The European Commission’s proposals for the EU Digital Services Act (DSA) and New Competition Tool (NCT) have generated lively debate within the EU legal and public policy community, but relatively little coverage in the wider press. This is despite the widespread impact the DSA and NCT will have if they become part of the European Commission’s (Commission) armoury of enforcement tools. This post focuses on the NCT proposal and our reaction to it – in another post you can find here we reflect on the DSA.
Not since the introduction of the EU Merger Regulation in 1989 has there been a proposal of the magnitude of the DSA and NCT. Together, they represent a new regulatory apparatus with which the Commission is attempting to bridge an alleged enforcement gap.
The Commission argues that this gap exists where conventional competition law enforcement in markets that are not sufficiently competitive would require the Commission to go beyond the safeguards and legal standards guaranteed under Articles 101 and 102 TFEU.
However, unlike the situation which pre-dated the EU Merger Regulation where it was widely acknowledged that there was a problem that required a solution, at present there is no consensus on the existence of any real “gap” in the Commission’s armoury. Indeed, given the number of high-profile cases that the Commission has pursued in digital markets, existing law clearly provides the Commission with formidable powers of intervention.
The key innovation proposed in the NCT is to allow the Commission to impose structural or behavioural remedies on an otherwise legally-compliant market structure or business model. This may even include the de-merger of a company or other far-reaching intrusions into lawful business models and practices, but without the legal standards and safeguards enshrined in legislation currently in force.
As the Commission would no longer have to prove a breach of the law, enforcement under the NCT would also abandon the traditional liability that accompanies such a breach and with it the potential for the vast fines associated with EU competition law enforcement.
If adopted, the NCT will reshape and disrupt the enforcement of EU competition law in a truly fundamental way and dominate the agenda of DG Competition and DG Connect (the agency responsible for the EU Commission's policies to create a digital single market) for the foreseeable future.
Although the focus of the NCT is on digital markets, where the Commission is concerned that “gatekeepers” aim to control market access to essential content, data or users, it is conceivable that the Commission would make use of it in other contexts. The NCT could, for example, be used as a horizontal tool applying across industries and through which the Commission could attempt to reorganise concentrated retail markets or utility infrastructure operators.
Indeed, Margrethe Vestager, Executive Vice-President of the Commission, in a speech marking the European Competition Day in Berlin on 7 September 2020 said that the Commission had received a lot of support for NCT, which might even allow the Commission to “prevent new gate keepers from arising” in the first place.
In his keynote speech given to the International Bar Association the following day, Olivier Guersent, Director-General for Competition of the Commission, made it clear that the Commission feels that the NCT should not be a digital market-only instrument, offering financial markets (such as the market for clearing and settlement) as an example of non-digital markets in which the NCT might be deployed.
The Commission opened an online public consultation on the NCT earlier this summer with a deadline for submissions on 8 September 2020. As a firm we have submitted a comprehensive response to the proposal (attached to this post), arguing that the introduction of the NCT as currently proposed by the Commission is bound to have far-reaching implications and is likely to result in a paradigm shift in EU competition law enforcement.
As the Commission’s thinking around the scope of the NCT evolves, it is crucial that it clearly defines in concrete terms the scope of the issues that the NCT is seeking to address and any alleged enforcement gap which the NCT is designed to fill.
The NCT proposal in its current form still lacks crucial details on several fronts, including how markets will be selected for investigation, the nature of the legal test for intervention and remedies, a regime for protecting procedural rights, and guarantees of judicial oversight available to companies’ subject to Commission intervention under the NCT. Further information on these points is necessary to allay widespread concerns over the NCT’s compliance with the rule of law and its interaction with the requisite standards of legal certainty already provided by Articles 101 and 102 TFEU.
Only once there is more information on these essential points can a considered assessment of the NCT be made – therefore, if the Commission decides to move forward with the introduction of the NCT, it is of paramount importance that it provides more clarity on these issues.