Competition risks in high technology industries

25 July 2017 | Article by Rosannah Healy and Robert Walker, ALLENS

From autonomous cars and wearable medical devices to online retail platforms and metasearch engines, technology and "big data" continue to reshape how all companies do business. Importantly, while technology and data science can increase competition and consumer choice, there are also a number of compliance risks to be aware of. This article provides a snapshot of three key competition law issues facing companies in high technology and data driven industries, and tips for identifying and managing those risks.

Commercialising technology and datasets

In high technology industries, a business which invests in significant research and development (R&D) or data collation may not only use that research and data for their own business, but supply it as well — including to their competitors. In commercialising those assets, companies must ensure that they do not seek to impose terms and conditions on their customers (such as bundling, exclusivity or pricing) which could be regarded as an agreement with the purpose, effect or likely effect of substantially lessening competition (ss 45 and 57 of the Competition and Consumer Act 2010 (Cth) (CCA)) or a misuse of market power (s 46). Currently, a misuse of market power occurs if a company uses their market power for the purposes of damaging a competitor or preventing new entry or competitive activity. A number of recent regulatory investigations overseas are a timely reminder of these risks.

Alleged anticompetitive bundling

The European Commission is currently investigating whether Google has abused its dominant market position by requiring Smart phone manufacturers which purchase Google's Android mobile operating system to also pre-install Google programs such as Google Search and Chrome. The European Commission is investigating whether the bundling of these applications with Google's Android mobile operating system is restricting competition by competing search applications and hindering the development of operating systems based on Android open source code. The Russian competition authority investigated Google for the same conduct and imposed a US$6.8 million fine in August 2016. The Turkish competition authority has recently re-opened its investigation into similar issues.

Alleged refusal to supply

In the United States, the Federal Trade Commission (FTC) has brought proceedings against Qualcomm, alleging unfair methods of competition. Qualcomm is a major manufacturer of baseband processors used in mobile phones and the holder of a number of standard-essential patents. The FTC alleges that Qualcomm is refusing to licence its standard-essential patents to competing manufacturers of baseband processors and forcing customers who use competing baseband processors to pay higher royalties on Qualcomm's standard-essential patents.

To avoid these competition risks, companies with market power should ensure that their decisions regarding whether to supply their data and technology, and on what terms, are made for legitimate commercial reasons. For example, a refusal to supply to individual customers or competitors should only be made for legitimate commercial reasons such as credit worthiness, logistical difficulties or insufficient volumes. Companies should also assess the impact of their supply decisions and proposed terms and conditions. If terms such as bundling, exclusivity and discounts are likely to adversely affect your competitors and impede the development of other supply options for your customers, this conduct could raise competition issues.

Mergers

Strategic acquisitions of start-ups or companies with specialist technology or datasets can also raise issues under s 50 of the CCA which prohibits the acquisition of shares or assets if it would substantially lessen competition in a market in Australia.

Acquisitions of start-ups

Traditionally, mergers are more likely to raise issues if they involve two established competitors or, alternatively, two established players at different levels of the supply chain where there is a concern about the merged firm having a reduced incentive to supply to (or acquire from) its competitors in the future (a so called "vertical merger").

The acquisition of new entrants, such as start-ups, by established market players can sometimes raise competition concerns, for example, where the acquisition removes a promising future competitor or, in the case of a vertical merger, a critical future input from the merged firm's competitors. The Chairman of the Australian Competition and Consumer Commission (ACCC) has recently raised concerns about large firms acquiring promising start-ups for these reasons, although the Chairman also observed that these acquisitions may bring innovative products or services to the market sooner by providing the start-up with capital and infrastructure it would otherwise not have access to.1

1 R Sims, "Is Australia's economy getting more concentrated and does this matter?" speech delivered at the RBB Economics Conference, Sydney (27 October 2016) www.accc.gov.au/speech/keynote-address-rbb-economics-conference-0.

This article originally appeared in Inhouse Counsel, vol 21 no 2.

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