Change is Coming: Current and Proposed Institutional Reform in Competition Law and The Path Forward

On June 29, 2021, our annual EU Competition Law Conference took place (virtually this year), co-hosted by Crowell & Moring and King’s College London. During a panel discussion followed by a fireside chat, the speakers discussed how proposed and existing reforms in competition law across the globe are being or can be practically implemented. A video recording of the panel discussion and fireside chat is available here.

During the panel discussion chaired by Renato Nazzini, Amelia Fletcher, Thomas Deisenhofer and Karel Bourgeois discussed recent reforms affecting competition law from a UK, an EU and a practitioner’s perspective.

Renato Nazzini put the following question to the panelists:

All of these institutional reforms seem to be driven by concerns about digital markets, but certain reforms may in fact be more far reaching. Why were all these reforms considered necessary, and is it really about competition or is there more to it?

Amelia Fletcher^[1], who was a member of the Digital Competition Expert Panel that drafted the UK Furman Review, contended that digital markets raise some specific issues that reflect the unique combination of economic factors and conduct that drive the growth of concentration and market power in digital platform markets, such as high barriers to entry and expansion. She said that these unique market features reinforce the call for digital ex ante regulation. However, Professor Fletcher said that while digital markets were being reviewed, some more generic issues were also identified, which were partly about authority culture and partly about the institutional balance in judicial review. The Furman Review recommended a closer inspection of both mergers in digital markets and in general, in order to address wider concerns about the level of enforcement and how difficult it is to bring competition cases effectively.

According to Thomas Deisenhofer^[2], Principal Adviser for ex post economic evaluation in DG Competition, the new tools introduced at the EU level are not meant to replace but only to complement the existing framework that will remain essentially the same. He agreed with Professor Fletcher that the debate concerning the digital sector and the introduction of a proposal for a EU Digital Markets Act (DMA) comes from a broader intention to bring more efficiency into competition law overall. After initial consultation, however, it was decided that at this stage the focus on the digital economy would be the main priority. He said that the drivers for this prioritization were unprecedented developments in the digital sector because of the economics of the sector, such as economies of scale, network effects, platform effects and the fast-moving evolution of the digital economy. These factors, he argued, set digital markets apart from other sectors with entrenched monopolies, like energy or telecommunications. Moreover, Mr. Deisenhofer stressed that all kinds of businesses across the economy are affected by digital markets. Due to the specific economics of the digital sector, ex post regulation and specific precedents do not suffice, according to Mr. Deisenhofer. He believes that regulators need to implement rules that not only tell digital platforms which actions are prohibited but also tell them how they should act in order to be compliant.

Karel Bourgeois, partner in the Antitrust & Competition Group of Crowell & Moring Brussels, suggested that the new regulations do introduce an institutional change. He acknowledged that the DMA will be complementary to competition law, but predicted that it will have a considerable impact on both national and international businesses, as the DMA is an ex ante regulation that will no longer require competition authorities to show an anti-competitive effect or object. As soon as businesses are considered ‘digital gatekeepers’ under the DMA, all the obligations in the DMA will automatically apply. In Mr. Bourgeois’ view this constitutes an institutional change. The burden of proof will essentially be reversed as the digital gatekeepers will have to show that their behavior is in full compliance. On a broader note, Mr. Bourgeois expressed the view that the reforms in the UK, the US, the EU and elsewhere, will have much broader implications, covering more than just digital gatekeepers or businesses that are active in the digital space. By way of example, he referred to the new European Commission Guidance on Article 22 merger referrals, which goes against the one-stop shop system and will cause legal uncertainty, not just within the digital sector but also beyond. Lastly, Mr. Bourgeois stressed that the draft DMA relies on the key notions of ‘fairness’ and ‘contestability’, not on competition policy. The vagueness of these terms lowers the thresholds for the regulators to bring a case which, again, shows that these changes constitute an institutional reform.

Mr. Deisenhofer further elaborated on these two notions by stating that the DMA’s key objective would go beyond fairness and contestability. He explained that the objective is the uniform application of the rules across the internal market. From a substantive point of view, the DMA goes beyond competition law and the rules are clearly shaped as ex ante rules. He said that workability is the key objective and that is why a lot of thought has gone into how to make the rules self-enforcing: rules that do not require a complex assessment and where no efficiency balancing is necessary.

Professor Fletcher agreed that the regimes in the UK, US and EU all share the same goal to reduce barriers to entry and expansion, and to create a level playing field in the relationship between businesses. She suggested the EU is fueled by a desire for administrability, putting less emphasis on proportionality than the UK.

According to Mr. Bourgeois a self-enforcing regime might be too optimistic. The DMA introduces a system where, once a company has been designated as a gatekeeper, the two lists in articles 5 and 6 will kick in. In a way, it is therefore a one size fits all approach. The question arises to what extent proper judicial review will be possible. There will be enforcement by the European Commission to designate gatekeepers and to impose obligations on them, or to impose fines or even structural remedies. The courts will be able to review these decisions, but different notions will be used to underpin their review than in competition law matters, and there will be a presumption against these gatekeepers. The incentive for gatekeepers to enter into a regulatory dialogue with the European Commission will therefore be strong.

With regard to coordination between different competition authorities, Mr. Bourgeois and Professor Fletcher acknowledged that coordination is key and that it will be interesting to see how national authorities and the European Commission will face these challenges. Mr. Deisenhofer is not worried about coordination since the national competition authorities already work together well within the European Competition Network (ECN). He highlighted the concept of unity in diversity.

During a fireside chat led by Andrew Gavil and William E. Kovacic, a video recording of which is available here, Justus Haucap, Peter Broadhurst, and Sarah Cardell continued the discussion and focused on the effective enforcement of the aforementioned reforms.

According to Justus Haucap, Director of the Düsseldorf Institute for Competition Economics (DICE), the authorities are trying to speed up the process of enforcement. Traditionally competition law is composed of a four-step process: market definition, analysis of market power, analysis of behavior or a merger, and remedies. The DMA reduces that process into one single step, by defining certain digital gatekeepers and applying 18 rules to them.

Peter Broadhurst, partner in the Antitrust & Competition Group of Crowell & Moring London, acknowledged that all these new measures are trying to achieve the same ends. He agreed that the digital question is a catalyst for change but he stressed that these reforms clearly have a wider application. In his opinion, particularly in the UK, there is a renewed focus on ensuring that competition law and these new measures put consumer benefit and consumer relevance at the forefront. Mr. Broadhurst further highlighted the difference in approach for the proposed new UK measures (as compared with the EU), which is much more one of cooperative engagement between the new Digital Markets Unit and participants in the market, with designation of Strategic Market Status and the imposition of codes of conduct being subject to transparent public consultation.  He also noted that the desire for the use of interim measures under the new rules would mean that enforcement measures could have effect sooner.

Sarah Cardell^[3], General Counsel at the UK Competition and Markets Authority (CMA), talked about two key factors that affect enforcement. According to Ms. Cardell, the first factor is the speed of solving problems and the ability to anticipate issues, which is especially important in the digital sector where fixing the problem five years later is essentially not fixing the problem at all (it being already yesterday’s problem). This is why the ex ante model is so critical in Ms. Cardell’s opinion. More generally, the second key factor is delivering outcomes that shape the markets and address problems as they emerge. Ms. Cardell expressed the belief that we should strike a balance between a participative approach and a sharp-edged enforcement approach.

The fireside chat ended with the question of how the success of the discussed reforms will be evaluated over time. The speakers agreed on the importance of monitoring the success of the reforms and consideration was given to what metrics may be used to assess whether the objectives of the reforms were met. It was concluded that metrics such as timely and effective implementation as well as positive impact on competition will be vital for the evaluation process.