Innovation, Competition And Market Power On The Net

Innovation, competition and market power on the NetJ.M. Pérez Marzabal, (LL.M.), Eur PhD (Cand.)LawyerVisiting Lecturer at Universidad Autónoma de MadridConsultant at Universitat Oberta de Catalunya

Amsterdam Center for Law and Economics, 25th November 2009

Agenda1. Key aspects of high-tech

industries 2. Legal framework3. Implications for

competition policy4. What are the main

objectives and questions in the research?

5. Conclusions so far

The Net Ecosystem

The Human Factor

• Casos de éxito más recientes• Plataforma Citrix sector industrial• Virtualización automoción• Virtualización Blade and VMW Moda• Virtualización sector alimentario• ERP Laboratorios

• Cartera de clientes• Oficinas en Barcelona, Madrid, Valencia y Valladolid

Fuente: http://www.mainmemory.es

1. Key aspects of high-tech industries

2. Legal frameworkSources of Law

• At European level Articles 81, 82 EEC Treaty, EMCR

• At US level Sherman Act, Clayton ACT, FTC Act, Rule of

Reason• Intellectual Property Rights• Not looking at specific telecoms regulation. Net

Neutrality is on my radar, though• By the way, article 82 provides another

mechanism to regulate ex post dominant telecoms

3. Implications for competition policy

a) How do we define the markets we are talking about?

• Usual definitional tools• product interchangeability/substitutability/demand cross

elasticity• by reason of product features, price, use, etc

• work less well with the Internet • increasing rate of technical change, innovation, standards• increasing rate of business change• barriers to entry• market power now less predictive of market power tomorrow• pace of regulatory investigation increasingly out of synch

with market dinamics

3. Implications for competition policy

b) Market definition and Digital Crossroads

• Definition of geographical markets necessary for the merger control and the control of abuse in Antitrust Law

• Very complex sector/market regulation• Standards• IPR• Sector Specific Regulation• Telecom Regulatory Agencies• Broadcasting authorities• Antitrust enforcement authorities• Protection of consumers, minors, privacy, and so on (look at

the Google Books Settlement Agreement)• Trading standards, generic sales & marketing law• Political and economic issues

3. Implications for competition policy

c) Other issues

• The application of the essential-facilities doctrine to Internet issues is not completely clarified yet

• A similar approach given by the IMS Health decision might be an adequate solution to the difficult question of access to IP rights

• Bronner/IMS test (“essential facilities doctrine”):• access refusal would eliminate competition • no actual/potential substitute exists • no Objective Justification for the refusal

• Standards war and the Microsoft case (de-facto standard)• Open Source Software’s expanding role

3. Implications for competition policy

d) Microsoft case and the browsers war

• The Commission found that Microsoft had abused its market power by bundling its Windows Media Player with its Windows operating system:1) the tying and tied products are two separate products2) the undertaking concerned is dominant in the market for the

tying product 3) the undertaking concerned does not give customers a choice

to obtain the tying product without the tied product4) the practice in question forecloses competition

• “Applications barrier of entry”

4. Research Projecta) What are the goals of my research?

1. to understand the characteristics of Internet and the role of innovation in the configuration of competition policy

2. to analyse the current practices, institutional arrangements and processes of antitrust enforcement in the protection of consumer interests, innovation and competition law

3. to analyse the current European legal framework and the technology available to be taken into account

4. to ensure early integration of competition legal requirements in technology tools and services and foster technology development accordingly

5. to enable legal thinking to progress in line with technology development and economics

6. to produce a global overview of the legal aspects of antitrust with a view of making recommendations to the industry and the antitrust enforcement authorities

4. Research Projectb) What are the main questions in the research?

1. Do Internet phenomena and their perception lead to new antitrust (relations in network economies created by e.g. giving away browsers for free)?

2. How can Antitrust Law deal with the problem that Internet is not bound by traditional categories as time and space?

3. Special focus should be laid on the question of enforcement. Are current enforcement mechanisms sufficient? How can you define jurisdiction in the Internet?

4. We should also consider new ways of approaching consumer protection. Does the type of consumer that is implied in analog consumer protection correspond with the type of consumer in the digital world?

4. Research Projectb) What are the main questions in the research

1. What kind of an economy is our new technology suggesting?2. What is the appropriate role for the competition authorities to

play?3. What characteristics of these markets and the competitive

processes they engender are important for competition policy?4. Can the traditional tools of competition policy be used or adapted

to analyse the competitive issues in these markets?5. How, going forward, should we modify, if at all, the tools and

procedures that we use to address competition issues in industries of the new economy?

6. What degree of interoperability is required?

• I think open platforms and open standards are good; they are the way to promote competition and increase consumer welfare• Antitrust Enforcement Agencies should take into account the Net architecture (FCC and the Net Neutrality framework seems promising)• Courts show an increasing willingness to apply competition law to limit intellectual property rights or to, in effect, order compulsory licensing even when companies act alone where they have market power• I propose also to apply Article 82 EC to the new economy markets taking into account the specific features of the Net Ecosystem• New approach to competition policy should be based on rigorous economic analysis, from both a theoretical and an empirical point of view. Therefore using quantitative methods such as game theory, econometrics and understanding better the economics of innovation (the Chief Economist of the Commission appointment is also a good signal)• Although the basic framework of European Competition Law is suitable to deal with the new economy, my research project identifies several areas where competition policy and antitrust enforcement can be improved, such as market definition, merger policy, the interaction of antitrust and intellectual property, and the proper allocation of responsibility between regulation and antitrust

5. What do I conclude from this so far?

Any feedback appreciated!?

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