Digital Economy's Impact on EU

European Commission, in its website, has acknowledged the importance of digital economy by the way it has affected functioning of the economy deeply impacting businesses, organisations, and personal life. It realises that new digital technologies will lead to disruptive innovation, new opportunities and at the same time challenges. Digital economy has occupied a significant place in the Commission’s overall scheme. Steps such as the 2018 Digital Single Market Strategy, the 2018 Coordinated Plan on Artificial Intelligence, or plan to implement aspects of the European Digital Single Market (DSM) agenda bear evidence to this.

Andy Crabtree et al (2016) observe that personal data is the “new currency”. There are, however, challenges associated with dealing personal data. Reported misuse and abuse have raised both sociological and economic concerned. As a result the new compliance would attempt to pass on control of personal data to the owners and to establish a legal framework considering a social arrangement and economic perspective with the purpose of developing digital economy across the internal market. The emergence of new technologies and with it digital economy has surely raised cyber security issues. This is gathered from the fact that when technology and economy merged together, information becomes the primary agent determining the success or failure of this merger. The 2017 OECD Digital Economy Outlook reflects this view. It states that any form of digital security and privacy incidents will impact economic effect, raising trust concerns. According to Zichittella in the book Taxation in a Global Digital Economy (2017), this concern is evident in the low integration of digital economy among individuals and SMEs. The challenge is not confined to them alone, but to larger economic base. One area that is generally applicable is the taxation problem in digital economy. Information and communication technologies (ICTs) have impacted all economic sectors and society creating inability to draw a line around digital economy. This suggestively asks for a special tax treatment, but which would breach freedom of internal market. Example is when EC found Apple’ tax arrangement in Ireland from 1991 up to 2014 amounted to illegal state aid.

Degryse in the paper ‘Shaping the World of Work in the Digital Economy’ (2017) recognises that digital economy has also caused unavoidable political debates. Ruan in the book Digital Asset Valuation and Cyber Risk Measurement (2019) observed that the emergence of digital economy has given extensive power to digital giants and they will political power even over political institutions. The pervasive nature of technology challenges the society with their views on privacy, moral baselines and identity. Cyber risks associated with such economy have raised political issues vis-a-vis formation of compliance regulation particularly in the area of cross-border trade. Malecki and Moriset in their book The Digital Economy (2008) presented certain political risks, such as arising from massive offshoring or outsourcing, mass redundancies, potential retaliation by local customers, governments and unions as being associated with digital economy.

Digital economy also provides tremendous benefits. It brings more profit and customer convenience and facilitates inter-border transfer of expertise and capabilities. Malecki and Moriset (2008) observed that digital economy increased benefits of telemedicine enabling approach of medical expertise to needed areas. From a purely economic perspective, it has implemented disintermediation processes, which has reduced wholesalers bringing more benefits to sellers and the buyers. As observed earlier, information is the agent determining success or failure of digital economy. Davies in the book Tectonic Politics (2019) observed that this form of economy has enabled quicker and coordinated exchange of information and data through channels of tele/video conferencing, which has increased productivity and inventiveness. This proximity pushes economic advantage towards jurisdictions with lower costs and skilled workers. Not only economic benefit, digital economy enables shared values between political institutions and government and between corporations. Corporation will major political influence, and using their positions they could improve market environment, internalise certain benefits and possibly resolve political issues. Digital economy is a product of growing economic interdependence, which also could be vice versa. This reinforces steps around peaceful trade policies between nations. Strong relationships and continuous monitoring of trade relationships might have averted solved problems and problems that never arose.

Jones et al in the book EU Competition Law (2016) observed that existing EU competition law is sufficient in providing the necessary relief to problem of digital economy. What is needed is a framework defining and governing potential problem or harm that may arise from digital economy. National regulations are also in place to take care of the issues, such the law regarding consumer rights protection, employment laws, taxation and the like. EU has followed a liberalisation process that opened up the market from monopolistic behaviours. Alternatively, it may also lead to short terms monopoly in the private sector. This is the reason why EU has regulation to prevent such monopoly, for example Article 26 and Articles 28 to 37, TFEU that prohibit unjustified restrictions. EU has mostly defined parameters, such as TFEU, Article 101 around dominant position, which prohibits companies from abuse of internal market. This may mitigate trust concerns of companies and individuals and facilitate their integration in and received benefits of digital economy.

EU competition policy should move towards protecting public interest. It should create rights and move beyond its supervisory role. This would resolve the dilemma around determining the extent of EU competition law in dealing with risks associated with abuse of dominant position by MNCs. Given the political influence MNCs carry, EU needs to work with other relevant enforceable regulations or provisions, with which individuals specially could invoke their rights, for example increasing enforceability of right to fair trial under Article 6 of ECHR. As rightly observed by UNCTAD (2019), competition law and enforcement should integrate interface between competition law, consumer protection and data protection.

The European Commission 2018 press released its Google Android decision that fined Google €4.34 billion for its breach of EU antitrust rules for its illegal restrictions imposed on Android device manufacturers and mobile network operators since 2011 in order to maintain dominant position in general internet search. The key issues are related with three kinds of restrictions imposed on the manufacturers and network operators with the aim of directing the traffic on Android devices to Google search engine. There were three practices that were abuse of dominant position. Firstly, Google followed the illegal practice of tying where it offers its mobile apps and services to device manufacturers as a bundle, includes Google Play Store, Google Search app and Google Chrome browser. This ensured pre-installation of Google Search app on almost all Android devices in the EEA market. This app is an important entry point for search queries on mobile phones. Similar tying was found with Google Chrome browser where Google Search is the default search engine and it also occupies the same important entry point for search queries on mobile phones. This abuse of dominant position practice reduced incentives of manufacturers and their ability to compete. Secondly, Google made significant illegal payments to certain largest device manufacturers and mobile network operators to pre-install across all of their portfolios of Android devices. This is against competition that significantly reduced rivals’ incentives to pre-install competing search apps. Thirdly, Google illegally prevented device manufacturers to develop and distribute alternative Android operating systems, not approved by Google. Such manufacturers entered a commitment to not develop or sell even a single device with an Android fork. These practices foreclosed important channel for competitors directly affecting users and their access to alternative options.

The United Brands (1978) case held that a dominant undertaking possessing economic strength may prevent effective competition. Dominant position may take various forms of constraints. In the Hoffmann case (1991), it was observed that actual constraint occurs when the undertaking has large shares in a relevant market. The 2009 European Commission Guidance on enforcement priorities while applying Article 82 of the EC Treaty provides that potential constraints may be imposed by the undertaking during its expansion or entering new market. In the case of Servier, the Commission stated that legal constraint may be in the form of statutory monopoly or licensing requirements, or may be intellectual property rights. In Flynn Pharma case, it was observed that economic constraint may take the form of economies of scale or substantial sunk costs. Middleton in the book Blackstone's UK & EU Competition Documents (2015) stated that economic constraint may be found in vertical integration where the undertaking operates at numerous levels of the market chain. Also, a countervailing buyer power may prove to be constraint where the buyers form considerable size and occupies commercial significance. The current Google case relates to abuse of its dominant position. The judgment shows that Google because of its significant economic strength could impose restriction of rivals. Relating the judgment to the form of constraints above, it could be stated that there were actual, potential, legal, and economic constraints. According to Article 101 of TFEU, there was a “concerted practice”, where the judgment shows that there were direct or indirect contact between Google and other operators that influenced the conduct on the market and affected actual or potential competitors, as was held in Suiker case.

Jones et al in the book Jones & Sufrin's EU Competition Law (2019) talk about exclusive dealing where an undertaking secures all or most of the customers’ business subject to its practice. In the current case, there were restriction imposed on the rivals due to the practice of tying and bundling. This was held to be an abuse of dominant position in the case of Hoffmann. Jones et al (2019) stated that Tying and Bundling are abusive conducts. Tying forecloses rivals when a dominant undertaking in regard to the tying product results causes difficulty to customers to opt other alternatives. Bundling also potentially forecloses rivals when the undertaking offers prices on the tying product, which the rivals cannot offer. In the current case, Google search engine if the tied or tying product, and Google has reduced the ability of the customers and the rivals the chance of other competitive products in the market.

In regard to the effect or affect of the Android decision on the digital economy environment, the concerned question is how to demonstrate concrete effects of the conduct, which may be considered abuse of dominant position. This may be a difficult task given the fast pace dynamic markets digital economy where consumer preferences, new technological innovation and actors are driven out of the relevant market for different reasons. There is the double edge problem of determining facts and legal principles to be applied. With the new edge internet technologies, new business models are adopted that may impact patterns of users’ behaviour in information-based economy, that is digital economy. Gintare in the journal paper Competition Law at the Crossroads in the Digital Economy (2015) presents potential problems of competition law. There is the problem of effectively understanding online markets, the analysis may prove very broad and interdisciplinary with consideration of sociological and psychological aspects of user’s behaviour. This may direct towards a “more behavioural approach” to be integrated while assessing competition law. Additionally, Podszun in the paper THE DIGITAL ECONOMY (2016) provides for a ‘more economic approach’ that is based on evidence to analyse any specific effects of a behaviour given the circumstances in the relevant market. There is high importance given to collect relevant data by the EU Commission and ensuring that they are not manipulated. The determination of evaluation of the data is left to the review of the judges, as was observed by the General Court in Ryanair (2010) that “the prioritization, examination and evaluation of data by the Commission is a question of legality, that is, it is subject to review by judges”. Important point is restriction of competition mostly lies in the product itself, and not in their distribution or contracts. This may be where competition law will face problem in defining a sound framework given that technology is used as a business strategy. Information and data is the new oil, and given that technology occupies more power than economic power, there should be a ‘more technological approach” that the Commission may adopt while assessing innovation and consumer choice.

The Body of European Regulators for Electronic Communications (BEREC) defines Net Neutrality” as a debate “about the way that Internet Service Providers (ISPs) manage the data or ‘traffic’ carried on their networks when data is requested by broadband subscribers (known as “end-users” under EU law) from providers of content, applications or services (CAPs) such as YouTube or Spotify, as well as when traffic is exchanged between end-users.”

Belli and Foditsch in Network Neutrality Compendium (2016) observe that the principle of NN treats internet traffic without unreasonable discrimination, interference or restriction irrespective of the type, content, recipient or sender. This is subject to the certain exceptions such as reasonable traffic management to preserve security and integrity of the network; or enforcement of legal provisions or court order vis-a-vis human rights law and international law. NN requires that internet must be open and secured and accessible to the people. NN has role in fostering user’s human rights, promoting competition and equal opportunity. It requires transparent and non-discriminatory management of traffic to serve public interests. It requires protection of privacy policies and personal data. It also requires national authorities to properly implement relevant policies around internet traffic management and evaluate conformity of access policies to human rights norms and laws.

Ofcom is the UK National Regulatory Authorities that enforces the Open Internet Regulation in the United Kingdom. It provides that EU has the Open Internet Regulation (Regulation), which imposes obligations on ISPs in respect to their provision of internet access services (“IAS”). These obligations are the net neutrality rules (Rules), which are aimed to “safeguard equal and non-discriminatory treatment of traffic in the provision of internet access services and related end-users’ rights” and “guarantee the continued functioning of the internet ecosystem as an engine of innovation”. The Regulation imposes certain measures in regard to internet traffic management by ISPs on their networks. ISPs have certain obligations with respect to their customer contract terms and conditions. Further, European Commission through BEREC publishes guidelines on implementation of the Rules by national regulators. As per the guidelines, there should be utmost account of the Guidelines, and thereby consistent Regulation application. Ofcom in the UK is designated with powers and authority including imposition of penalty of up to 10% of the relevant business turnover for breaches of the Regulation. Operators may also be required to cure the breach and comply with their obligations. Ofcom has the role to monitor and ensure compliance of Rules and promote non-discriminatory IAS.

Marsden in the book, ‘Net Neutrality Law and Regulation’ (2019) pointed out that due to the implementation of the Regulation 2015/2120, there have been several decisions prevention telecom operators to adopt zero rating their affiliated content. This is as per the BEREC Guidelines 2016, para 45-48 that covers assessing whether ISPs limit exercise of end-users’ rights, consideration of commercial and technical conditions, factors that may impact material reduction in end-users’ choice, and comprehensive assessment considering agreements or practices, end-users incentives, and price differentiation between individual applications. One example is the 2017 decision of the Rotterdam administrative court that struck down the 2012 Netherlands Telecom Law, A 7(4) dealing with NN, vis-a-vis zero rating. NN principles also led to the UK enacting the Open Internet Access (EU Regulation) Regulations 2016 that enables authorities to impose fine on access providers in case they restrict subscribers from internet access or fail to cooperate with Ofcom in their investigation. The advantage of NN could be found in the right to data portability ensuring healthy competition between service providers. For examples, it will enable users of Facebook to transfer all their content to another competing social network. Competition laws do not mean to give a functioning market, but has more to do with economic health. In this regard, the EU net neutrality rules would give operators some flexibility in differentiating their offers and also competing on enhanced quality of service. It would also set out clearer rules for traffic management and allow network operators to deals with content providers ensuring quality of service and specialised services offer. In fact, open and secured internet provides equal competitive advantages to both small and larger companies.

NN also bring in certain restrictions that are not good for the health of the economy and competition itself. For instance, infrastructure providers are against net neutrality with the claim that given the significant network investment being made for increasing number of high bandwidth Internet services, they should be able to conduct free experiment of pricing schemes. This is one aspect of the varied complexity associated with net neutrality problem. Another aspect is related with telecom section. Marsden in the book Net neutrality and other challenges for the future of the internet (2011) observed that where net neutrality problem cannot be dismissed as a problem that could be overcome by local loop (last mile) telecoms competition, which does not acknowledge the persistent problems with market failure. In Europe despite the existing commitment to competition regulation, wholesale backhaul is still provided by incumbent privatised national telecoms provider. In the UK it is provided by British Telecom. Despite competition between platforms, manipulation to enrich oneself is possible. For example, in a heavily cabled jurisdiction where there is no direct relationship between application providers and ISPs, the competing platforms may set the relevant rules to ‘tax’ data packets, which make open innovation value chain poorer, and consequently harming the consumer. This may fall under the category of parallel conduct, as mentioned in Whish and Bailey, Competition Law (2018), which is found in oligopoly, where a few firms providers most of the products within the relevant market without ascending over each others. In P Dole Food, it was held to be an abuse of dominant positions if undertakings “contribute to the common objectives pursued by all” and was “aware of the offending conduct planned or put into effect” by others or “could reasonably have foreseen it and was prepared to take the risk”.