(Ed. Note: The “Innovation Fact of the Week” appears as a regular feature in each edition of ITIF’s weekly email newsletter. Sign up today.)
Legal certainty, or at least limited uncertainty, is one of the key enablers of economic growth and innovation. Legal certainty for companies is critical because strategic business decisions cannot occur in a state where regulatory uncertainties outcompete business uncertainties. In a nutshell, the principle of legal certainty states that the law must be sufficiently clear to provide those who are subject to it with the possibility of regulating their conduct accordingly.
Unfortunately, the issue of legal certainty in the discussions and proceedings against big tech has mostly been overlooked despite its fundamental importance in preserving the optimal incentives for market players. Given the innovative nature of many of the platforms these companies have created, there could very well be an argument that levying retroactive fines against them on antitrust grounds could, in some instances, violate the principle of legal certainty.
We see this on both sides of the Atlantic. Digital technology firms face considerable legal uncertainty now, thanks to the rise of antitrust cases against big tech in the last several years, including recent congressional antitrust hearings that featured testimony from top tech CEOs, a Justice Department case against Google, and multiple fines in the European Union.
The European Commission has recently opened antitrust investigations to assess whether Apple’s rules for developers using its App Store violate EU competition rules. Should Apple have expected these laws would be applied to its own, self-developed platform? There are similarities to be found in the 2017 Google Shopping decision: the European Commission fined Google $2.42 billion for “abusing” its market dominance as a search engine by giving an illegal advantage to its own comparison shopping service. The fine has de facto inferred a “search neutrality” duty to Google. This duty is questionable, since no such duty existed prior to the fine.
Nevertheless, we also see it at the subnational level in Europe, especially Germany, which has traditionally been the EU’s most influential voice for antitrust enforcement—mostly due to its concept of “ordoliberalism,” which seeks to reach a state of “perfect competition.” Not surprisingly, big tech companies are facing many significant challenges in Germany related to antitrust enforcement.
For example, newly updated legislation will provide more tools for Germany’s competition authority, the Bundeskartellamt, to tackle questions about the big tech companies’ operations. The draft legislation, unveiled in September, aims to “create a framework that can face up to the requirements of the digitalization and globalization of the economy.” It states that “the experiences in probes especially concerning the big digital platforms have shown the necessity of a further acceleration of competition cases.” Peter Altmaier, the German minister for economy and energy has said:
digitalization changes business models, markets, and economic balances of power ever more rapidly. [...] With the G.W.B. Digitalization Law, we react to this. Big, market-dominating digital corporations are brought under stricter abuse oversight. We create the opportunity for the competition authority to react faster with preliminary measures.
Despite the risks of regulatory overburden due to dual layers of national and European regulations targeting the same practices, but potentially with different implications, the German proposals already accompany more aggressive antitrust enforcement.
In October 2020, the Bundeskartellamt began investigating whether Amazon is abusing its dominant market position as an online seller. A month earlier, the European Commission initiated similar probes against the online marketplace. The president of the Bundeskartellamt, Andreas Mundt, has stated in an interview that the competition authority wants to clarify whether Amazon is cooperating with brands to the detriment of third-party sellers. It has been reported that, according to current findings of the Bundeskartellamt, Amazon provides producers the opportunity to exclude third parties from selling their branded products on the German Amazon marketplace if they also supply Amazon as a seller. With some brands, all sellers except Amazon itself would be excluded. Mundt conceded that such agreements could also serve legitimate protection against product piracy, stating that they must be proportionate and must not eliminate competition.
Although Amazon seems to be the first to be on the German competition authorities’ radar since the new legislation was introduced in September, it will likely not remain the only big tech company to fall under such scrutiny. There are multiple perspectives about these companies’ market behavior that are being reviewed. In another interview, discussing stricter measures for merger control, Mundt stated:
There is a concern that big internet platforms buy up other companies to keep away future competitors. These acquisitions often stay under the radar because they are not required to be registered. The revenues of startups are often merely not yet high enough […] The German legislator has already reacted to this. We have a new threshold of review now: Starting from 400 million Euros acquisition price we can review, regardless of the revenue.”
Mundt was even asked about a possible breakup of Amazon, to which he commented:
a breakup can only ever be solution of last resort. This is a very deep intervention into the rights of ownership and fundamental rights. Before, we should fully have applied all other available instruments. In Europe, we are already highly active. There are many consequential proceedings of the competition authorities. Perhaps the U.S. competition authorities must show more sting. So far, a different culture is customary in competition law there. The belief that the market will fix things in the end is more common, even if lately we see more activity on the competition authorities.
It remains to be seen how the Bundeskartellamt’s Amazon probe will proceed. But it seems clear that the coming years will see more cases like this one, both from the Germans and in the United States. Without a doubt, given Germany’s influence in European antitrust enforcement, and in turn Europe’s influence in the world’s antitrust enforcement toward big tech companies, German policymakers should more carefully consider the potential impact of reforms to the country’s regulatory framework. To provide some legal certainty, there needs to be better coordination of national and global legislative proposals. Not only do European and American lawmakers and antitrust enforcers insufficiently coordinate their regulatory proposals toward multinational tech companies, but national lawmakers and antitrust enforcers within Europe undermine the effectiveness and coherence of Pan-European legislative proposals. Given all this, Europe unfortunately may not provide the legal certainty that the highly competitive and innovative tech sector needs.
As part of the legal certainty principle, the notion of legitimate expectations requires regulators to ensure that prudent market actors have legitimately foreseen the law’s application to their situation and practices. Thus, a firm’s conduct which was, at the time of its adoption and performance, legitimately considered to comply with the law cannot subsequently be considered as infringing a law; otherwise, the regulator would retroactively impose a duty to a prudent market actor who could not have legitimately expected such infringement.
Considering the increasingly common misunderstandings between digital players and regulators, and the increasing frequency of regulatory interventions that arise without apparent coherence, it is likely that digital platforms legitimately may not have anticipated regulators’ policy changes and thus face more regulatory discretion and confusion. The U.S. regulatory framework may follow a similar path, as hinted by the recent Democratic House Antitrust Subcommittee report on the digital economy.
None of this is to say that antitrust regulators should not continue to do their job to examine market conduct. However, it is to say that if they do so in a way that significantly weakens legal certainty, the result will be less innovation and a reduction in consumer welfare.