A while back I wrote about the European Commission’s competition investigation into the Android operating system (OS) and today’s mobile platform competition. The main argument of my previous post was that competition in the mobile economy is best conceived as competition between mobile ecosystems with Android and iOS being by far the two most popular which, in my opinion, stand in clear competition with each other. All mobile OSs have to serve and balance the interests of a variety of parties to keep them attractive (or even alive) — that is the nature of a multi-sided platform like a mobile OS. The ‘Apple factor’ should be part of the Commission’s investigation into Android at the stages of determining dominance as well as potential abuse. It is very hard to imagine that Google can act ‘independently’, in the competition law sense of the word, of Apple in the market for mobile OSs. In that sense the Commission’s market definition of licensable smart mobile operating systems, which leaves Apple’s iOS outside that market, appears peculiar (you can read more on that point in my previous post). MORE »
Many observers, including me, predicted that the 2014 decision of the U.S. Court of Appeals for the Federal Circuit (“CAFC”) in Oracle America v. Google would provoke a new wave of litigation concerning copyright and interoperability. In particular, we worried that the decision would encourage dominant vendors to bring copyright claims against competitors that replicated interface specifications for the purpose of interoperating with the dominant vendors’ products. We were right.
Sure enough, Oracle America has factored into at least four cases so far. One of these cases settled, one is on appeal, and the other two likely will be appealed in the near future. The latter two cases also involve patent claims, so appeals will be heard by the CAFC. (The CAFC has nearly exclusive appellate jurisdiction over cases with patent claims.) One can assume that the plaintiffs added the patent claims to ensure CAFC jurisdiction.
GDC v. Dolby Laboratories
This is the case that settled. Dolby Laboratories provides advanced motion picture theatre sound systems. GDC Technology develops software and hardware that interoperates with the Dolby systems. Dolby facilitated this interoperability by making its interface specifications available to GDC. It appears that Dolby stopped providing this information after it acquired Doremi, a media server manufacturer. Evidently, this acquisition made GDC a more direct competitor. Emboldened by the CAFC’s Oracle America decision, Dolby demanded that GDC stop using Dolby interface specifications to interoperate with Dolby products. Furthermore, Dolby insisted that GDC cease telling customers that GDC had the right to use this interfaces information to interoperate with Dolby products.MORE »
Earlier this week, Hollywood veteran Jonathan Taplin’s misleading op-ed in the New York Times did us the favor of compiling the most common misconceptions about online competition in one convoluted package. Unfortunately, Mr. Taplin’s piece tracks with recent zeitgeist, as some commentators and armchair economists increasingly reach for the “monopoly” label when beginning an analysis of Internet companies, rather than upon concluding it.
Commentators like Mr. Taplin are wont to pick a major Internet company (or all of them), apply the monopoly label, and call for antitrust regulators to right some perceived wrong – never mind that the complaint often has nothing to do with competition law.
This isn’t competition law; it’s industrial policy. In Mr. Taplin’s case, the evil that industrial policy must address is the alleged, unjust transfer of wealth from traditional content companies to “free-riding” Silicon Valley firms that do nothing for society (except being the leaders in research and development spending, which is a key driver of productivity and job creation). And judging by the hyperbolic title of his forthcoming book, he appears to blame them for destroying culture and democracy as well. Very subtle.
Next time you are queuing to pay at the supermarket, and possibly cursing why the queue is so long and there aren’t more tills open, remember that it could be much worse: much, much worse.
What if the queue wasn’t two people with full trolleys in front of you, but five; that you need to wait not for six minutes, but fifteen. To make matters worse, when you finally get to the checkout half of the items in your trolley are not recognised by the scanner and you have to leave them in the shop. Imagine that this all happens in the busy shopping weeks before Christmas. The chances are that you might run screaming from the shop never to return.
If the problem were confined just to one shop then you could avoid that shop.
But what if someone sitting deep in the basement of a grey building made this happen in ALL shops? You would have no way of avoiding this hell. That would put off even those who are enthusiastic about shopping.
The reason I am torturing you in this way is that an obscure new rule being devised by the the European Commission, the European Banking Authority (EBA) and the European Central Bank (ECB) might be about to turn your online shopping experience into exactly this type of hell.
The people involved are all well-intentioned, of course. They want to protect consumers from fraudsters, and that is a good thing. But design by bureaucracy is almost never the way to find an effective solution for the real world.
Imagine a directive which had resulted in a massive growth in cross-border services in the EU; which had delivered an explosion of choice for European citizens; and which a consultation had found to be widely supported by regulators and other stakeholders.
You might think the Commission would regard this as a triumph of the single market, to be nurtured – but you would be wrong.
The regulation in question is the AudioVisual Media Services Directive (the AVMSD), and in particular its ‘country of origin’ (COO) principle. COO says that providers of video services (broadcasters, or VOD – video on demand providers) operating in the European Union are only regulated by the Member State in which they are based.
The Commission is now proposing to move away from this simple and effective principle, by allowing the country of destination (the COD) to also regulate cross border services. In particular, CODs would be allowed to raise levies on VOD providers (though not on broadcasters). Further, the Commission is proposing to take this step, despite not having consulted on this option.
And what is the rationale for this change to a system that is already working well? The ‘level playing field’ – the idea that traditional broadcasters are unfairly disadvantaged versus the VOD providers.
However, there is certainly no general requirement that competing services be subject to the same regulation. Think about short-haul flights and railways for instance – trains are not required to have life-jackets under their seats.
In our new study (commissioned by CCIA), we argue that the level playing field argument is particularly weak in the context of AVMS.
Imagine the scene: it is a sunny autumn afternoon and you are walking down your favourite shopping street kicking leaves to one side. Try guessing whether your fellow shoppers are out for a stroll, are off to browse in the shops or are heading intently to buy an item they have already identified online or during a previous stroll. The chances are that the people you see fall into all of these categories.
People are complicated. Consumer behaviour is complicated. Technological change throws even more variables into the mix.
It is worth bearing all this in mind when thinking about the European Commission statement of objections against Google in its ‘shopping’ case. The Commission asserts that Google’s general search engine prioritises its own services in a way that is anti-competitive and is able to harm consumer welfare. The key questions to my mind are (i) what is the reality of consumer behaviour online in finding goods, services and prices; (ii) what is the reality of investment in the EU in ecommerce and related activities; and, given this, (iii) even if Google wanted to, could it exert such influence over the market?
Are you amongst the ten million travellers who use Skyscanner to find cheap flights and to book tickets every month? If you are, you are in good company and have helped to drive the rapid growth of the company from less than 1m GBP in annual revenues in 2007 to more than 100m GBP in 2015. That is earned by helping to drive airline bookings worth more than 10bn GBP per annum.
Skyscanner’s focus on being the best in its own ‘vertical’ has taken it from a small Edinburgh startup to a team of 770 employees, with scale and accelerating growth. To those that doubt the viability of European technology companies this is an impressive rebuke.
It is also a reminder of the global nature of ownership, investment, innovation and talent and the need to address a large scale global market.
Skyscanner is headquartered in Edinburgh, but has operations around the world from Beijing to Budapest. A privately held company, its ownership includes the famous Silicon Valley venture capital fund Sequoia, a key backer of other successful technology firms such as Airbnb, Apple, Dropbox, PayPal, Google, Yahoo and many more.
The European Commission’s competition investigation into Google’s Android mobile operating system (OS) has unsurprisingly raised a lot of attention and commentary. It’s fair to say that so far most comments focused on the ‘abuse part’ of that investigation. That is the part which deals with the question whether certain provisions in the Mobile Application Distribution Agreement (MADA) relating to the bundling of Google apps and the anti-fragmentation agreement (AFA) constitute an abuse under Article 102 TFEU. In fact, the trade association I work for has addressed a letter to Commissioner Vestager explaining why the MADA and the AFA are key to the functioning of the Android ecosystem, spurring innovation and competition.
It goes without saying that readers who are more familiar with the details of competition law will know that the abuse part of any Article 102 investigation formally is the last step competition enforcers take (while arguably being the most interesting). Before one gets to the question of whether a company abused a dominant position, one has to find whether the company actually has a ‘dominant position’. After all, a company can only abuse a dominant position if it has one. This post will discuss this issue in the context of the Android investigation.
But first, let’s continue with competition law basics: how does one find ‘dominance’? Conceptually, a finding of dominance involves a two-stage assessment. First, one has to define the relevant market. While that definition can involve complex economic assessments, it is essentially a matter of substitutability. Where goods or services can be regarded as substitutes or interchangeable by the consumer, they are within the same product market. Second, competition authorities look at whether a given company has a ‘dominant position’ on the relevant market. For economists, companies with a dominant position are companies that have substantial market power. In the often recurring words of the Court of Justice of the EU (CJEU), a dominant position:
“relates to a position of economic strength enjoyed by an undertaking which enables it to prevent effective competition being maintained on the relevant market by affording it the power to behave to an appreciable extent independently of its competitors, customers and ultimately of its consumers”. (Case 27/76 United Brands v Commission, para. 65)
Importantly, the Commission explains in its Guidance on Article 102 Enforcement Priorities that the notion of ‘independence’ “is related to the degree of competitive constraint exerted on the undertaking in question” and where competitive constraints are ineffective, the “undertaking’s decisions are largely insensitive to the actions and reactions of competitors, customers and, ultimately, consumers” (para. 10).
With this in mind, let’s turn to the ongoing Android investigation. To most people, competition experts and non-experts alike, one aspect of the Commission’s investigation stands out: the market definition. When the Commission announced the Statement of Objections (SO) it sent to Google, it held that the company has a market share of more than 90% in the market for licensable smart mobile operating systems. The word ‘licensable’ is key because it means that Apple’s iOS which powers all iPhones and iPads is outside the scope of the relevant market. So are iPhones really not competing with Android-powered smartphones? (Leaving aside the question of whether tablets should be included in the market definition for now).
“Nokia: One Billion Customers — Can anyone catch the cell phone king?”
Within a few years we knew the answer.
Many have tried to explain this demise; explanation will be a minor feature of this post. Rather it will focus on a couple of the causes and draw the lessons for contemporary technology, economic and competition policy.
Last week the European Commission issued a supplementary Statement of Objections (SSO) to Google. The SSO is intended to support the Commission’s preliminary finding that Google abused a dominant position in the market for general search services by systematically placing its own comparison shopping service at or near the top of its search results. It is the next step in an antitrust investigation which started in 2009 and comes in response to Google’s substantial reply to the Commission’s initial Statement of Objections (SO) from April 2015.
Commissioner Vestager stated that the SSO makes the case stronger by adding new evidence and data. While no one except the parties to the case has access to that new evidence, Vestager’s comments revealed that it relates to both the economic impact of Google’s alleged anti-competitive practice as well as to a clearer definition of markets in the e-commerce space.
Maybe the single most puzzling finding relates to the latter. Put as a short headline, Vestager stated that successful e-commerce companies like Amazon and eBay do not compete with Google Shopping. According to the Commission, merchant platforms compete in a different market than comparison shopping websites. In economic terms, it means that merchant platforms cannot be considered as substitutes for comparison shopping services. It is a curious finding given that there are thousands of merchants on online marketplaces which allow consumers to quickly compare products and prices. It strains credulity to think that consumers who would like to compare product prices would use a comparison shopping service and consciously refrain from comparing offers on other e-commerce websites such as Amazon. There are many routes to compare prices and products on the Internet, and they all clearly compete with one another for consumers’ attention and merchants’ product listings.