Merger control rules should account for data-rich companies, says German competition watchdog

Out-Law News | 05 Jun 2015 | 12:40 pm | 3 min. read

Germany's advisory body on competition law has called for "merger control" rules to be updated to better reflect the potential impact on competition where amalgamating businesses have access to vast sets of "commercially valuable data".

In a new report on competition in digital markets, the Monopolies Commission said existing rules contain "gaps" that mean that merger and acquisition deals that could "give rise to concerns from a competition policy perspective" are not subject to scrutiny by regulators.

"The acquisition of a company with low turnover cannot be captured under current notification requirements of EU and German law, even in cases where the acquired company holds commercially valuable data, or has a considerable market potential for other reasons," an English language summary of Monopolies Commission report (15-page / 354KB PDF) said. "Therefore, the Monopolies Commission recommends complementing the existing merger control thresholds based on turnover by additional notification requirements based on the transaction volume."

"Such an amendment is necessary to close legal gaps: acquisitions of companies that did not achieve high turnover in the past may give rise to concerns from a competition policy perspective.  In the digital economy, the purchase price often reflects the economic potential of an acquisition target better than the turnover generated previously," it said.

Currently, the EU Merger Regulation requires companies to pre-notify the European Commission of a proposed merger and obtain its approval before completion when certain turnover thresholds are met and the acquiring company would obtain 'decisive influence' over another business.

In its report, the Monopolies Commission said that the innovative and evolving nature of digital markets mean that competition authorities will only need to intervene rarely to resolve competition concerns in those markets. However, it said the authorities "must act quickly if required in specific cases".

The Monopolies Commission said that changes outside the scope of direct competition policy should be made to help preserve "undistorted competition" in digital markets. It called on consumers to be given new rights to control how their personal data is used by companies.

"The collection and commercial use of data are limited under data protection law," the Monopolies Commission said. "In turn, data protection law is based in a fundamental right of defence towards the state. However, beyond that, protection is provided with regard to the commercial use of data. Currently, it is still undecided whether and to what extent an individual is entitled to exercise any rights over the potential asset value of personal data – and, thus, over the use and exploitation of such data – beyond the individual's fundamental right of defence. The award of undisputed, absolute rights would be advisable."

"In order to enable users to exercise more effective control with regard to the use of their data, legislation could require mandatory user consent in cases of collection and commercialisation of user data (opt-in). However, potentially negative effects on business models relying specifically on data collection, e.g. in the area of online-advertising, should be taken into account," the Monopolies Commission said.

The advisory body also recognised the growing power and influence online platforms have in digital markets. It said competition authorities must consider their impact on competition by viewing platforms' operations broadly.

"Conventional methods, considerations and correlations do not suffice in the analysis of online platforms," the Monopolies Commission said. "The unique characteristics of multi-sided platforms pose a significant challenge for competition policy. Competition authorities and courts of law (legal institutions) are required to take into consideration the fundamental interrelations and the complexity of multi-sided platform markets when assessing individual cases. It is important to consider all sides of a platform in the analysis, and to fully determine the direct and indirect network effects with regard to their economic significance."

The Monopolies Commission is not the first authority to scrutinise the role of platforms in the digital economy or address other issues relating to the regulation of digital markets. The European Commission has already launched an e-commerce sector inquiry and said it will also launch "a comprehensive assessment" of the role of platforms and intermediaries in the digital economy before the end of this year, among other activity planned under its digital strategy.

In the UK, the Competitions and Markets Authority opened a call for information on the commercial use of consumer data and is separately looking to deepen its understanding of the way businesses use online reviews and endorsements.