LegalJuly 15, 2019

We don’t allow a king to dictate our daily lives, why would we allow tech companies to rule our economy?

Ruben Elkerbout is competition lawyer and partner at Amsterdam-based firm Stek. In recent years he noticed a rise in follow-on-damages litigation: claimants trying their luck in civil proceedings after public competition law enforcement. Elkerbout started a cross border database with summaries of precedents.
We do a lot of cases for clients that seek penalty reduction. However I always warn clients that they may avoid the fines, but may have to pay millions of damages in civil law proceedings in the end. That may kill the appetite for leniency.
Ruben Elkerbout, competition lawyer and partner at Amsterdam-based firm Stek
Somewhere halfway the interview in a café in Amsterdam Ruben Elkerbout points to the laptop on the table. ‘Killer acquisitions,’ he says fiercely, you can write that down!’ The lawyer can’t help himself as he talks about two subjects he is truly passionate about: the digital revolution and competition law.

Elkerbout looks like a litigation lawyer at heart, although transaction work makes up half of his practice. In creative metaphors he is able to make every point in little over two sentences. His use of words is clear, snappy and evocative. ‘Killer acquisitions’ refers to big tech companies absorbing their competitors early on in this case, such as Facebook buying Instagram and WhatsApp before any of those deals could raise real competition concerns.

Of course Google has had it’s fair share of competition enforcement lately. The tech company was fined €1.49 billion by the European Commission for abuse of its market dominance in March. The year before the parent company of YouTube was fined a record €4.3 billion for abusing its market dominance in mobile by the European watchdog and in 2017 another €2.4 billion for manipulating shopping search results.

Competition & Tech

However in general competition authorities have been struggling for years with enforcing antitrust rules against members of the GAFA-consortium (Google, Apple, Facebook, Amazon). The almighty enterprises operate on a global level in various markets, largely on the basis of intangible assets. That makes it hard to define both the market they are active in and their market share. Moreover, the tech giants strive to keep profit as low as possible. Amazon is suspected of predatory pricing, building up market share by selling its own products under market value, for years. Facebook spent quite a bit of its earnings on buying into its future competitors. Amazon is increasingly branching out into different sectors, including the acquisition of supermarket chain Wholefoods in 2017. It is clear it has an aggregate economic power that is immense, but how to define its market share, when it is spread out over so many sectors? The same applies to Facebook: it is a digital content sharing and social media platform, but also an advertisement business and commercial marketplace.

The almighty superpowers could be what the oil companies were in the nineties of the 20th Century according to Elkerbout: supranational moguls whose economic power exceeds that of many countries. Elkerbout refers to young Pakistani scholar Lina Kahn (30), now advisor of the American Federal Trade Commission, that questioned the effects of the liberal market, anti-trust rules and system of assessing market dominance, as we know it. She wrote ‘Amazon’s Antitrust Paradox’ as an unknown student in the Yale Law Journal in 2016, an article that woke up the entire legal world according to the New York Times. She pleads amongst others for breaking up tech giants on the basis of ancient legal sources and she is not the only one. In the United States ‘The New Brandeisians’ also mockingly referred to as the ‘hipster anti-trust movement’ by opponents, are gaining momentum, explains Elkerbout. ‘In 1880 there was a senator, Mr. Sherman, who pleaded for breaking up oil company Standard Oil. Today we have Google, Facebook, AliBaba. They say we don’t allow a king to dictate our daily lives, why would we allow these tech companies to rule our economy?’

Go back to antitrust law as it started

In the 1970’s and 80’s the free market was seen as a holy grail in the United States. It became easier to consolidate economic power and abuse it, says Elkerbout. ‘The general opinion was that governments should not intervene too much. But these new tech giants are the consequence of that policy. The New Brandeisians say we need to go back to antitrust law as it once started: intervention where needed and at an early stage. They say that we must recognize that the tools we have and the insights we have gained are simply no longer adequate in the light of the economy. Companies that want to grow do not make any profit, which is actually very atypical. What do they do with the money? They invest in order to become the biggest.’

Until recently, no one worried too much about Amazon, Facebook or Google as they facilitated the life of consumers at bargain prices. Now ‘there is an urgent call for breaking up these superpowers on the one hand,’ says Elkerbout. At the same time, French-German lobbyists plead for leniency towards a merger in the train sector to create and protect a ‘transnational’ super champion: Alston/Siemens.’ He questions if that ‘schizophrenic attitude’ towards ‘superpowers’ in the European Union is sensible. Are you going to blame competition law for the fact that we don’t have super champions in Europe like they do in America or China? I find that difficult. Ultimately it will likely lead to higher prices and less supply.’

He visibly enjoys analysing the political and financial dynamics behind competition law.
It is the mix that got Elkerbout hooked in his third year at the University of Utrecht. ‘I found studying law quite boring until European Public Law came along.’ Competition law is ‘actually the most fun area of law there is,’ according to Elkerbout, ‘because the legal and economic context is much more complex. You have to deal with very active supervisors, that makes it fun. You have to deal with a clear litigious component and transactional component, I like that very much. It is dynamic, markets change, insights change.’

Civil rather than administrative law proceedings

In recent years the competition lawyer noticed an increase in claimants seeking their fortune in civil right proceedings after a competition authority fined a company or cartel.

Formally is possible to litigate on these ‘follow on damages’ in every European country. However in practice litigation of this type mostly takes place in Germany, Great Britain and The Netherlands. ‘It’s also a self enforcing effect, ‘says Elkerbout.’ The more national courts deal with these cases, the greater their expertise becomes. Jurisdiction of the Dutch Court is generally not hard to establish, according Elkerbout. ‘If the parent company of a cartel member is Dutch and there is sufficient connection to the Dutch territory, you can instigate proceedings against any of the cartel members in The Netherlands,’ says Elkerbout.

He states a recent example of the truck cartel in the automotive industry that was fined by the European Commission in 2017. ‘‘Funders’ will approach transport companies asking if they have purchased trucks in a certain period of time. If the answer is yes, they start to calculate: you may have paid 10.000 in excess as a result of the cartel. If you purchased ten trucks that easily amounts to a 100.000 EUR claim you can raise against any of the cartel members,’ says Elkerbout.

Moreover, litigating before a Dutch Court has become easier for English speaking clients since the inception of The Netherlands Commercial Court, where parties can litigate in English. ‘The Netherlands see litigation as a commercial asset,’ says Elkerbout. ‘The Dutch State will go to great lengths to facilitate litigation for international parties, since it provides work for lawyers, accountants, judges and economists. The incorporation of the NCC is a clear example of that.’

Competition law is used as a two-edged sword

In addition, Elkerbout clearly sees an increased use of competition law as ground to declare contracts void in civil law proceedings, even before any public law enforcement has taken place. ‘Competition law is increasingly being used as a sword today,’ he says. ‘Write that down too!’ He calls it the nuclear option. ‘Anti-competitive acts or agreements are void if they infringe European competition law. Suddenly, in case of conflict, defendants see themselves in court combating claimants invoking competition law to get rid of a of unfavorable contracts or to repeal contract annulments.

He himself has advised clients to go to a civil court when the DCA failed to act on leads. At the same time he believes a civil judge generally will be less equipped to make such judgments, as it has less experience, resulting in less predictable outcomes. ‘Legal uncertainty, that is the result. The role of the DCA should not marginalize. The DCA faces judicial supervision from specialized administrative court in Rotterdam and The Hague, whereas some civil court judges have very limited experience in competition law.’

Follow on litigation and the appetite for leniency

Elkerbout decided to start a cross border database with precedents of follow on-claims, summarizing court judgements from Germany, The Netherlands and the United Kingdom in English. ‘All these judgments are written in German, Dutch and English, so we work with partner offices that translate the decision and look at its relevance. It is very helpful to have a summary in English in a clear format and see which arguments are being used in a well-arranged way.’

Follow on litigation has another affect as well. ‘It kills the appetite for leniency,’ says Elkerbout. ‘We do a lot of cases for clients that seek penalty reduction. However I always warn clients that they may avoid the fines, but may have to pay millions of damages in civil law proceedings in the end. That may kill the appetite for leniency.’

Competition authorities increasingly take into account the role of platforms and (self-communicating) algorithms when assessing potential anti-trust infringements. ‘If algorithms start to communicate with each other, is that a cartel,’ asks Elkerbout? ‘What if a company wrote and trained algorithms to retrieve information from the market in order to determine its prizes? Suppose another company does the same. They will ‘scrape’ the market and those algorithms will ‘scrape’ each other. If the programmer includes ‘you are going to communicate with other algorithms’ in the code, then you may have a cartel. But what if it isn’t inscribed in the code but the algorithm is taught to learn as much as possible from the market and determine the optimum price and the other algorithms involved will do the same and you will get a super competitive price as a result. Is that a cartel? You get more and more issues like that, especially in relation to dynamic pricing. That is the big challenge for us today. How are we going to apply our traditional rules to a digital framework?’
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