Why Germany's Anti-Trust Actions Against Amazon Are A Serious Threat

Recently enhanced German regulatory law gives it the power to make determinations about self dealing, algorithmic impact and prices, all of which are essential to Amazon's business model. 

European officials, beginning at the country level, are getting smarter about how to rein in Big Tech companies and the cumulative experience is expected to lead to new EU-wide rules which could pose the most serious challenge to US tech businesses. JL

Natasha Lomas reports in Tech Crunch:

If Germany's Federal Cartel Office FCO confirms Amazon is of “paramount significance for competition across markets” (it) will have greater powers to proactively impose conditions on how it can operate to control the risk of market abuse. More proactive powers at the national level to tackle Big Tech foreshadow planned updates to pan-European Union competition law. That in means Germany could have an outsized role in clipping Big Tech’s wings

Germany’s Federal Cartel Office (FCO) is seeking to make swift use of a new competition tool to target Big Tech — announcing today that it’s opened a proceeding against e-commerce giant Amazon.

If the FCO confirms that Amazon is of “paramount significance for competition across markets” — as defined by an amendment to the German Competition Act that came into force in January (aka, the GWB Digitalisation Act) — the authority will have greater powers to proactively impose conditions on how it can operate in order to control the risk of market abuse.

Section 19a of the GWB enables the FCO to intervene earlier, and the idea is more effectively, against the practices of large digital companies.

The provision gives the authority the power to prohibit digital giants from engaging in anti-competitive practices like self-preferencing; or using tying or bundling strategies intended to penetrate new markets “by way of non-performance based anti-competitive means”; or creating or raising barriers to market entry by processing data relevant for competition.

The FCO already has two other proceedings ongoing against Amazon — one looking at the extent to which Amazon is influencing the pricing of sellers on Amazon Marketplace by means of price control mechanisms and algorithms; and a second examining to agreements between Amazon and brand manufacturers to check whether exclusions placed on third-party sellers on Amazon Marketplace constitute a violation of competition rules — but a finding of “paramount significance” would enable the authority to “take early action against and prohibit possible anti-competitive practices by Amazon,” as it puts it.

Amazon has been contacted for comment on the FCO’s latest proceeding. Update: An Amazon spokesperson said:

We cannot comment on ongoing proceedings and will fully cooperate with the FCO. Amazon employs 23,000 people in Germany, has invested €28 billion in the country since 2010 and is working closely with local research. We continue to focus on innovating for both our customers and the businesses in Germany that sell in our store.

It’s the second such application by the Bundeskartellamt to determine whether it can apply the new law to a tech giant.

In January the authority sought to extend the scope of an existing abuse proceeding, opened against Facebook in December — related to Facebook tying Oculus use to Facebook accounts — saying it would look at whether the social media giant is subject to the GWB’s “paramount significance” rules, and whether, therefore, its linking of Oculus use to a Facebook account should be assessed on that basis.

Commenting on its latest move against Amazon in a statement, FCO president Andreas Mundt said: “In the past few years we have had to deal with Amazon on several occasions and also obtained far-reaching improvements for sellers on Amazon Marketplace. Two other proceedings are still ongoing. Parallel to these proceedings we are now also applying our extended competences in abuse control.”

“In this particular case we are first of all examining whether Amazon is of paramount significance for competition across markets. An ecosystem which extends across various markets and thus constitutes an almost unchallengeable position of economic power is particularly characteristic in this respect,” he added. “This could apply to Amazon with its online marketplaces and many others, above all digital offers. If we find that the company does have such a market position, we could take early action against and prohibit possible anti-competitive practices by Amazon.”

In January Mundt made stronger comments vis-a-vis Facebook — describing its social networking ecosystem as “particularly characteristic” of the bar set by the new digital law for proactive interventions, and adding that: “In view of Facebook’s strong market presence with the eponymous social network, WhatsApp and Instagram such a position may be deemed to exist.”

The FCO proceeding to confirm whether Facebook falls under the law remains ongoing. (It also has a pioneering case against Facebook’s “superprofiling” of users that’s headed for Europe’s top court — which could result in an order to Facebook to stop combining EU users’ data without consent, if judges agreed with its approach linking privacy and competition.)

Zooming out, the Bundeskartellamt’s moves to acquire more proactive powers at the national level to tackle Big Tech foreshadow planned updates to pan-European Union competition law. And specifically the ex ante regime that is set to apply to so-called “digital gatekeepers” in the future — under the Digital Markets Act (DMA).

The DMA will mean that internet intermediaries with major market power must comply with behavioural “do’s and don’ts” set by Brussels, risking major penalties if they don’t play by the rules.

In recent years lawmakers across Europe have been looking at how to update competition powers so regulators can respond effectively to digital markets — which are prone to anti-competitive phenomena such as networking effects and tipping — while continuing to pursue antitrust investigations against Big Tech. (The Commission laid out a first set of charges against Amazon in November, for example, relating to its use of third-party merchant data.)

The problem is the painstaking pace of competition investigations into digital business versus the blistering speed of these players (and the massive market power they’ve amassed) — hence the push to tool up with more proactive antitrust powers.

Earlier, EU lawmakers also toyed with the idea of a new competition tool for digital markets but quietly dropped the idea — going on to propose their ex ante regime for gatekeeper platforms, under the DMA, at the end of last year. However the proposal is in the process of being debated by the other EU institutions under the bloc’s co-legislative approach — which means it’s still likely years away from being adopted and applied as pan-EU law.

That in turn means German’s FCO could have an outsized role in clipping Big Tech’s wings in the meanwhile.

In the U.K., now outside the bloc — where it too may have an influential role in reforming regional competition rules to rebalance digital market power — the government is also working on a pro-competition regime aimed at Big Tech.

This year it set up a dedicated unit, the DMU, within the national Competition and Markets Authority that will be tasked with overseeing a regime that will apply to platforms that are identified as having “strategic market status” (akin to the German approach of “paramount significance for competition across markets”). And while the U.K. is taking a similar tack to the EU’s DMA, it has said the domestic regime will not sum to a single set of rules for all gatekeeper-style platforms — but rather there will be bespoke provisions per platform deemed to fall under the ex ante regulations.