Online platforms under investigation in the Netherlands: Is data collected by online platforms a source of market power?

One of the key themes in the European Commission’s Digital Single Market (DSM) strategy is the role of online platforms (see here for the Commission’s page on platforms). The Commission recognizes that online platforms have revolutionised access to information and play an important role in supporting innovation and the overall growth of the DSM. Despite these advantages, though, the Commission has raised concerns about the competitive advantages some online platforms have in relation to large scale data collection and processing.

The Commission published a communication on online platforms in May 2016, which set out its findings and proposed a course of action as regards regulating online platforms. In summary, the EU will not implement a one size fits all “platform law”, but will instead look to regulate online platforms on an industry-by-industry basis. Platforms will also be regulated indirectly by some of the other DSM initiatives, including the Geoblocking Directive, the Portability Directive, the proposed Copyright reforms and the Ecommerce investigation, so they are by no means avoiding regulation.

What’s happening now?

Market study in the Netherlands

As a follow up to the Commission’s communication, the Dutch Authority for Consumers and Markets (ACM) has launched a market study focussing on online (on-demand) video and movie streaming services active in the Netherlands (see its video here). The market study also fits within broader campaigns ACM has been launching this year to actively inform users about the protection of their consumer and privacy rights online and via apps (see its communication here, for example).

ACM realises that the digital market is fast-paced and rapidly changing and admits that it has insufficient knowledge of the market to date. The market study allows ACM to take a closer look at the business models of these online platforms. Key aspects covered by the study are the:

(i)             terms and conditions and business models of the platforms;

(ii)            advertising models and revenue from advertising;

(iii)           collection and use of personal data for personalized and targeted advertising; and

(iv)          distribution of online videos.

Big platforms, big problems?

Together with the market study, ACM released an article titled “Big platforms, big problems?” (available in Dutch here). The article explores two key questions:

(i)             whether (personal) data collected by online platforms can be a source of market power; and

(ii)            whether competition law is an adequate instrument to protect the privacy interests of users of the platforms.

ACM identifies that online platforms can become very big very fast and that such growth is often combined with large scale data collection. This (personal) data can in turn be used as a competitive advantage against smaller players. For example, the ability to identify consumer trends and needs based on data analytics, which can be turned into new services offered exclusively through the online platform. Eventually, such market power could lead to idleness and a lack of innovation which would hurt consumers.

ACM is also of the opinion that competition law provides a limited addition to the protection of personal data, especially given the effective existing data protection laws. ACM has not closed the door on competition law completely, though, stating that it can definitely play a role when examining the protection of data in a broader sense (i.e. not limited to personal data).

European Commission Consultation

Competition authorities across Europe are also grappling with whether – and how – data should be used as an indicator of market power. Most recently, the European Commission launched a consultation on a change to its merger control thresholds, so that the acquisition of a small company with Big Data could now be subject to EU review – read more here.

What’s next?

ACM aims to use the results of the study to take more effective and quicker action to protect consumer interests. The first results of the market study are scheduled to be released by the end of 2016.

What should businesses do?

• Any online platform should follow this investigation closely. Given the international nature and geographical reach of most online platforms, they are likely to be affected by any recommendations of the ACM.
• Online platforms should ensure that they actively inform users about the protection of their consumer and privacy rights online and via apps, to avoid any adverse findings against them by the ACM during its investigation.
• This investigation is set against a background of heightened enforcement of consumer rights across Member States so companies are advised to ensure they are complaint with consumer law or they run the risk of incurring large fines and potentially liability for their directors.

Comments from Osborne Clarke’s offices across Europe:

United Kingdom:

John Davidson-Kelly, partner in Osborne Clarke’s media team, says: “This investigation blends together two themes of the DSM initiative: (i) recognising the value of data; and (ii) investigating the market power of platforms. There is no doubt that data driven transactions are the future. Data is key to personalising services, which differentiates them from other offerings and makes them more relevant and useful to customers. It also enables advertising to be targeted. The Digital Content Directive assumes that all data (and not just personal data) has an inherent value to the organisations which collect it even if they do not “sell it” or monetize it directly. After all, data can be valuable where it is used for internal or operational purposes, for example to refine and improve a service or, in the context of the current investigation, to recommend content to viewers. This appears to be the first example of a Member State conducting its own investigation into online platforms. If adverse findings are reported it won’t be the last, so online platforms should ensure that they are complaint with consumer, privacy and competition laws to avoid further scrutiny into this area.

Germany:

Tim Maiorino, Counsel in Osborne Clarke’s technology and digital media team, says: “the importance and the influence of tech, media and comms models for the economy and for our everyday life are undeniable – be it entirely new business models based on new technologies or a technological upgrade to established business models from the offline world based on new capabilities to collect, handle and make use of data.

Having recognised that the digitisation of economic and social life is only just starting, the German government presented the German Digital Agenda in August 2014, in order to actively participate in shaping the digital transformation. It emphasises that the importance of digitisation will not only show itself in economic and social aspects, but will also have significant impact on laws and regulations – an area Germany is particularly fond of. Successful participation for businesses will therefore depend to a great extent on being aware of, and compliant with, the applicable rules. Being up to date with developments and regulatory statements as well as understanding their implications is therefore of utmost importance.”

Spain:

Rafael García del Poyo, partner in Osborne Clarke Spain’s IT/IP team, says: Just as ‘media for equity’ has become a fully-fledged reality in day-to-day business, data and its subsequent usage might well be regarded as the compensation for services or digital content and, therefore, as a source of economic value that can be controlled at first by its legitimate owner. Much discussion can be expected in this regard, not only in relation to data ownership, but also as large players in the technological and digital market are actually taking steps towards empowering users to decide on the destination and use of their data.”

Italy:

Edoardo Tedeschi, partner in Osborne Clarke Italy’s IT team, says: “The study launched in the Netherlands highlights two main issues (the value of data; and how such value may interfere with competition law) which arose in the results of a similar study by the Italian Communications Authority in May 2016, on the development of digital platforms and electronic communication services. The study found those  platforms and service providers:

(i)             are able in many cases to affect the business models adopted by “traditional undertakings” (and as such are defined as “disruptive”); and

(ii)            at the same time are able to represent significant challenges especially for the regulators and, more generally, for the policy makers.

The intention of digital/app platforms is to reach and overcome the so called “critical mass of users”: once the threshold is reached the demand for the service by users will increase as the users take benefit from the use of the app proportionally to the number of users which already use it.

The goal of overcoming the critical mass is the reason why the platforms usually offer services for very low prices, or completely free, or opt for other forms of remuneration such as subscriptions.

A platform can also gain revenue opportunities by selling the users’ data.

In the next few months, the Italian Communications Authority is launching a further study on the diffusion and development of digital platforms, in terms of the impact they have on competition and consumers, as well as on the pricing solutions adopted by digital platforms, so  in Italy it is a case of watch this space”.