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Competition Law and Digital Technologies: Jean Monnet Workshop for Young Researchers (Part III)

First speaker of the afternoon was Ondřej Dostál (former director of international department at ÚOHS, employee of the European Commission and currently working for ČEZ) who dedicated his speech to the digital aspects of ad locum investigations made by the competition authorities. Competition in connection to digital technologies are having also material part, despite association of some imaginary digital sphere. The material substance is very important in the investigations made by ÚOHS or the European Commission who are implementing the right to enter spaces of the entity suspected for violating the market rules. Mr. Dostál summarized rights and duties of the investigators and suspects. He highlighted, that proof secured during the “Fishing trip” can not be used and that mandate shall be very clear, not covering indefinite set of activities. Duties to cooperate were illustrated by the case of E.ON, who got fined 38 million Euro for broken seal on the doors leading to the room with documents supposed for investigation by the authority. In relation to ICT there are some important rights for investigators: review and copy business records, in the IT environment to search servers, desktops, lap tops, tablets, mobile phones, smart watches, PCs, external devices, including cloud services CDs, DVDs, USBs (also located outside the EU). Competent authority can search BYOD when used and found in the commercial spaces. Competent authority can demand clarification or to request some activity – e.g. external access of e-mail accounts, temporary blocking, switching off the net, removal of hard discs and access support. Even personal devices, when present at the commercial spaces, might be subject of investigation.

                Mr. Dostál explained tools of the competent authorities in searching for data. This includes forensic search with own software (e. g. EnCase, Forensic toolkit), built-in search enabling search with the use of key words or various cases of monitoring, including copies of unexplored data (e. g. hard disc) with ex post evaluation of relevance for search (Case Nexans C-606/18 P). Another tool is “Brown/Sealed Envelope” enabling to seal DVD for later investigation. There is also final selection of data, which are recorded into the file (2 identical copies of DVD and list of all saved data). Mr. Dostál illustrated interesting aspects on the cases of Nexans and EPH and EPIA, who got fined 2,5 million Euro for obstructing investigation of the Commission. In the later case Commission demanded to block access to the e-mail accounts by creating a password, which will be known only to the Commission. However, in the case of one account the password was changed and one of the employees got access and subsequently requesting IT to redirect e-mails on a blocked server, which prevented access of the Commission. Mr. Dostál highlighted, that case Nexans is very fresh and important, because there is absent detailed demarcation of the ad locum investigation (implying large space for Commission). Moreover, the rights of the Commission shall be not interpreted restrictively unless rights of the enterprises are touched (European Commission can continue in the investigation outside the commercial spaces of the enterprise but shall pay related costs).

                Second Speaker was Jiří Mňuk (Faculty of Law, Charles University in Prague) who spoke about the EU General Court decision in the case CK Telecoms (or also Hutchison) – Case T-399/16 of 28. 5. 2020. The case meant defeat of the European Commission in telecommunication issues and it is interesting, because so far Commission was very consistent (last big defeat was in the case O2 Germany in 2006 when Commission failed to conduct sufficient contra-factual analysis). In the case there were three theories of detriment: 1. Effect on retail and end users; 2. Agreements on sharing networks among operators potentially leading to quality deterioration; and 3) negative impacts on wholesale markets. The General Court refused theories. In the case Telecoms, there are similar narratives and it is for the first time when Court evaluated the concept of “significant impediment of effective competition” (Art. 2(3) of Regulation 139/2004) without creation or strengthening of the dominant position of the merging entities. Mr. Mňuk in his contribution provided certain abstraction about the significance of the ruling in the areas of the required legal standard during the intervention of competition authorities, effects of telecommunication markets and effects on digital markets in a broader sense.

                First of all “required legal standard” is rather shallow concept (preamble of the regulation 1/2003) which is potentially inconsistent due to various applications. European Commission is understanding the notion very easily in relation to the articles 101 and 202 TFEU (e. g. “reasonable degree of probability”). This is, however, contrary to existing caselaw of CJEU applying rather hard understanding (“beyond all reasonable doubt” – T-44/02 OP and others, Dresdner Bank; “firm conviction that the alleged infringement took place + precise and consistent evidence – T-67/00 and others JFE Engineering). In the case CK Telecoms the Court used hard version as based on three principles: 1) Even higher proof standard shall be in the complex issues; 2) weighting probabilities is not enough and 3) standard which is lower than all reasonable doubt will not be not applicable. It is however question whether to apply the standard in the cases based on the articles 101 and 102 where the process is of quasi criminal nature.

                Second, the CK Telecoms case is opening doors for mobile operators for merges which were banned or very suspiciously observed by the Commission. According to the opinion of Mr. Mňuk, the perception of telecommunication market will be changed from the contemporary perspective of oligopolist markets with 3 or 4 companies, but there might be in the future more subjects providing “OTP services” such as WhatsApp. It means that the competition will change character as mobile operators will compete with other giants such as Facebook. It will be much more complicated for the Commission to prove possible violations and conduct deep analysis and clear evidence as the character of the market will involve both “traditional” operators and newly entering entities with different nature of services. And third, it will have implications for digital markets as a such.  On one hand he ruling says that the standard is very high, on the other side there is a general need of effective and prompt intervention (involving preliminary measures) in order to prevent structural failures. That is why current discussion is about changing the burden of proof in some parts. DMA proposal might address some aspects, but only partially in the scope of the DMA applicability.                

                Third speaker was Dita Krumlová (Faculty of Law, Charles University in Prague and Havel & Partners) who spoke about the Lego affair – a case which was solved by German and French courts. In the case European Commission decided to draw a line in between dual pricing and price differentiation which have different legal effects. Dual pricing is considered as heavy impediment of market competition, without de minimis exception or block exception for vertical agreements but theoretically exception based on the article 101(3) SFEU is applicable. The essence is limitation of online ways of marketing products. Price differentiation is based on provision of goods for different categories of distributors for different prices. As a result, hybrid distributor is having paying one price, without distinction whether the sale is on-line or not. In the analysed case Lego there was specific discount system for the years 2014-2016 for “stone stores” with three quantitative criteria (which was impossible to comply for on-line marketers. After the decision of German court there was since 2017 new discount system based on five qualitative criteria, however some were still impossible to be met for on-line marketers (e. g. delivery within 3 hours after purchase, which was possible only for Amazon).

French competition authority (ADLC) classified the issue as price differentiation (not dual pricing), considering many criteria such as scope of the discounts, transparency, share of distributors on the market, absence of criteria evaluation for discounts etc. As a result, there were some obligations sent: for example, to open discounts for all types of distributors so they all can meet criteria or to adopt changes leading to greater transparency. It is important to note that the discount system is same in whole Europe. That is why it is interesting, that same system was evaluated by the Bundeskartellamt as dual pricing! This is most probably due to wrong understanding of dual pricing. As a result, obligations were quite strict, leading to the change of the discount system.  To sum up, many comments are saying that both authorities are quite active in leading Europe towards ban of price differentiation without taking into the count different nature of distributors. This conclusion is, however, of first impression because French authority is considering it as an effect restriction (most probably after the effect analysis), allowing application of block exception or de minimis exception. Ms. Krumlová is lacking in the effect analysis better consideration of different costs among different distributors. Without considering different costs the attitude is according to her very interventionist: to demand accessibility of maximum discounts for all types of distributors without considering different costs. That is why it would be valuable to see some clarification by the European Commission in the proposal of the new block exception.

Jak Kupčík (Skills s. r. o.) spoke about the contribution of digital economy of analysing market power. While certain hesitancy in the USA to define market, in the EU there is great interest in defining economic market power. Important definitions were brough by the cases United Brands, ZOHS or in the Guidelines on the application of the article 82. Market power is currently analysed mainly based on market share (on a relevant market), there is also a SSNIP test (the hypothetical monopoly test) and AKZO presumptions or in Czech case also the law, where we have a negative presumption at the rate of 40 %. However, according to Mr. Kupčík it is evident, that this system is not enough, and European Commission is working on a update including definition of the relevant market. There are many questions, including the cover of services which are free of charge, or the influence of globalization and digitalization. To define relevant market is a “key” or a “cage” due to need of targeting attention of regulatory authorities. However, modern market power is multifaceted and that is why some alternatives would be welcome. One of them is Lerner index L=(p-mc)/p about the relationship between price and marginal costs. Nonetheless, practical problem is associated with marginal costs (as defined by Kupčík: marginal costs are costs everyone believes there are, but nobody saw them) which are very difficult to calculate and hypothetically opens new questions. For example, how much elasticity is too much of market power? Or how many enterprises investigated due to dominant position misuse changed ever prices?

Here enters the scene E-commerce which is according to Kupčík providing “easy data”. Moreover, price fluctuations are higher, there are new data about customers who did not bought the product and it is easier to calculate elasticity of the individual demand. Critics may admit that that “relevant market” is an institute which is unable to avoid. Also, we can make corrections to the market share which are providing some sort of legal certainty and everyone can calculate its market share. Mr. Kupčík presented data, based on 8 respondents (short pre-research)  from start-up companies showing that they can calculate price elasticity, but majority of respondents cannot conduct simplified SSNIP test, but they claim, that they can estimate the share on the market, they don’t exactly know.

Another speaker was Břetislav Martínek (ÚOHS) who introduced several cases as decide by the ÚOHS. Notably, the case of CHAPS s. r. o. in the area of dominant position misuse and B.V. in the case of prohibited agreement. Both cases are very fresh and the legal actions are ongoing. The case CHAPS is very unique for the Czech Republic. In 2001 the Ministry of Transport concluded public agreement with CHAPS about creation and management of Central Information system on transport schedules (CIS) – including lines, stations and operators.  CHAPS added many private agreements with third parties, adding geographic locations, public transportation data from cities, private lines etc. which resulted in IDOS (Transport Information System). The agreement with the Ministry was that CHAPS will do it for free, but with the possibility of data commercialization (e. g. for the purposes of advertisement). In 2010 the company requested data from CIS, based on the Information act and requested price offer. CHAPS refused to enter contract and referred to IDOS and related formats (.xls). gave notification to UOHS and in 2015 there was a new Ministry decree enabling automatized processing of data. As of 1/2018 there was a decision on dissolution about dominant position misuse for refusing to provide data about transport schedules (market 1) to the third parties without objective reasons which violated market competition on the market with existing variations of transport connections (market 2) in the Czech Republic and on the market with automated searching of transport connections on a national market (market 3). As a result, CHAPS was fined 1 080 000 CZK (Roughly 40 000 Euro). As of 11/2020 Regional Court in Brno annulated and returned decision for wrong time specification of violating behaviour. Misuse of dominant position was identified on the market 1 (product necessary for the existence of other markets). In other words, detailed demarcation of markets was a key for the decision, and it was necessary to investigate the necessity of the product. What is transcending is that ÚOHS was not required to prove criteria set by Oscar Bonner case (ÚOHS did so) and data in .pdf and xls. Are not alternative product towards market 1. The court decided that ÚOHS should have demarcated earlier date of violation (latest the day of initiating the legal procedure), which later had impact on the fine.

In the second case –, we are dealing with parity agreements (vertical agreements, also named as “Best price clauses”, price/rate parity clause or “most favoured nation clauses”) which are often used in entertainment, insurance and payments. Very important case was E-Books (Amazon) AT.40153. In our case, we are dealing with online reservations of short stay accommodation – based on so called OTA agreement (online travel agency) + hotel (accommodation). Under the agreement, hotel has obligation to offer OTA best price than on the other distribution channel. It means that agreement is not dealing only about “best price” but also about availability. In the case of OTAs we can distinguish between wide parity clauses and narrow parity clauses, depending on the scope of areas covered by the agreement which are having positives (solving the issue of free riding) but are also having many negatives. Notably, restriction of the competition among individual OTA and crating barriers for entering the market for new entities. In 2019 there was a legal action against wide parity (since 2009 to 2015) and later against narrow parity, which was not proven. UOHS indicated violation on two markets: a market of on-line provision of services reservation for short stay accommodation and a market of providing short-stay accommodation services, which was fined by 8,3 million CZK (Approx. 200 000 Euro). Again, it was necessary precisely indicate the market and to deal with the substation for the customer. Exceptions were not applicable due to market share. UOHS considered Booking as P2P platform – with relevant competitors on the market such as Airnb, HomeAway with similar structure and NOT competing with travel agencies (because providing different product), global distribution systems (such as Amadeus, Gallileo who are not providing services to end users) or Metabrowsers (Trivago, Tripadvisor who are just comparing, without  options of reservation).

Mr Martínek mentioned, that UOHS used a questionnaire survey proving violation of competition as 4/5 were following the agreement, more than ½ was afraid of punishment and more than ¼ felt restricted in creation of prices. As a result of the case Booking decided to increase profit margin for accommodation providers and decrease its own profit margin. In the case of free riding it might be solved by narrow parity. To conclude, UOHS is part of Computational Antitrust project under the umbrella of Stanford University which is aimed at automated legal analysis, which will hopefully lead very soon to some publications. The following debate about the case resulted in a question why European Commission was not dealing with this big issue involving article 101 TFEU violation. As mentioned by Mr. Martínek, the reason is that individual states had different approach: some banned narrow parity. Petr Michal added that historically, national interest in this case was very strong than in other cases.

Last speaker of the session was Dr. Michal Černý (Faculty of Law, Palacký University in Olomouc) who dedicated his contribution to the law of origin in relation the competition law. After the extensive introduction of the Protected Designation of Origin (PDO), Protected Geographical Indication (PGI) and Geographical Indication (GI) he stressed several challenges. Especially differences in definitions on the EU level and within national regulations. Moreover, there are several systems around the world (“French” list system based on registration influencing EU law, system of judiciary protection punishing false information about the origin or label system including collective labels and special rules). In many states the systems are existing in parallel, e. g. in Switzerland. As noted by Dr. Černý, very interesting is the” Swiss test” based on criteria such as share of the work in the Switzerland, components etc. There is a question whether also services can be geographically protected. According to the Czech yes, it is possible, but since 2002 there was only one request which was refused. However, due to lack of transparency it is impossible to find the reasons behind the refusal. In the World, there is a geographically protected service “Porto Digital” in Brazil without any more specifications.

Contemporary issue is the entry in force of the Geneva act on 26. 2. 2020 and the new EU Regulation 2019/1753 on the action of the Union following its accession to the Geneva Act of the Lisbon Agreement on Appellations of Origin and Geographical Indications. In the Czech case there are many products (except agricultural products or food) and realization will mean to remove deficiencies: only few products have specification and description. This will have implications for controlling quality and origin of products. As summarized by Černý, Czech regulation can be inspiration but there are many tools missing which are on the contrary in the EU regulations. Czech Republic shall be inspired by the EU law institutes to provide future inspiration for the EU. Our national law shall be significantly rewritten in some parts. (End of part III.)

The event was organised within the implementation of the Jean Monnet Network „European Union and the Challenges of Modern Society (Legal Issues of Digitalization, Robotization, Cyber Security and Prevention of Hybrid Threats) Project id: 611293-EPP-1-2019-1-CZ-EPPJMO-NETWORK.