By Nicole Daniel
On 7 March 2016, the US Department of Justice (DOJ) announced that the Supreme Court denied Apple’s request for a review of the order that found that Apple and five major e-book publishers engaged in a price-fixing conspiracy.
Apple’s request concerns a case originally filed by attorney generals of 33 states and a private class of e-book purchasers in April 2012 in the U.S. District Court for the Southern District of New York. It was alleged that Apple and five major e-book publishers conspired to not only fix prices, but also restrict e-book retailers’ freedom to compete on prices. This resulted in substantially higher prices paid by consumers for e-books. Before the trial, settlements with the defendant publishers were reached. The DOJ and the plaintiff-states proceeded with the case and in July 2013, Judge Cote issued her opinion and order, thereby finding Apple liable for conspiring to fix prices. This decision was affirmed by the U.S. Court of Appeals for the Second Circuit in June 2015. Apple then petitioned for a writ of certiorari to the Supreme Court so as to prevent finality in the lower court decisions.
The Supreme Court’s decision denying Apple’s request now triggers its obligation to pay damages of 400 million dollars. The e-book purchasers will receive such damages as reimbursements for the higher prices caused by the price-fixing conspiracy by way of automatic credits from their e-book retailers.
Settlements with the five major publishers resulted in damages of $ 166 million dollars. Inclusive of the damages Apple has to pay the overall settlement sum amounts to more than twice the amount of losses suffered by the e-book purchasers.
By Gabriele Accardo
On 20 April 2016, the European Commission issued a statement of objections (see also the fact sheet, and infographic) to Google and its parent company, Alphabet, based on the preliminary view that Google has implemented a strategy on mobile devices to preserve and strengthen its dominance in general internet search, allegedly in breach of Article 102 of the Treaty on the Functioning of the European Union that prohibits the abuse of a dominant position that may affect trade and prevent or restrict competition, substantially upholding what the Commission had stated when it opened the investigation (for additional background, see Newsletter issue 2/2015, p. 6).
According to the Commission’s preliminary findings, Google is dominant in the markets for general internet search services, licensable smart mobile operating systems and app stores for the Android mobile operating system, with more than 90% market share in each of these markets.
The allegedly abusive practices carried out by Google are three-fold:
- requiring manufacturers to pre-install Google Search and Google’s Chrome browser and requiring them to set Google Search as the default search service on their devices, as a condition to license certain Google proprietary apps;
- preventing manufacturers from selling smart mobile devices running on competing operating systems based on the Android open source code;
- giving financial incentives to manufacturers and mobile network operators on the condition that they exclusively pre-install Google Search on their devices.
Besides consolidating Google’s dominant position in general internet search services, these practices may affect the ability of competing mobile browsers to compete with Google Chrome, and hinder the development of operating systems based on the Android open source code and the opportunities they would offer for the development of new apps and services.
This investigation is distinct and separate from the Commission’s ongoing formal investigation under EU antitrust rules on other aspects of Google’s behavior in the EEA, including the favorable treatment by Google in its general search results of its own other specialized search services (see Newsletter issue 2/2015, Newsletter 1/2014, Newsletter 5-6/2013, Newsletter No. 2/2013, Newsletter 2/2010, for additional background), and concerns with regard to the copying of rivals’ web content (known as ‘scraping’), advertising exclusivity and undue restrictions on advertisers.
Higher Regional Court of Frankfurt asks EU Court of Justice to rule on restriction of sales on online platforms in selective distribution systems
By Gabriele Accardo
On 19 April 2016, the Higher Regional Court of Frankfurt (the Court) made a request for a preliminary ruling (available only in German) to the Court of Justice of the European Union (CJEU) about the legality of a ban imposed in the context of a selective distribution system to sell on online platforms.
The request stems from a dispute before the Court between Coty, a cosmetics manufacturer, and one of its authorized distributors, Parfümerie Akzente, whereby Coty claimed that, by selling perfumes on Amazon.de, Akzente infringed the terms and conditions of its selective distribution system that prohibited sales on such online platforms. The Court asked the CJEU to rule on the following questions:
- Whether protection of a “luxury image” is a legitimate reason for a selective distribution system.
- Whether it is permissible to impose on distributors an outright ban on sales via third party platforms regardless of whether the distributor failed to meet legitimate quality criteria set by the manufacturer.
- Whether a sales ban on internet platforms results in a restriction on “passive sales” to end users.
It is worth recalling here that the Vertical Guidelines state that the use of third party platforms by authorized distributors shall only be done in accordance with the “standards and conditions” agreed upon between the supplier and its distributors for the distributors’ use of the internet. Yet, it is not clear whether “the standards and conditions” only relate to quality issues of a website, or whether they can go as far as to prohibit the use of certain third party platforms (e.g. eBay or Amazon).
As it may be expected, the CJEU ruling will be particularly relevant beyond the specific case at stake.
A consistent approach on online sales is much needed across Europe. Interestingly though, even cases dealt with by the Federal Cartel Office and other German courts have shown somewhat divergent approaches vis-à-vis online sales restrictions imposed by well-known brands.
For instance, two German courts adopted a rather lenient approach holding that manufacturers (Amer Sports and Scout-Schulranzen) could legitimately prohibit their distributors from reselling products through auction websites (such as eBay), insofar as such a restriction would amount to a quality requirement related to internet sales, while distributors would remain free to sell online using other means than auction websites.
More recently, instead, the Federal Cartel Office has investigated Asics’ and Adidas’ selective distribution systems, which restricted sales on online marketplaces on their retailers. While Asics has modified its selective distribution system in compliance with the prescriptions of the Federal Cartel Office, Adidas, instead, has challenged the authority’s decision before the court.
Italian Competition Authority investigates alleged abuse in the market for professional legal software
By Gabriele Accardo
On 20 May 2016, the Italian Competition Authority (ICA) launched an investigation (text only in Italian) against Net Service, holding that the company may have carried out allegedly abusive practices in the market for software applications used to create and manage online legal documents and files on the online civil proceedings platform, in breach of Article 102 of the Treaty on the Functioning of the European Union.
The ICA found that Net Service had been granted the contract (extended in various instances until today) to build, manage and service the infrastructure used to manage online civil proceedings, and as a result, the company gained a dominant position (a monopoly) in such (upstream) market.
Besides being the exclusive service provider of that online platform, Net Service also develops software applications that are used to create and manage online legal documents and files on the platform for online civil proceedings. In such (downstream) market, Net Service holds a 30-35% market share.
According to the ICA, Net Service has put in place certain allegedly abusive practices on the downstream market against competing developers of software applications, leveraging its dominant position held in the upstream market for the management of the platform, ultimately seeking to foreclose competing software applications providers.
In particular, Net Service did not provide its competitors all the technical information required in a timely and complete fashion to ensure full interoperability between the online platform and the software applications that can run on such platform.
In addition, Net Service had made available a model office (that is a working prototype of the product that shall be used for testing) to competitors different from the one Net Service uses to develop its own software applications.
Finally, Net Service either installed patches without informing competitors about the problems the patches would fix, or did not even inform about the existence of the patches altogether.
As a result of such practices, competing software application developers would only be able to develop a final functioning version of their own applications after Net Service has released its own products. This entails an advantage in terms of marketing of about one year since Net Services releases its products, whereas in practice, professional users of legal software applications appear to consider Net Services as the most reliable provider of such software applications.
The ICA considers that Net Service has an obligation to share the same technical information on which it relies on to develop its own software applications, so that competitors are able to offer new and reliable products, thus allowing consumers a wider and better choice of products.
By Gabriele Accardo
On 10 May 2016, French and German Competition Authorities published their joint report on competition law and Big Data. Separately, the French Competition Authority announced the launch of a full-blown sector inquiry into data-related markets and strategies.
The joint report provides an overview of how the two authorities would look at relevant competition issues raised by the collection and commercial use of data, in particular the assessment of data as a factor in establishing market power
Interestingly, the authorities make reference to established antitrust principles (e.g. data as a barrier to entry, or use of data in exclusionary or exploitative abuses), and not to new theories to look at such issues. In fact, a number of past cases illustrates how competition authorities have analyzed the “data advantage” in “non-digital” markets, and provides useful guidance on which issues the authorities are likely to focus on in future cases.
While it is noted that there are several possible “data-based” conducts, whether exclusionary or exploitative, which may lead, depending on the circumstances, to enforcement action, however, the theories of harm underlying the prohibition of such conducts are premised, mainly, on the capacity for a firm to derive and sustain market power from data unmatched by competitors. Yet, before concluding whether a company’s “data advantage” has created or strengthened market power, enforcers should undertake case-specific assessments on whether data is scarce or easily replicable, and whether the scale and scope of data collection matters.
Two considerations are worth singling out.
First, the two authorities recall that refusal to access to data can be anticompetitive if the data is an essential facility to the activity of the undertaking asking for access. Based on existing EU case law, compulsory access to essential facilities can be granted only in exceptional circumstances as even a dominant company cannot, in principle, be obliged to promote its competitors’ business. In this context it is further noted that access to company’s data may raise privacy concerns as forced sharing of user data could violate privacy laws if company exchange data without asking for consumer’s consent before sharing their personal information with third companies with whom the consumer has no relationship.
Secondly, with specific regard to privacy concerns, it is recalled that under EU case law, any issues relating to the sensitivity of personal data are not, as such, a matter for competition law, but may be resolved on the basis of the relevant provisions governing data protection. Still, according to the two authorities, Decisions taken by an undertaking regarding the collection and use of personal data can have parallel implications on economic and competition dimensions. Therefore, privacy policies could be considered from a competition standpoint whenever these policies are liable to affect competition, notably when they are implemented by a dominant undertaking for which data serves as a main input of its products or services. In such instances, there may be a close link between the dominance of the company, its data collection processes and competition on the relevant markets, which could justify the consideration of privacy policies and regulations in competition proceedings.
For instance, looking at excessive trading conditions, especially terms and conditions which are imposed on consumers in order to use a service or product, data privacy regulations might be a useful benchmark to assess an exploitative conduct.
Facebook investigation in Germany
The presence of excessive trading conditions is the underlying theory of harm for the investigation launched by Germany’s Federal Cartel Office (FCO) Bundeskartellamt into Facebook to assess whether it has abused its dominant position in the market for social networks through its specific terms of service on the use of user data. In particular, the FCO will assess whether Facebook’s position allows it to impose contractual terms that would otherwise not be accepted by its users.
Andreas Mundt, President of the FCO, stated that dominant companies are subject to special obligations, including the use of adequate terms of service as far as these are relevant to the market. For internet services that are financed by advertisements such as Facebook, user data is very important. For this reason, it is essential to also examine the abuse of market power and whether consumers are sufficiently informed about the type and extent of data collected.
In order to access the social network, users must first agree to the company’s collection and use of their data by accepting the terms of service. It is difficult for users to understand and assess the scope of the agreement accepted by them. According to the FCO, there is considerable doubt as to the admissibility of this procedure, in particular under applicable national data protection law. If there is a connection between such an infringement and market dominance, this could also constitute an abusive practice under competition law.
The FCO is conducting the proceeding closely with the competent data protection officers, consumer protection associations as well as the European Commission and the competition authorities of other EU Member States.
By Gabriele Accardo
On 26 April and 24 May 2016, the Competition and Market Authority (CMA) has fined fridge suppliers Ultra Finishing Limited (Ultra) and Foster Refrigerator (Foster) a division of ITW Ltd (full non-confidential decision available here), in connection with the restrictions imposed on their dealers to offer online discounts, in breach of competition rules. The CMA issued separate statements of objections to Ultra, and ITW, early in 2016.
Each was alleged to have introduced a “minimum advertised price” (MAP) for internet sales, which effectively limited the ability of retailers of their products to make online sales below a specified price level. The CMA alleged that both cases were a form of resale price maintenance (RPM) and infringements of competition law.
In particular, both companies operated a MAP policy and threatened dealers with sanctions including threatening to charge them higher cost prices for their respective products or stopping supply if they advertised below that minimum price.
The CMA found that such MAP policies constituted RPM because, by restricting the price at which goods were advertised online, they prevented dealers from deciding the resale price for those goods.
The CMA found that there is a clear link between the advertised price and the resale price when goods are purchased online.