The European Commission (”Commission”) is preparing the ground for a new competition enforcement tool. This new tool could substantially extend the competition authority’s current enforcement powers and allow for far-reaching intervention where the Commission identifies structural competition concerns. In particular, following the proposal, the standard for intervention could be lowered significantly as the Commission may no longer be required to establish dominance in order to impose behavioural or structural remedies on a company.

Executive Vice-President Margrethe Vestager, in charge of competition policy, explained “that there are certain structural risks for competition, such as tipping markets, which are not addressed by the current rules.” She stated that the Commission “is seeking the views of stakeholders to explore the need for a possible new competition tool that would allow addressing such structural competition problems.

The proposal falls within a broader set of Commission initiatives

The proposal falls within a broader set of Commission initiatives and policy considerations. Earlier this year, the Commission has published a Communication on “Shaping Europe’s digital future” and has therein announced a Digital Services Act package. The proposal for a new competition enforcement tool is complementary to those initiatives and is pursued in parallel.

In its press release on the potential new enforcement tool the Commission said that ensuring the contestability and fair functioning of markets was likely to require a “holistic and comprehensive approach”. The Commission emphasises three enforcement pillars:

  1. The continued enforcement of the existing competition rules making full use of Articles 101 and 102 of the Treaty on the Functioning of the European Union (“TFEU”), including the use of interim measures and remedies, where appropriate;
  2. Possible ex-ante regulation of digital platforms, including additional requirements for those that play a gatekeeper role; and
  3. A proposed new competition tool to deal with structural competition problems across markets which the Commission perceives could not be tackled or addressed effectively on the basis of the current competition rules (e.g. addressing markets that the Commission believes are susceptible to tipping).

The Commission is currently seeking feedback on the latter two points. On the possible ex-ante regulation of digital platforms, the Commission has launched an inception impact assessment requesting comments by 30 June 2020. The Commission has also published an inception impact assessment on the introduction of a new competition tool, also requesting comments by 30 June 2020, and in addition has published a public consultation requesting comments by 8 September 2020.

The Commission argues that there are two groups of structural competition concerns that the new enforcement tool intends to tackle

The Commission says that the current competition rules cannot address certain structural competition problems either at all (e.g. monopolisation strategies by non-dominant companies) or in an effective manner (e.g. parallel leveraging strategies by dominant companies into multiple adjacent markets).

In the description of its inception impact assessment the Commission groups its structural concerns into two categories depending on (1.) whether harm is about to affect the market (structural risks for competition) or (2.) has already affected the market (structural lack of competition).

  1. As regards structural risks for competition, the Commission describes scenarios where certain market characteristics (e.g. network and scale effects, lack of multi-homing and lock-in effects) and the conduct of the companies operating in the markets concerned could create a threat for competition through the creation of powerful market players with an entrenched market and/or gatekeeper position. The Commission also refers to unilateral strategies by non-dominant companies to monopolise a market through anti-competitive means.
  2. As regards structural lack of competition, the Commission endorses scenarios where a market would not be working well and not deliver competitive outcomes due to its structure (i.e. structural market failure). The Commission identifies as possible scenarios (i) markets displaying systematic failures such as high concentration and entry barriers, consumer lock-in, lack of access to data or data accumulation, and (ii) oligopolistic market structures with an increased risk for tacit collusion (including markets with increased transparency due to algorithm-based technological solutions).

Four policy options are considered for the new enforcement tool

In order to address these two categories of structural competition concerns, the Commission is considering four policy options. For all options the Commission relies on Article 103 TFEU in combination with Article 114 TFEU as the legal basis. This is already noteworthy, as prior antitrust legislation has only relied on Article 103 TFEU alone (though the Merger Regulation is also based on Article 352 TFEU).

The four options are described as follows:

  • A cross-sector dominance-based competition tool

Option 1 would address competition concerns arising from unilateral conduct by dominant companies without any prior finding of an infringement pursuant to Article 102 TFEU. Similar to the existing EU competition rules, it would be generally applicable across all sectors of the economy. The goal of this tool would be to allow the Commission, in close cooperation with national competition authorities (“NCAs”), to identify competition problems and intervene before a dominant company successfully forecloses competitors or raises their costs. The tool would enable the Commission to impose behavioural and, where appropriate, structural remedies. However, the Commission would not make any finding of an infringement of the EU competition rules, nor impose fines and thus not generate rights to launch damage claims.

  • A sector-focused dominance-based competition tool

Similar to the tool presented under Option 1, this option would address competition concerns arising from unilateral conduct by dominant companies without any prior finding of an infringement pursuant to Article 102 TFEU. Under Option 2, however, the use of the tool would be limited to sectors in which the characteristics of structural competition problems as described above are considered most prevalent by the Commission. These sectors could include certain digital or digitally-enabled markets and/or other sectors identified by the Commission as being especially prone to concerns due to entrenched dominance, high entry barriers, etc.

  • A cross-sector market structure-based competition tool

This option would allow the Commission to identify and remedy structural competition problems if the Commission considers that it cannot address them effectively under the existing EU competition rules. Unlike Options 1 and 2, it would not be limited to companies that are already dominant. Similar to already existing competition tools, this tool would be based on a test allowing the Commission to intervene when it identifies a structural risk for competition or a structural lack of competition. The tool would enable the Commission to impose behavioural and structural remedies. The Commission could further recommend legislative action to improve the functioning of the market concerned. As under the previous options, there would be no finding of an infringement, no fines and no damage claims. Similar to the existing EU competition rules, the tool would be generally applicable across all sectors of the economy.

  • A sector-focused market structure-based competition tool

Similar to the tool presented under Option 3, this option would address structural competition problems identified by the Commission. Under Option 4, however, the use of the tool would be limited in scope as under Option 2 to sectors in which the characteristics of structural competition problems are considered most prevalent by the Commission. As outlined above, these could include certain digital or digitally-enabled markets and/or other sectors identified by the Commission as being especially prone to such concerns due to entrenched dominance, high entry barriers, etc.

Comments and open questions

The Commission’s proposal and the concerns it perceives are far from being universally accepted. First, some disagree that there actually is an enforcement gap that needs to be filled. Second, the proposed measures could be regarded as a way of circumventing the existing rules in order to relieve the Commission of the intervention standards set out in Articles 101 and 102 TFEU and enforced by the European Courts. The new tool could therefore become a notable departure from decades of competition law enforcement and international discussion. In any event and in light of the recent General Court ruling in Hutchison 3g UK / Telefónica UK, it can be expected that, in any legislative proposal, the Commission will take a very close look at the wording relating to the standard and burden of proof for potential intervention.

Further, the imposition of potentially far reaching remedies without finding an infringement raises questions as to the legitimacy, proportionality, and effectiveness of such remedies as well as to the potential to undermine incentives to invest. The inception impact assessment stresses that all options that are being considered do not include a finding of infringement or any imposition of fines. However, the perspective of far reaching behavioural and/or structural remedies that may include the restructuring of an entire industry may appear no less threatening to the concerned undertakings.

Another point of debate is how the new tool fits into the toolbox the Commission already has at hand. This particularly concerns the inter-relationship between the new tool and Articles 101 and 102 TFEU fas interpreted by the Courts. Article 103 TFEU, which partly forms the legal basis for the new tool, enables the adoption of legislation to “give effect to the principles set out in Articles 101 and 102”, “ensure compliance with the prohibitions” or “define the scope of the provisions”. Any new tool based on Art. 103 TFEU would therefore need to be in line with the core provisions of the Treaty as interpreted by the Courts (regarding, for example, the burden of proof, the notions of restriction of competition, dominance, anticompetitive effects…). However, as the new tool is also based on Article 114 TFEU, the precedential value of Articles 101 and 102 TFEU may at least be the subject of discussion.

Finally, the overall impact the proposed tool might have cannot yet be foreseen. Action against any alleged detrimental effects on the market due to a lack of competition would have to take account of any risks related to over-enforcement and a higher likelihood of false positives. It is difficult to assess whether the policy options considered by the Commission strike the right balance among these concerns.

Next steps and outlook

Stakeholders are invited to provide feedback on the initiative by 30 June 2020 and to respond to the public consultation by 8 September 2020. Further, the Commission will carry out targeted stakeholder workshops to gather the views of particular stakeholder groups such as NCAs and consumer organisations in the course of 2020. Subject to the outcome of the impact assessment, a legislative proposal is scheduled for Q4/2020.