While EU regulators slowly roll out their own enforcement mechanism, Berlin is already holding gatekeepers to account
Javier Espinoza in Berlin JANUARY 11 2023
As an entrepreneur, Patrick Andrae wants things done quickly. So the co-founder and chief executive of Berlin-based holiday rental firm HomeToGo is frustrated at how slowly antitrust rules take to open up markets and enable competition to flourish in Europe.
HomeToGo relies heavily on traffic searches from Google to boost revenues. Since 2019 the company and others in the sector have been openly fighting the search group for allegedly unfairly promoting its own services at the expense of rivals. Google has denied wrongdoing and says that it gives users the most relevant results.
But Andrae’s patience is wearing thin as attempts by Brussels to ease Big Tech’s grip on the sector have been slow to roll out. “Europe has been naive,” he says during a recent interview at his office in a trendy neighbourhood in the north-east of Berlin. “The US and China are protecting their markets. You have American companies coming to Europe and because of their [powerful] position they rule everything.
“Europe needs to understand that it needs to protect our tech industry and let it grow up and think about the value that’s created here,” he adds.
Despite his frustrations, Andrae is pinning his hopes on a new German law that’s pioneering the way Europe curbs the power of big technology companies.
The German Federal Cartel Office has ensured users can use Meta’s VR headsets without a Facebook or Instagram account
Regulators in Germany argue that Section 19a of the German Competition Act is years ahead of the EU’s landmark piece of antitrust legislation, the Digital Markets Act, and with the potential to capture even more illegal conduct by being less prescriptive on what constitutes anti-competitive behaviour.
The Section 19a law, which came into force in January 2021, places Berlin at the vanguard of Europe’s attempts to clamp down on the power of Big Tech, where the US and EU have so far failed or are still running behind.
Like the DMA, the law gives antitrust authorities in Germany powers to go after so- called gatekeepers such as Meta, Google and Amazon — including the ability to impose sanctions like forced divestments against companies and the possibility to break them up.
But while EU regulators are only now working out the details on how the DMA, which became law in November, will be implemented, Berlin has both designated who the gatekeepers are and is already pursuing them.
The rules in Brussels are prescriptive and give a list of specific actions that are illegal, including a ban on platforms ranking their own services ahead of rivals. Section 19a does all this but also prohibits conduct in areas where platforms are not yet dominant and leaves the door open to tackling future anti-competitive behaviour that has not yet been identified.
If companies are ruled to be of “paramount significance for competition across markets”, then the regulator can prohibit them from ranking their own services ahead of rivals, from denying rivals access to data, and from preventing users from taking their own data to other competing services.
Since Section 19a came into effect, Germany’s antitrust watchdog has opened high- profile investigations against the world’s largest tech companies.
The Federal Cartel Office’s investigation into whether Facebook grants an unfair advantage to users of its social network platforms on its VR glasses has already brought benefits to consumers, even as it continues. The German watchdog has ensured users can use the headsets without a Facebook or Instagram account.
Amazon is being investigated for its treatment of third-party sellers and algorithmic pricing
It is also investigating Google Maps over potential anti-competitive restrictions to the detriment of rivals and opened two separate probes into Amazon’s marketplace practices over concerns that the platform is disadvantaging the position of third- party sellers. On Wednesday, the German watchdog was set to issue fresh charges against Google’s handling of private data.
The emphasis is more on changing the way a company does business, rather than imposing hefty fines, says Andreas Mundt, head of the Federal Cartel Office. “I don’t think that fines change behaviour,” he says. “If you want to see a change of conduct, then you need to change the behaviour and make it competitive.”
Critics of antitrust enforcement have long argued that fines are merely the cost of doing business for large tech companies and that any action to open up markets often comes too late and does too little to enable competition.
For instance, antitrust investigators in Brussels have been wrestling with Google in the courts for over a decade in three different cases amounting to total penalties of roughly €8bn, but both sides are still fighting appeals in Luxembourg and the company is yet to pay a penny. Google has argued that it has made meaningful changes that will enhance competition and benefit customers.
Section 19a is better placed to deal with such companies than the DMA. “[The German law] is more open. It is not only backward looking but also forward looking, because if we have new tactics by the companies we will be able to catch them also,” Mundt says.
Germany is one of several EU member states sharpening the teeth of national regulators even as Brussels goes about setting up antitrust rules for the entire bloc. Antitrust watchdogs in France and Italy also have Big Tech groups in their crosshairs, leading figures close to the industry to warn of a multiplier effect that will make Europe a less welcoming place for start-ups.
Antitrust investigators in Brussels have been wrestling with Google in the courts for over a decade in three different cases amounting to a total of roughly €8bn in penalties
“If we have divergence of law in Europe that will . . . make the scale up of small tech in the continent more difficult,” says Alexandre de Streel, a law professor at the University of Namur who has advised CERRE, a Brussels-based think-tank partly funded by big technology companies.
In Germany the purpose of the law is not to stifle entrepreneurs but “foster innovation” in digital markets, says Mundt. “I don’t want to leave it to huge companies to decide the rules on which basis you as a competitor enter the market. That’s not the task of [Big Tech]. That should be the reality for Germany, Europe and other countries.”
Gatekeepers under pressure
Big Tech is fighting back against the German law. Amazon, for example, is appealing against the decision that it is a platform of “paramount significance”, arguing that it already competes with “many established, successful German and international companies”.
A spokesperson for Amazon said: “We disagree with the Federal Cartel Office’s interpretation of this complex new legislation and have filed an appeal. The retail market that Amazon operates in is very large and extraordinarily competitive, online and offline.”
Meta and Google have not appealed against their designations as powerful platforms. Facebook’s parent company said in a statement that while it disagreed with the FCO’s “reasoning” on the decision, it would continue to “work constructively” with the regulator to comply with all rules and regulations.
Andreas Mundt, head of the Federal Cartel Office, says that German laws will be adaptable and able to tackle new tactics employed by Big Tech
Google said its customers “expect that we operate a responsible business, and that we are regulated. We are confident that we comply with the rules.” It also pledged to continue working with the regulator “to the extent that changes are necessary”.
While Berlin is ahead on Europe’s battle to tame tech giants, Brussels will still continue to play a prominent and potentially more influential role.
The DMA will have massive implications for the way these companies have been generating multibillion-dollar profits. Apple, for instance, will be obliged to allow competing app stores into its operating system, and Google and Facebook will have to make their messaging systems able to interact with each other.
Margrethe Vestager, the EU’s executive vice-president in charge of digital policy, says the law will have a profound transformative effect. “The EU is taking a proactive approach to ensuring fair, transparent and contestable digital markets,” she said when the DMA came into force. “Gatekeepers enjoying an entrenched position in digital markets will have to show that they are competing fairly.”
Andreas Schwab, a German MEP who led the debate of the rules at the European parliament, agrees about the huge potential of the law. He says the law gives powers to Brussels to act decisively on behalf of all member states.
“Consumers will be much better protected because if there is wrongdoing, the European Commission will fix what is happening to a company in Latvia or a consumer in Croatia,” he says. “The effect will be much stronger than a member state calling Silicon Valley to ask for a change.”
But the leaden pace at which the DMA is coming into force risks leaving Brussels behind. The EU will only designate which companies officially fall within the scope of their tech rules later this year, long after the German rules first came into law.
The UK and the US, meanwhile, are falling even further behind in the race to rein in Big Tech. Last May UK ministers shelved plans to empower a new technology regulator, though the government now says it will bring forward the bill this year. In the US, bills aimed at curbing the power of big tech platforms are still stalled in Congress amid political bickering.
Still, some think Berlin could be moving even faster. Thomas Hoppner, a partner at law firm Hausfeld and a professor of law at Technical University of Wildau, argues Section 19a hasn’t yet produced significant results. “Germany was right in seeking to ensure open markets, but so far they haven’t delivered.”
Margrethe Vestager, the EU competition commissioner, is overseeing the implementation of the Digital Markets Act, which aims to curb the power of the US tech giants
He remains sceptical about the changes antitrust regulators are imposing on Big Tech and whether they will see the changes required for rivals to thrive. “We will have to see whether on the basis of behavioural obligations we can tame the gatekeepers and neutralise their competitive weapons,” he says. “If these don’t do the job, the next step would be to break them up.”
Reacting to this criticism, Mundt says delivering results through the courts will take time. “This is still competition law.”
Germany isn’t the only country getting in on the antitrust action, suggesting a regulatory “arms race” is emerging among different EU member states.
Benoit Creure, the head of the French Competition Authority, says that while it is “too late” to stop the dominant positions of existing platforms, member states are in a better position to prevent anti-competitive behaviour in other sectors.
Individual countries like France can move swiftly and decisively as companies grow in power, he says. “If you want to do something which is more specific to new practices then you need to use competition law in a flexible way, either at a national or European level.”
He said the auto and health sectors were areas where regulators could still move to clamp down on emerging dominant positions and that these were where “the new turf wars are going to be. There is no dominant player emerging yet” and that regulators could use “the law to stop them becoming too big”.
When Brussels does begin bringing cases under the DMA, it will undoubtedly change the calculation for some national regulators in Europe.
The head of the Dutch competition authority, Martijn Snoep, said last year it might not make sense for them to pursue tech groups already in the EU’s dragnet. “I am not sure how many investigations we will actually launch and I’m not sure it will be an efficient allocation of resources,” he said.
Patrick Andrae, co-founder and chief executive of HomeToGo, says Europe must do more to protect its tech companies
Instead, he said, the EU law “will incentivise the national competition authorities to focus on the non-DMA matters — or against companies not considered gatekeepers under the DMA but who have a dominant position”.
Interest groups say the national regulators risk wrapping the industry up in red tape. “It’s clear that the DMA will be the minimum that all countries will apply. Every individual member state will top that up with other obligations [and] impose their own antitrust laws,” says de Streel of CERRE.
“The question is whether that will hurt the internal market and will stifle innovation. If it’s not organised well it may lead to a disintegration of the internal market and therefore also a difficulty to scale up.”
Many entrepreneurs, however, say they welcome more regulations if they create a level playing field. The fear of HomeToGo’s Andrae is that the ambitions of Berlin and others will not translate into action.
Regulators need to be equipped with enough resources to really make a difference, he says. While Germany’s competition watchdog has launched multiple new investigations since the law came in, it has not meaningfully grown in terms of staff or budget.
“If you don’t [give regulators the resources], the regulation will never be as effective as it is on paper,” he says. “They cannot go on all the cases at the same time.”