in multi-sided platform cases that can have a material bearing on the analysis of questions of law and economics. These include extreme returns to scale and scope, direct and indirect network effects, market “tipping,” the tendency of such markets towards a small number of players (or even duopoly or monopoly), little or no incremental costs in scaling up production, zero transport costs, etc. But these features should be verified in individual cases, not assumed. They may also point in different directions, including at the same time. For example, the ability to expand output dramatically at little or no incremental cost would usually be a tremendous efficiency, but it may also mean that the scope for the market “tipping” quickly, by which time it may be difficult to unwind certain anticompetitive effects, is greater. Third, it follows from the two first points that the analysis of abuse under Article 102 TFEU in the case of multi-sided platforms is not some kind of binary “switch” that automatically leads to a materially different set of legal principles applying. Apart from anything, there is no singular legal definition of a multi-sided platform for purposes of Article 102 TFEU, so the notion that different legal principles would apply by description or label is obviously precarious. Rather, the multi-sidedness of digital platform is a largely conceptual aid which means that certain features may be present, and they may have an impact, possibly in different directions, on the question of abuse. An example given in this chapter is predatory pricing. In a single-sided market, a zero price by a dominant firm will usually give rise to predation concerns. In a multi-sided platform market, however, it may simply be a feature of one side, and the focus then turns to monetisation on the other side, and in particular the relevant total costs of offering both free and paid-for products or services. Fourth, one of the most difficult questions concerns situations where a dominant platform operator makes what is a clear product improvement but the impact of this improvement is to decimate or marginalise existing competitors. For example, in the Streetmap case,202 discussed in Section 17.5.4 above, Google initially offered users a choice of different map providers but then developed its own improved Google Maps solution, which was alleged to have had a devastating impact on standalone mapping providers. On the facts, Streetmap failed on causation grounds to prove that Google’s

201 See Case C-67/13 P, Groupement des cartes bancaires v Commission, EU:C:2014:2204. See also Case C-228/18 Gazdasági Versenyhivatal v Budapest Bank Nyrt. and Others, EU:C:2020:265. 202 Streetmap.EU Limited v Google Inc. and others, [2016] EWHC 253 (Ch). 1106 The Law and Economics of Article 102 TFEU conduct was the reason for its demise. But it is clear from the judgment that, had causation been established, there would have been difficult questions as to whether and to what extent a dominant platform owner has a duty to effect proportionate changes to the platform to consider. In particular, striking a correct balance between users’ interests in progress and the loss of existing competition involves difficult choices for the court or competition authority. On these issues, there is a wide divergence of approaches. As discussed in Section 17.5.4 above, the Verband203 case in Germany suggests that competitors have no right to impede progress in genuine product improvement in this manner. Google Shopping, by contrast, appears to go in the other direction, and to consider that, even if there is a significant product improvement (in casu Shopping Units/Product Universals), a dominant platform operator cannot “favour” its own products, certainly where to do so has an effect on competition. Streetmap appears to sit somewhere in the middle, in suggesting that: (1) assuming there is some effect on competition, the dominant firm will need to comply with principles of proportionality in effecting product changes; and (2) it will be afforded some discretion in this regard, and any alternative approaches demanded of it should be realistic, not unduly onerous, and have user impact as their litmus test. But legitimate questions remain as to whether genuine product improvements should in principle be subject to a proportionality lens in this manner. Intel makes clear that “competition on the merits may, by definition, lead to the departure from the market or the marginalisation of competitors that are less efficient and so less attractive to consumers from the point of view of, among other things, price, choice, quality or innovation.”204 At the very least, it is obvious that the uncertainty in the law in this regard places a dominant platform operator in a difficult position when it comes to effecting product changes, and raises basic question as to legal certainty. It also makes having a coherent multi-national approach to product development difficult.205 Finally, perhaps more so than any other area on which Article 102 TFEU can impinge, it is clear that the application of Article 102 TFEU to multi-sided platforms interacts with a large number of other aspects of legal regulation. These include ex ante regulation laws, data privacy laws, consumer protection laws, contract law, electoral laws, tax laws, etc. Any intelligent application of the law, economics, and policy under Article 102 TFEU must bear in mind these legal interactions—most of which are multi- jurisdictional in nature. They may also plead in favour of some humility under Article 102 TFEU in imagining that it applies erga omnes or can solve all woes. Article 102 TFEU is an important, but far from the only, piece in the jigsaw.

203 Verband der Wetterdienstleister v. Google, District Court of Hamburg, 4 April 2014. 204 Case C-413/14 P Intel v Commission, EU:C:2017:632, para. 134. 205 Note also the different approaches again to such issues in Taiwan, Brazil, the United States, and Canada: (1) Taiwan Fair Trade Commission decision to close the investigation in July 2015; (2) BUSCAPE v. Google, 18th Civil Court of Sao Paulo, Lawsuit No. 583.00.2012.131958-7; (3) Statement of the Federal Trade Commission Regarding Google’s Search Practices, In the Matter of Google Inc., FTC File Number 111-0163, 3 January 2013; and (4) Canadian Competition Bureau, Statement Regarding Its Investigation Into Alleged Anti-Competitive Conduct By Google, 19 April 2016.