Time to bring competition policy back to basics

EU policymakers often talk about encouraging entrepreneurship, so isn’t it time competition law reflected this? The European Commission ought to update its competition policy to better protect start-ups against their more established rivals.

For competition to work, companies must act independently of each other and be subject to the competitive pressures exerted by others on the free market. That’s why EU competition policy is supposed to stop established companies from abusing their dominant position. Neutralising the tactics used by such companies to block new market entrants’ access to consumers is therefore a prerequisite for any policy aiming to revitalise European industry. If start-ups are consistently stunted at an early stage of their development, it will be impossible for European industry to produce new rivals to US competitors.

Since the millennium, new entrants attempting to draw the attention of competition authorities to the practices of their more powerful rivals have been accused of malignly trying to exploit competition law for their own gain. Bizarrely, these companies are stigmatised for showing an interest in the outcome of their cases, something which is usually considered a basic requirement for bringing legal action in the first place.

As well as this overwhelmingly sceptical reception, complainant companies are also required to produce highly detailed evidence to the competition authorities under a new condition that any antitrust case should be founded on econometric data. Complainants need to empirically quantify how much their dominant rival’s behaviour is excluding them from the market. This kind of evidence is difficult if not impossible to provide, and is so easily disputed that it undermines complainants’ chances of success.

It is often argued that this approach jeopardises big corporations due to the lack of certainty around legal decisions. But there is no solid evidence for this. On the contrary, any doubt in these matters tends to benefit the accused. The more complex a case, the greater the volume of data required for a complainant’s position to be proved, and that makes it more likely for a dominant company to be cleared. The new requirements have therefore offered a reliable crutch to the incumbent ex-public sector European monopolies, the best examples being postal, telecommunications and energy services. These sectors have seized upon the new and more complex legal situation.

The European Commission’s Directorate-General for Competition (DG COMP) has an insistence on an increasingly sophisticated legal construct that protects the inefficiency of such actors. Moreover, the excessive length of the proceedings resulting from the necessary ‘experimental assessment’ of what is called the ‘theory of harm’ means that by the time the Commission has handed down its decision, the complainant may no longer even exist.

Just consider the amount of time it took for DG COMP to gather and present its evidence against Google, which, in the final instance, was accused of giving priority to its own products by means of infrastructure that was hastily qualified as essential. When confronted with a similar issue in the telecoms industry, though, DG COMP paradoxically never gave such a clear-cut response to the complaint, in spite of the fact that the EU had set the liberalisation of the telecoms market as one of its top priorities. EU competition policy failed to criticise telecom incumbents for operationally favouring their own retail divisions by providing them with better conditions for network access. The infrastructure in question is generally built with public funds, and not by the operators themselves – far more damning behaviour than Google’s search engine.

We might well ask whether these high-profile cases constitute a waste of competition authorities’ resources, as they could have been resolved elsewhere, without ever reaching the European Commission. This is strikingly clear in the dispute over 3G patents. In every market other than the EU’s, the case involving Apple, Samsung and Motorola was heard before the courts. Since the case was to rule on the use or misuse of judicial procedures on intellectual property, specialist courts would have been better placed than DG COMP to strike the right balance between competition law and intellectual property rights.

Conversely, DG COMP fails to act in other cases in which the Commission’s input would be well warranted. For instance, a case on the observance of net neutrality by telecom operators was dismissed by DG COMP without debate. And yet it is these operators that control subscriber access – a fundamental requirement for small and medium-sized European content suppliers seeking market access for their products.

When a competition authority does not seek to protect newcomers, it betrays the very purpose for which it was created. It is high time that the new doctrines enacted at the start of this century are revised and that competition law’s primary and immediate purpose – to protect new entrants – was reinstated. In Europe, it’s not start-ups that are scarce, but rather start-ups that are allowed by competition law to grow into major corporations.