Digital transformation and competition law | In Principle

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Digital transformation and competition law

The dominance of the US and China in the digital market has forced Europe to take action to reduce over-reliance on solutions developed outside its borders. The desire to maintain international competitiveness requires, among other things, a review of antitrust provisions.

In March 2020, European Commission President Ursula von der Leyen presented “A New Industrial Strategy for Europe,” identifying the following priorities:

  • Ensuring Europe’s climate neutrality by 2050
  • Shaping Europe’s digital future
  • Maintaining the global competitiveness of European industry.

The last two areas have a direct bearing on the shape and application of competition law in Europe.

The EU’s current competition rules are designed to make businesses more competitive, create a level playing field, stimulate innovation, and provide consumers more choice. However, it is now increasingly stressed that the rules should also be adapted to a changing world.

The need to review the antitrust regulations has been explicitly expressed in EU documents, including the New Industrial Strategy for Europe (pp. 5–6) and the Commission Communication of February 2020 “Shaping Europe’s digital future.” This communication includes among its key actions assessment and review of the adequacy of EU competition law for the needs of digital age (p. 11).

Similar postulates are also formulated in Poland. The draft of the “Artificial Intelligence Development Policy in Poland 2019–2027” notes that the use of AI raises new challenges in the area of competition law. Therefore, it was recommended that the president of the Office of Competition and Consumer Protection (UOKiK) should monitor the use of AI systems and formulate guidelines for businesses. This policy was adopted by the government’s digitalisation committee in September 2020 and forwarded for further legislative work.

When examining the adequacy of current competition rules to the ongoing digital transformation, key importance must be placed on principles of legal certainty (Court of Justice in Joined Cases 212–217/80, Amministrazione delle finanze dello Stato v Srl Meridionale Industria Salumi, par. 10), the statutory definition of prohibited acts and penalties (A. Doniec, Application of fines in EU and Polish competition law in the light of human rights protection requirements (Warsaw: Centre for Antitrust and Regulatory Studies, 2016), p. 81), as well as the protection of legitimate expectations (T-110/07, Siemens AG v Commission, par. 375). Professional market players should be ensured that competition rules are transparent to the extent that they are free to use digital innovations in their business without fear that their actions will be found to infringe EU or national competition law.

Such cases happen. An example could be the use of algorithms for pricing products and services based on offers available on the market. Algorithmic pricing strategies allow for an almost immediate response to the pricing policies of other companies. However, the use of price algorithms may raise doubts from a competition law perspective, as it poses a risk that some actions may be considered price collusion in the form of tacit coordination, i.e. coordination not requiring a clear definition of the joint actions of the companies (e.g. by agreement).

The current practice of the European antitrust authorities is limited to relatively straightforward cases in this respect, namely to the use of price algorithms to implement an anticompetitive agreement previously concluded in a traditional manner (e.g. the CMA decision in Trod Ltd and GB eye). However, more complex issues are expected soon which will require further reflection.

The New Industrial Strategy for Europe and earlier EU documents explicitly envisage encouraging EU businesses to introduce technological innovations, among other things by strengthening digital innovation centres and supporting cooperation between SMEs. The role to be played by SMEs in the planned transformations is also stressed. As noted in the Commission Communication “Shaping Europe’s digital future”: “To start up and grow in Europe, SMEs need a frictionless single market, unhampered by diverging local or national regulations that increase administrative burdens for smaller companies in particular. They need clear and proportionate rules that are effectively and uniformly enforced across the EU, providing them with an immensely powerful home market from which to launch themselves on the world stage.”

Thus it is urgent to look for solutions to the problems of antitrust law arising from digital transformation. The use of new technologies in business is increasingly becoming a matter of interest for competition authorities, at both the national and EU levels. As technology develops, this trend will grow. In turn, this may hinder the implementation of priorities formulated in the New Industrial Strategy for Europe. Therefore, businesses need a framework in which they can move freely in the new digital world.

Agnieszka Jelska, attorney-at-law, Competition & Consumer Protection practice, Wardyński & Partners