The Competition Law Framework Online Platforms and Intermediaries

The Competition Law Framework Online Platforms and Intermediaries in Copyright Law University of Munich & GRUR Munich, March 23 -24, 2017 Prof. Andreas Heinemann, University of Zurich

Outline I. The General Framework in EU Law II. The Draft Directive on Copyright in the DSM III. Related Rights for Publishers IV. Content ID Systems V. Outlook page 2

I. The General Framework in EU Law Ø Online platforms are in the focus of competition law. • Google case of the European Commission (pending) • Facebook case of the Bundeskartellamt (pending) Ø Copyright and other IPRs do not stand in the way of competition law application. • Magill & IMS Health (compulsory licences) • Astra. Zeneca (fraud on the patent office) • Lundbeck (reverse payments) • Huawei (standard-essential patents & FRAND commitments) page 3

Ø Application of competition law in the IT sector • IBM (1984): Access to interface information; competitors should be able to produce compatible hardware products. • Microsoft (2004): Competitors shall be able to produce compatible software products. • Intel (2009): No exclusionary practices against competitors (exclusivity rebates; direct payments to distributors). Ø Key Points • Markets shall remain contestable. • Also in the IT sector, not all dominant positions will vanish by themselves (Microsoft, Google). • No leveraging of dominance to neighbouring markets page 4

Ø Digital Single Market Strategy for Europe (Juncker Commission, 6. 5. 2015) • In the "offline world", the internal market has been realized to a large extent. • Now, the single market has to be realized online. • See e. g. the Draft Regulation on addressing geoblocking and other forms of discrimination based on customers' nationality, place of residence or place of establishment within the internal market (2016) - no discrimination with respect to access, prices and other conditions, payment etc. - Agreements with respect to passive sales are void. - but no obligation to sell and deliver across Europe - Audio-visual services are excluded. - exceptions for copyright protected works page 5

Accordingly, the integration function of competition law gains new importance! The abolition of state barriers to trade shall not be reversed by private barriers raised by undertakings. Ø Competition Law in the Strategy • Sector Inquiry focusing on the application of competition law in the e-commerce area • Market power of online platforms: Further analysis is necessary beyond the application of competition law in specific cases. page 6

Sector Inquiry E-Commerce: Main Findings (preliminary report September 2016) Ø Physical Products: Stronger control of distribution by manufacturers • direct distribution; selective distribution; restrictions on online sales Ø Digital Content: Exclusive licences with restrictions on territories and technologies. • "The Commission will assess on a case-by-case basis, having regard to the characteristics of the specific product and geographic markets, whether certain licensing practices restrict competition […]. " Agreements have to be in conformity with Art. 101 TFEU; unilateral practices with Art. 102 TFEU. page 7

2 February 2017: The European Commission opens three investigations regarding cross-border online sales Ø Consumer Electronics RPM? Ø Video Games Use of activation keys for geo-blocking? Ø Hotel Accommodation Price discrimination based on nationality or country of residence? Restrictions on retail prices or exclusion of customers because of their nationality or location? page 8

II. The Draft Directive on Copyright in the Digital Single Market Ø from a competition law perspective Ø Recital 1 (see also Art. 1): "The Treaty provides for the establishment of an internal market and the institution of a system ensuring that competition in the internal market is not distorted. Harmonisation of the laws of the Member States on copyright and related rights should contribute further to the achievement of those objectives. " Ø Since the Lisbon treaty, the "system of undistorted competition" has been relegated to Protocol 27. A market-oriented perspective on copyright! page 9

Ø Direct link between competition law and the internal market: The integration function of competition law. Ø Basic principle of EU competition law: exclusivity agreements are fine, but passive sales (in reaction to unsolicited requests from clients outside the exclusive area) must be allowed. Ø ECJ – Karen Murphy (2011) • It is contrary to EU competition law if licence agreements prohibit the supply of decoder cards to television viewers who wish to watch the broadcasts outside their Member State. • no justification based on IPRs football matches are no works; possible national rights override the freedom to provide services only as far as the "specific subject matter" of the right is concerned; no guarantee to get the highest possible page 10 remuneration.

Ø European Commission – Paramount (2016) • Film licensing contracts for Pay-TV between Paramount and Sky UK contained clauses preventing Sky UK from allowing consumers outside the UK and Ireland to access films via satellite or online ("Broadcaster Obligation"). • Paramount had to ensure that no other broadcasters make their Pay-TV available in the UK and Ireland ("Paramount Obligation"). • Commitment: Such clauses will not be enforced and not re-introduced. • Statements of objections to five other film studios (pending) Passive sales must remain possible. page 11

It will be the task of EU competition law to second the cross-border goals of the directive. • see for example also the breakthrough of 7 February 2017 regarding the Regulation on ensuring the cross-border portability of online content services in the internal market • and the new roaming rules entering into force on 15 June 2017 Ø Two parts of the Draft Directive raise specific competition law questions • Related rights for publishers • Content ID systems page 12

III. Related Rights for Publishers Ø "This proposal provides for a new right for press publishers aiming at facilitating online licensing of their publications, the recoupment of their investment and the enforcement of their rights. " Ø Cf. §§ 87 f et seq. of the German Copyright Act The legitimacy of related rights for press publishers has been very contested (critics: "link tax"). Ø Competition law perspective: • The introduction of new IPRs (or the extension of existing ones) cannot be justified with the argument that overprotection can be corrected by competition law! • The contrary is true: A "wise" IP legislation minimizes conflicts with competition law. page 13

Conflicts with Search Engines I. Websites refuse the use of their texts by search engines Ø Background: The (pending) Google case. • Central reproach: Google favours its own comparison shopping service over those of competitors ("search bias"). • Google has a dominant position in general internet search with market shares above 90%. • European Commission: "However, dominant companies have a responsibility not to abuse their powerful market position by restricting competition, either in the market where they are dominant or in neighbouring markets. " page 14

Ø Another reproach: "Scraping" • The way Google uses and displays third party content on its vertical search services (using competitors' investments) • User-generated content (UGC), e. g. hotel or restaurant reviews • Copyright-protection? • It is not about linking (Svensson, Best. Water, GS Media), but about the reproduction of whole reviews etc. Ø It is possible to block content for search engines • Robots Exclusion Standard: robots. txt • Robots Meta Tags: noindex or nofollow • Request to the search engine to remove pages from the results list. page 15

Ø Complaint by vertical search services: The use of these options with respect to Google's vertical search services leads to retaliation in the organic search list. elimination or downgrading Ø Commitments proposed 2014 (under the old Commission), but not accepted: Third parties may opt out from the use of their content (e. g. user reviews) in Google's specialized search services without negative impact on their ranking in the organic search results. Ø European Commission, 14 July 2016: "The Commission has at the time also opened proceedings and it will continue to investigate […] concerns with regard to copying of rivals’ web content (known as 'scraping')". page 16

Comparison with the US Federal Trade Commission, Settlement of January 2013 Ø Investigation on misappropriation of content, such as user reviews and star ratings, from competing websites in order to improve Google's own vertical offerings, such as Google Local and Google Shopping. Ø Concern that this conduct might chill firms’ incentives to innovate on the Internet. Ø FTC: "Under the same commitment, Google also has promised to provide all websites the option to keep their content out of Google’s vertical search offerings, while still having them appear in Google’s general, or 'organic' web search results. " page 17

II. Publishers insist on (paid) use of their texts by search engines Ø In Germany, Google concluded free licences with press publishers. It had been predicted by critics of the new related right that search engines will stop to use protected material or will get free licences. Ø Is there a competition law claim to an appropriate licensing fee? page 18

Ø Pro • The dominant position is used to obtain something for free. • Art. 102 (a) TFEU mentions not only "imposing unfair selling prices" but also "imposing unfair purchase prices" • A purchase price of zero is unfair. Ø Contra • Even a dominant firm should only very exceptionally be obliged to buy something. • Both sides benefit from linking: the search engine from the pertinence of the search results, the websites from the visibility thanks to the search page 19 engine.

Ø Bundeskartellamt, 2014/15 • Declined to initiate a procedure. • Use of economic power has to be shown, e. g. retaliation in the organic search list (if not due to the non-licensing of related rights) - A short version of search results is justified if the search engine would otherwise be sued for infringement of the related right of press publishers. The goal of avoiding the use of others' IPRs is accepted as a competition law defence! • No use of force detectable; no obligation under competition law to acquire paid licences page 20

• A complete delisting of German publishers (not restricted to protected material) would change the assessment. The decision (§ 32 c German Cartel Act) is not conclusive. • Important side aspect: Also non-monetary relationships (as between a search engine and its users) may constitute relevant markets in the sense of competition law. • In the past, this was contested in Germany. • Now see draft § 18 sec. 2 a of the German Competition Act (9 th Revision): "The assumption of a market is not excluded because a service is provided for free. " • See also draft § 30 sec. 2 b: General exemption for press publishers including hardcore cartels! page 21

IV. Content ID Systems Ø Art. 13 Draft Directive – Title: "Use of protected content by information society service providers storing and giving access to large amounts of works and other subject-matter uploaded by their users" Ø These providers "shall […] take measures to ensure the functioning of agreements concluded with rightholders […] or to prevent the availability […] of works or other subject-matter identified by rightholders […]. " Providers shall take appropriate and proportionate measures to prevent the availability of content identified by rightholderspagein 22

Ø Stakeholder dialogues to define best practices, e. g. for content recognition technologies Content ID Systems fingerprinting and filtering against copyright infringements Ø Different objections • false positives since Content ID is not as nuanced as copyright, e. g. with respect to limitations and exceptions ("fair use massacre") • guilty until proven innocent? • fundamental rights (e. g. free speech) • level playing field: Is it feasible for smaller platforms to put such a system in place (or is it raising rivals' costs)? • Art. 102 TFEU: Fair procedures in order to reject the accusation Ø Some platforms already have Content ID. page 23

Ø Example: You. Tube and its Content ID tool • Content ID was launched in 2007. • 2015: 8'000 right holders using Content ID. • They submit their copyrighted material to You. Tube. • 50 millions ID's are stored in You. Tube's database. • Different options if identified files are found - mute audios - block videos - monetize videos by running ads - track the video's viewership statistics page 24

Ø Conditions for being accepted to the Content ID tool • "Content ID acceptance is based on an evaluation of each applicant's actual need for the tools. " • "To be approved, they must own exclusive rights to a substantial body of original material that is frequently uploaded by the You. Tube user community. " • Rejection "if other tools better suit their needs", e. g. - Copyright Notification Web Form - Content Verification Programme (CVP) Smaller right holders are excluded from Content ID. page 25

Ø Art. 102 lit. c TFEU: Prohibition of discrimination against dominant firms • Is there a legitimate reason to treat right holders differently according to the quantity of rights owned? page 26

V. Outlook Ø There are specific problems of content-oriented platforms (as opposed to trading platforms). Ø Many of the rules are deduced from Art. 102 TFEU. Is there a need for similar rules for non-dominant online platforms? Ø Competition law sometimes restricts the use of IPRs, but in other cases defends IPR holders. • cf. protection of right-holders fighting 'scraping' Ø Competition law works "symmetrically". page 27