As part of our response to the European Commission’s consultation on possible reforms to its merger control guidelines,[1] we provided our views on Topic Paper E – Digitalization.

With this Topic, the Commission seeks to understand if and how the merger guidelines might be adapted to better assess features and theories of harm that would be specific to, or at least particularly relevant to, digital and tech markets. 

Our position is that while some of these features and concerns could usefully be clarified in the merger guidelines, there is no need to throw the baby out with the bathwater: the current legal framework already enables the Commission to effectively review transactions in these industries while guaranteeing analytical rigour and certainty.   

A. Key considerations

Digitalization of the economy has been a major development over the past few decades, and the digital and tech sectors are key drivers of innovation and growth in Europe and globally.  While enforcement in these sectors should be effective, it should also be based on reliable, tested, and evidence-based principles to preserve legal certainty.

• Competitive dynamics and parameters of competition.  The features and theories of harm the Commission identified as specific to digital markets and/or novel in fact similarly arise in different sectors and have for many years now.  They may be stronger in the digital space — for instance, network effects may well be more pronounced in digital industries – but if the effects of these dynamics is stronger, than those effects should be all the easier to detect and assess. 
• General framework of analysis and entrenchment.  The distinction between horizontal and non-horizontal mergers remains valid – indeed, unchanged – in digital and tech markets.  Characteristics that the Commission identified as typical of digital mergers do not alter the fundamental nature of such mergers.  From a practical perspective, we are also unable to conceptualize what it would mean to do away with the distinction and apply a single framework of analysis since the nature of the analysis of both types of mergers are intrinsically different.
• Ecosystem and interrelated products.  Ecosystems are not a new phenomenon, and are just a way to refer to a set of complementary products that are of interest to a common set of users – a scenario that arises in most conglomerate mergers and that is in no way specific to digital and tech markets.  The existing guidelines already expressly cover the notion of “portfolios” of products and services, and in fact recognize their procompetitive benefits.  Why would it be that a dynamic recognized as an obviously good thing in traditional markets suddenly becomes an obviously bad thing in digital markets? 
• Data- and privacy-related concerns.   It is important to properly assess the competitive value of data in digital transactions; and it is plausible that data can give rise to  theories of harm depending on the nature of the data, and the activities of the Parties to the transaction.  Similarly, privacy and data protection considerations can potentially in specific circumstances be relevant parameters of competition in transactions involving the acquisition of data. 
• Targeted foreclosure, interoperability, and access issues.  The difference between full foreclosure and targeted foreclosure is one of scope, not nature, and there is nothing new about targeted foreclosure, which is already covered by the existing guidelines.  Restriction of interoperability and access to inputs are not novel: while they may be more prominent concepts in digital and tech markets, the Commission assessed such concerns in many decisions since at least the early 2000s, all of which successfully applyied its “ability-incentive-effects” test from the existing, tried-and-test, non-horizontal merger guidelines.  These Decisions all benefited from that analytical rigour and we have not seen any suggestion that this rigour led to their being wrongly decided. 

B. Our proposals

As explained above, our view is that the Commission should not review its merger guidelines in a way that would lead to a wholesale departure from the existing framework of assessment, in particular in relation to the distinction between horizontal and non-horizontal mergers, and to the “ability-incentive-effect” framework of analysis. 

It would however be useful to clarify the framework of analysis applicable to specific aspects of digital markets, for instance how to assess the value of data and privacy-related concerns in mergers that involve the acquisition of data as an asset.  It would also be useful to clarify that in case of interoperability and access to input, to address competition concerns, it is sufficient for the merged entity to ensure sufficient interoperability and access to input to preserve effective competition on the market, without requesting a first-party-parity type of access.

C. Conclusion

Our view is that there is no gap in the existing guidelines, which provide the reliable principles and tools that the Commission needs to assess mergers in the digital and tech sectors.  The Commission has repeatedly and successfully applied the assessment framework set out in its guidelines to review all types of transactions, including in the digital and tech sector. 

Even if there were new and/or different means for harm to competition to materialize in digital and tech markets, that does not mean that a different standard of harm should be defined.  The applicable standard is defined in the EUMR, and consists of a significant impediment of effective competition.  As such, there is no need for a deep substantive revision of the guidelines, which provide the EC with the tools and principles it needs to assess if such harm exists.

Interested in reading our full response? Please find it here.

[1] See our September 5 alert EU Merger Guideline Consultation – Our Views on Possible Reforms, available on the Cleary Antitrust Watch here.