Big Data and Antitrust Risks in Close-up: from the Perspective of Real Cases

• Jurisdiction: European Union,United States,Federal
• Author: By Ken Dai and Jet Deng
• Publication year: 2020
• Citation: Vol. 30 No. 2

BIG DATA AND ANTITRUST RISKS IN CLOSE-UP: FROM THE PERSPECTIVE OF REAL CASES

By Ken Dai and Jet Deng¹

Big data is the new battleground to achieve the competitive edge. The digital market features both the first-mover advantage and a winner-takes-all environment. Without doubt, enterprises fight for data, and suppress rivals from access to data. China, as one of the world's largest Internet markets with the largest Internet user population, exemplifies the heated data game. The Alibaba and SF Express data sharing spat is a famous example. In 2017, Alibaba's logistic network, Cainiao, cut off its data interface for SF Express, one China's largest couriers, and removed SF Express as a courier option on its e-commerce platform Taobao.² The dispute was traced back to SF Express's refusal to share customer logistics tracking data in the name of customer privacy protection.³ Similarly, Cainiao's action was allegedly due to data security concerns. The matter was settled upon intervention by the State Post Bureau, China's courier service industry regulator. Similar disputes also occurred between Chinese tech giants Tencent and ByteDance, and between Tencent and Huawei, both of which will be discussed in this article. The yearning for data is overt among the leading companies, not to mention those smaller ones who remain far away from the tipping point.

The question is whether antitrust law has a role to play in regulating the competitive process for big data. By now the crossover seems to be inevitable and unstoppable. Across the world tech giants are often targets of competition law investigations. On the other hand, data protection laws have been increasingly applied in competition cases, such as the Facebook case in Germany which will be addressed in detail below. However, still there is a lot of space between "under-regulation" and "over-regulation."

The United States and China are examples of "under-regulation." Since United States v. Microsoft Corporation,⁴ and until recently, the U.S. regulators have not accused any tech giants of antitrust violations. Similarly, China's digital economy does not fall much behind that of the U.S. and was also criticized for the lack of antitrust enforcement in the digital markets for the past twelve years since the enactment of its Anti-Monopoly Law.⁵ In stark contrast, the European Union ("EU") is more aggressive in scrutinizing tech giants. The penalty against Google for abusing the dominance of its Android mobile operating system was a record-breaking EUR 4.3 billion⁶ and was just one of the three fines that Google was hit with in the EU. The EU's antitrust probe against Amazon is still ongoing for Amazon's dual role as a retailer and a marketplace and how it took advantage of seller data.⁷ More recently, the Commission also opened formal antitrust investigations to assess whether Apple's rules for app developers on the distribution of apps via the App Store violate EU competition rules.⁸ The EU Member States are also active in some prominent cases. While it may not be proper to characterize the EU enforcement as "over-regulation", it is apparently on the other side of the spectrum from the U.S. or China. But is there a definitive point at which antitrust authorities should act righteously? There are no easy answers. Related topics have been repeatedly discussed, such as how network effects lead to dominance and how multi-homing complicates the analysis—all intricate issues but gradually falling back to clichés.

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Instead of exploring theoretical ideas, this article will examine real cases. By looking at the circumstances surrounding and following those cases, it may be easier to have an instinctive appreciation for the role of antitrust law in the big data context. Specifically, this article will discuss: why the merger control regime might malfunction in start-up acquisitions; the increasing concern for pricing algorithms leading to a cartel situation; how to determine market dominance in a volatile digital market; the novel data-related abusive conduct analyzed from the antitrust perspective; and whether the long-lived essential facilities doctrine could still apply to big data. Each section will be accompanied by one or more high-profile cases in major jurisdictions.

I. START-UP ACQUISITIONS: THE LINGERING DIDI / UBER CHINA CASE

Start-up acquisition, particularly by large digital platforms, has become increasingly suspicious from the competition law perspective. This is the so-called "killer acquisition"—acquisitions of start-ups or nascent firms by dominant market incumbents. Start-ups begin with innovative projects, establishing customer base, and aggregating data pools, but often have not generated much revenue yet when turning themselves over to tech giants. Such acquisitions stifle potential competition by eliminating the potential threat posed by the start-up. Competition authorities in many jurisdictions are concerned that their merger review triggering thresholds are not broad enough to cover these kinds of transactions, particularly when the target firm has small turnover. On the other hand, even after reviewing, the authorities may not be quite confident that the existing theories of competitive harm will enable them to make the right decision, especially on data-driven capabilities in a rapid evolving market.

The 2016 Didi/Uber China acquisition is a typical case that generated heated discussions regarding China's merger control regime. On 1 August 2016, Didi Chuxing ("Didi"), a popular app-based ride-hailing platform in China, announced a strategic agreement with Uber China under which Didi would acquire all assets of Uber, including Uber's brand, business, and data. The acquisition ended a year-long price war between Didi and Uber during which drivers and passengers were attracted by both platforms through all kinds of allowance offerings. As a result of this deal, Didi would acquire market share of as much as 93.1% in the ride-hailing market in China.⁹ Although this is not a typical "killer acquisition" (neither of them is a dominant incumbent though Didi's market share is quite high even before the deal), the acquisition exemplifies how the notification threshold based on the parties' turnover could be under-inclusive, and upon intervention by the Chinese competition authority nonetheless, how hard it could be to establish competitive harm in an extremely dynamic market.

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A. Notification Thresholds That Are Under-Inclusive for Data-Driven Capacities

As to notifiability, Didi announced publicly that its turnover in the preceding fiscal year did not meet the relevant thresholds.¹⁰ The turnover thresholds to trigger notification obligations in China are: the combined turnover of the parties exceeds CNY 2 billion (approx. USD 280 million) in China or CNY 10 billion (approx. USD 1.4 billion) globally; and the Chinese turnover of at least two of the parties to the transaction each exceeds CNY400 million (approx. USD 56 million). It was formulated when the Anti-Monopoly Law of China took effect in 2008 and has remained unchanged. Though widely criticized as too low to accurately mirror the economic reality in China, the thresholds still could not catch some high-profile transactions such as Didi/Uber China.

The case illustrates why turnover-based notifying threshold is under-inclusive, and cannot accurately reflect innovation capabilities based on data. The price war preceding this acquisition cost both Didi and Uber a significant amount of revenue. It was reported that Uber had suffered an annual loss of at least USD 1 billion in China.¹¹ Didi did not get rid of loss neither despite that it had possessed the data of more than 58.8 million users at that time.¹² The same reason goes to other start-ups and other jurisdictions. At an early stage, digital start-ups usually focus more on users and data than turnover. This is why Facebook's acquisition of Instagram was not reviewed by the European Commission and why, without a specific referral by national competition authorities, Facebook's acquisition of WhatsApp would not have been reviewed by the Commission.¹³ For the same reason, U.S. regulators are now revisiting hundreds of deals made by tech giants in the past decade that were not required to notify according to law.¹⁴

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B. Assessing Competitive Harms and Innovation Incentives in a Dynamic Market

Similar to the U.S., the competition authority in China also has the power to investigate a potentially anti-competitive transaction even though it did not trigger notification in the first place.¹⁵ As early as September 2016, one month after the announcement of Didi/Uber China, the then merger control authority of China—the Ministry of Commerce—announced that it had launched an investigation into the deal. Almost four years passed, during which an institutional reform in 2018 led to the birth of the State Administration for Market Administration ("SAMR") taking over the responsibility of merger review. The last time the case was mentioned was a press conference held by SAMR in November 2018. On that occasion, Wu Zhenguo, the head of the Anti-Monopoly Bureau of SAMR, unequivocally said that the deal was still under investigation and they were assessing the deal's impact on market competition and industry development.¹⁶ However, no decision has been made thus far.

Undoubtedly, it is no easy decision to challenge a start-up acquisition. Along with the traditional parameters—price, output, choice, and quality, a competition authority also has to consider innovation—a highly volatile parameter.¹⁷ Data-driven innovation is pivotal for a sharing economy like Didi. Typically, both Didi and Uber collect users' locations, time, frequency and other data to analyze user habits, so as to offer more targeted services. For example, by analyzing data distribution of hours and roads, they can improve service coverage, alleviate peak hour pressure, and enhance passenger...