"Internet search engines in the focus of EU competition law – a closer look at the broader picture": today's JIPLP-GRUR seminar, Part 2

Following a much-enjoyed coffee break, Professor Dr Daniel Zimmer (Director of the Institute of Commercial and Economic Law and of the Centre of Advanced Studies in Law and Economics (CASTLE) at the University of Bonn; Chairman of the German Monopolies Commission, Bonn) spoke on " Digital markets: Competition law in need of reform?"  How can such dominant positions as that of Google come about?  Where it's expensive to create an establish a platform but cheap and easy to add users to it, the more difficult it is for competitors to emerge, especially when an increasing number of uses gravitate towards it.  This is not necessary a bad thing: people need search on only one platform for their friends or needs, and a search engine can operate more efficiently across a singly platform.

Insulation: fine for keeping out the cold,
but not for warding off the competition!
The German Monopolies Commission has not recommended dividing up large platforms, given their efficiency.  It has accepted that, for as long as a platform has to worry about losing customers to its competitors, there's nothing for the market to worry about.  Does this mean that there is no competition concern relating to Google? No: businesses must not be allowed to insulate themselves against competition by buying their competitors or putting them out of business. To achieve this, competition law must be (i) modernised and (ii) applied in a consistent and coherent way. Existing rules are not always ideal for dealing with multisided businesses, and the financial criteria for turnover requirements which must be met before the attention of competition authorities are attracted must be reduced, since historical turnover data is unhelpful.

Data portability?
The time taken by competition authorities in investigating complaints is far too long.  Turning all investigations automatically into dispute resolutions after the passage of a particular period of time is one possibility.  Also, operators already have the advantage of knowing the search algorithms they run; they should not be allowed the further advantage of being allowed to manipulate them further in their own favour.  Daniel concluded with some words about privacy and data protection: data portability (the idea that consumers can take their data with them) might also assist in the creation of greater competition.

"Digital markets and data: Competition, consumer protection, and privacy concerns" was the topic of the seminar's final speaker, Professor Dr Wolfgang Kerber (Professor of Economics, Marburg Centre of Institutional  Economics, School of Business Administration and Economics, Philipps University Marburg).  Wolfgang spoke about Big Data, excessive data collection, Facebook's privacy protection policy and the recent CJEU ruling on data transfer from the EU to the US and the inadequacy of the latter's safe harbour rules.

The economics of privacy is an interesting topic. Privacy is usually dealt with under the economics of information. Non-disclosed information usually leads to economic inefficiency. Hiding things = asymmetry of information = an economic problem.  Now, though, firms have much more information about consumers, which can lead to better and more efficient manufacture of products, but also to harmful effects such as price discrimination policy where real-time pricing can vary prices as between consumers depending on, inter alia, the time when they wish to purchase products.  Privacy itself has a price: how much is a person prepared to pay for privacy, and how much is he prepared to pay for information about others?

In our culture, privacy is context-specific and depends on many variable considerations. Also, many internet users are unaware of how much information about them is already known by others. Is there a market failure when it comes to privacy? One assumes that an efficient market would offer a range of options for privacy at different prices, but this doesn't seem to be happening.  Informed consent would be required, but that assumes that there is true transparency regarding consumer knowledge of the options and their significance.

There is clearly a large problem relating to lack of transparency in the obtaining and use of personal data, particularly from a consumer policy perspective.  But what are the policy options? Absence of consumer information about the "price" of data can itself be characterised as a misleading and therefore unfair commercial practice. Consumers are also entitled to more information about collected data, its use, and options for collecting data.

Data protection law in the EU had as its main objective an end to the fragmentation of national data retention policy, the sovereignty of the "consent" principle and the notion of privacy being a fundamental legal right.  If there is to be a market solution to privacy and data protection, it will have to be sector-specific and still respect personal preferences and privacy requirements. Internet users may be empowered to sell the right to use their data for currently "free" services for which platforms currently use that information.

There then followed a discussion session, in which each speaker in turn was first invited to pass his comments on the papers delivered by the other speakers.

"Internet search engines in the focus of EU competition law – a closer look at the broader picture": today's GRUR-JIPLP seminar

"Internet search engines in the focus of EU competition law – a closer look at the broader picture" was the subject of today's joint GRUR-JIPLP seminar, held in the splendid surroundings of Munich's Max Planck Institute for Innovation and Competition, opposite the magnificent vista of the Hofgarten's sun-drenched autumn leaves.

Following welcomes by Professor Dr Josef Drexl, LL.M. (Berkeley), Dr Gert Würtenberger and Professor Jeremy Phillips, the seminar opened with a paper, "Abuse of dominance in digital markets: The case against Google" by Dr Thomas Höppner (Partner, Olswang Germany LL.P., Berlin). Thomas drew attention to the information asymmetry that existed between Google and its users, explaining the mechanism by which advertisers fed in their advertisements, other advertisers their keywords and users their queries.  This is the three-sided platform on which Google's  search engine business model is based.  Building on this, Google added further information portals which it filled with its own content, user-generated content and other third-part content.  This made the Google universe far more attractive both to users and to advertisers, rendering it unnecessary to visit other websites and harder for others to compete with Google.

This also meant that Google had a financial incentive to drive users to its own pages.  Google therefore made sure that its own sites (eg Google Maps) appeared at the head of users' research results even though that had not been looking for them. Google News used similar techniques for enabling content to be included under their own terms in its own 'boxes; Google Shopping was used in order to monopolise the inclusion of search results in its "Google Shopping" boxes, and the insertion of speculative Google Plus pages into search results along with lines like "Be the first to review ..." and "Is this your business ..." shows evidence of Google fishing for fresh business among users of its system.

Demotions are also an important part of the Google business plan. This happens when Google's algorithms are adjusted and websites find that their traffic falls 70-80% overnight. The adjustment of Google algorithms do not affect its own websites however.

Thomas then addressed the UK experience of the Google Panda algorithm, which caused a massive drop in non-Google shopping trade, a drop which was only partially redressed by Google's introduction of fees for listing others' online shopping products.  In April 2015 this was held to be an abuse of dominant position by the European Commission). Nb: complaints about this were first received in 2009; formal proceedings were instituted a year later but it was only on 15 April 2015 that the Commission issued its Statement of Objection.

The market tipped in favour of Google in 2001-2. Before then, Yahoo! never had more than 30-35% and Google, which invented auction-based bids in the search term market, has never had less than 80% of the market share since 2005.  Yahoo! is now closing down its advertising operations in favour of Google and it can only be a matter of time before Bing folds too.  Given that, the more people use Google the stronger it gets, and that it has such a strong position in terms of direct and network effects, it can't help getting stronger.  Switching to alternative sources is unattractive for advertisers since it is slow and can be costly.   Currently Google holds more than 33% of the data collected online. Next in line, Facebook, holds only around one fifth of that.

Does Google's dominance equal abuse? Google says "no", and this is effectively an essential facilities matter -- while Google never refuses to deal with anyone.  Really, said Thomas, it's a matter of monopoly leveraging, using a monopoly in one market in order to eliminate competition in another, an American invention.  Google has offered various Commitment Proposals, none of which have been warmly welcomed by the Commission, not least because they are so favourable to Google.

"EU vs. Google: Does the Commission have a case against Google?" was the subject of the paper by Professor Dr Torsten Körber (Chair of Civil Law, Antitrust Law, Insurance Law, Corporate Law and Regulation Law, University of Göttingen). Torsten, who has represented Google in competition-related issues, considered that the Commission's case against Google -- which was only brought regarding Google Shopping (formerly Froogle) was not a strong one. He explained how Froogle worked and showed how its organic-based service was replaced by a pay-for-inclusion sponsored results service more closely resembling that of Google AdWords.

Torsten then considered whether and, if so to what extent, there exists a general market for searches and what role is played by vertical shopping platforms and competitors such as Amazon and eBay, which do not merely advertise but also offer products for sale: are these part of the same market, he asked.  And what of sites such as Idealo (a German-language search platform).

A further consideration is how the size of the market is measured? Is it only by volume of search? This would be strange since the facility to do a search is not sold or paid for.  And what about multi-platform searches: how would they be treated? In a dynamic market with low or no switching costs, even a market share of over 90% can be regarded as non-dominant, as the European Commission concluded in its Microsoft investigation.  Google cannot stop innovating: if it did, it would instantly lose market share.

Google's services: an umbrella
for all search, but not needed
by competitors?
Does Google discriminate against consumers? This question cannot be answered without first looking at the concept of discrimination.  In the first place, the BGH has held that even a dominant company is not required to treat its competitors the same way as it treats its own services, and the CJEU does not appear to have contradicted it: equal treatment is a matter of regulatory law, not competition law except in the case of access to an essential facility.  Google is not an essential facility, since the relevant platform is not Google but the internet itself.  Google Product Search and Google Shopping are in any event entirely different services which cannot be compared. The latter is not part of the organic search market and is equated in commercial terms with Google AdWords, there is no question of artificial diversion of searches from other sites.  Basically Google is being accused of not sharing its business with its less successful competitors. Its competitors -- who can pay to be listed in Google searches -- are complaining that they are not being allowed to free-ride on Google and travel first class.

If the Commission were right, what would be the right solution?
  • Showing 300+ shopping boxes on the search page?
  • Presenting results of competitors in the Google Shopping box?
  • Presenting only "the most relevant service"?
  • Removing Google Shopping from all European web pages?

Each of these had its drawbacks, as Torsten explained.

The final speaker before coffee was JIPLP editorial board member Dr Christopher Stothers (Arnold & Porter (UK) LLP), on the title "Digital markets: The role of private enforcement of competition law , London". Opening with a screen shot of a Claim Form, Chris asked if anyone had ever seen a UK Claim Form before: it includes the line "Does, or will, your claim include any issues under the Human Rights Act?"  If it does, this suggests that you are clutching at straws and have a very weak case -- but it's also stated under the Practice Direction that the court must be notified of any competition law issues and whether the Commission is already contemplating the claim, in case it should be necessary to stay the national proceedings pending the outcome of the Commission's investigation.

UK, German and Dutch courts deal with the bulk of competition law litigation, in competition with one another. The British courts are happy to have a UK company at the heart of the case, so that they can bring non-UK businesses into the equation too. The rules on disclosure and the availability of injunctive relief made UK competition litigation attractive, particularly from the point of view of the claimant.  In an appropriate case, damages can be huge, and UK proceedings are reasonably transparent, subject to the necessary respect for confidentiality.

What happens in private competition litigation?  One case, started in 2012, is Indeferation (Foundem) v Google. Following a 2013 case management conference, Mr Justice Roth directed a limited degree of disclosure, basically tying to documents relating to the Commission investigation. No interim injunctive relief was sought.  Following a hearing and two further case management conferences, a hearing has been scheduled for July 2016.

Streetmap v Google raised some elements that fell outside of the Commission's investigation (ranking, bundling and map pricing). It goes to trial next week on bundling only.  I Plus V v Google, a French action launched in 2012, has been stayed pending the Commission's ruling.

Anything but tired: the doctrine of exhaustion in Canada

Here's the Guest Editorial for the November 2015 issue of JIPLP, by editorial board member and Canadian academic Emir Crowne (Associate Professor, with Tenure, University of Windsor, Faculty of Law):
Anything but tired: the doctrine of exhaustion in Canada

With the recent US Supreme Court decisions in Kirtsaeng v John Wiley & Sons, 133 S. Ct. 1351 and Bowman v Monsanto, 569 U. S. ____ (2013) the doctrine of exhaustion has once again been revitalized. In its most basic formulation the doctrine stands for the proposition that the enforceability of the intellectual property rights embodied in a tangible object are extinguished, or ‘exhausted’, after its first sale. The rule, common law in origin, allows for the downstream re-sale of patented articles, trade mark adorned clothing, and textbooks without infringement. This brief editorial examines the common law and statutory footing of the doctrine in Canada (1), and encourages courts to ‘supplement’ their decisions and give the doctrine ‘wings’, as it were.

In Canada, the Copyright Act (2 contains the only statutory footing for the doctrine. Even then it is quite limited. Section 3 of that Act sets out the exclusive rights of copyright holders and provides the following, inter alia:
“3. (1) For the purposes of this Act, “copyright”, in relation to a work, means the sole right to produce or reproduce the work or any substantial part thereof in any material form whatever, to perform the work or any substantial part thereof in public or, if the work is unpublished, to publish the work or any substantial part thereof, and includes the sole right …

(j) in the case of a work that is in the form of a tangible object, to sell or otherwise transfer ownership of the tangible object, as long as that ownership has never previously been transferred in or outside Canada with the authorization of the copyright owner, and to authorize any such acts.”
There are no express provisions in either the Patent Act (3) or the Trade-marks Act (4) that cover the doctrine, even in a limited sense. Even when one turns to the jurisprudence, although the doctrine is recognized, no decision specifically refers to the “exhaustion” of the intellectual property right in question.

Consider the indirect discussion of patent exhaustion by the Supreme Court of Canada (5) in Eli Lilly and Co. v Apotex.(6) Justice Iacobucci, writing for a unanimous court, stated:
“unless otherwise stipulated in the licence, a licensee is generally entitled to pass to a purchaser the right to use or resell the patented article without fear of infringing the patent.(7)
Likewise, in Consumers Distributing Co. v Seiko (8) the Supreme Court of Canada dealt with the parallel importation of watches. In allowing the appeal, the court affirmed that lawfully acquired goods may be re-sold without any recourse under the Trade-marks Act:
“the distribution of a trade marked product lawfully acquired is not, by itself, prohibited under the Trade Marks Act of Canada, or indeed at common law.”(9)
Yet again there was no explicit recognition that Seiko's rights had been exhausted.(10)

Even in the copyright context the Supreme Court of Canada has invoked the doctrine without giving it due regard. In Théberge v Galerie d'Art du Petit Champlain inc. (11) the court dealt with an art gallery making canvas copies of an artist's work from lawfully obtained cards, photolithographs and posters. A majority of the court cautioned against this “expansion” of the artist's economic rights, emphasizing the need to balance the economic interests of the copyright holder and the public.(12) The majority spent considerable attention on the process (13) not amounting to a “reproduction”. For instance, the Chief Justice (writing for the majority) asked the following:
“Did “reproduction” occur when the paper backing was peeled away? If the resulting film of inks had then been framed and suspended in front of a window like a piece of Tiffany glass, I would think the respondent could not complain. A purchaser has the right to cut up a poster into strips or divide it as he or she wishes. Division cannot logically be characterized as reproduction.” (14)
Building on her earlier remarks that
“The proper balance among these and other public policy objectives lies not only in recognizing the creator's rights but in giving due weight to their limited nature. In crassly economic terms it would be as inefficient to over compensate artists and authors for the right of reproduction as it would be self-defeating to undercompensate them. Once an authorized copy of a work is sold to a member of the public, it is generally for the purchaser, not the author, to determine what happens to it.

Excessive control by holders of copyrights and other forms of intellectual property may unduly limit the ability of the public domain to incorporate and embellish creative innovation in the long-term interests of society as a whole, or create practical obstacles to proper utilization …” (15)
Yet at no point in this narrative was the doctrine of exhaustion explicitly examined.(16)

Arguably it is this lack of clear judicial recognition that has stunted the development of the doctrine in Canada. It is time for Canadian Courts to explicitly apply the doctrine as it is a powerful instrument of trade and competition. It promotes the “balance” that is very much in vogue in the academic literature and the higher courts. The doctrine may be one of exhaustion, but its usage is far from cliché in Canada.

1 See generally, de Beer, J. and Tomkowicz R., “Exhaustion in Canadian Intellectual Property Law”, (2009) 25 Canadian Intellectual Property Review 3; and Macklin, A. and Leger, J., “International Exhaustion of Industrial (Intellectual) Property Rights”, Report Q 156, AIPPI (available at: https://www.aippi.org/download/commitees/156/GR156canada.pdf).

2 R.S.C., 1985, c. C-42.

3 RSC 1985, c P-4.

4 RSC 1985, c T-13.

5 In Signalisation de Montreal Inc. v Services de Béton Uni­versels Ltée, [1992] F.C.J. No. 1151 the Federal Court of Appeal rationalized the doctrine by reference to an implied licence: “It is settled law that the purchaser of a patented article from a patentee acquires, at the same time, the right to use the article and the right to sell it, together with the same “right of use,” to another person. As long ago as 1871, this right was described as a “licence”…” (citing Betts v Willmott, (1871) L.R. 6 Ch. 239 at 245, per Lord Hatherley, L.C.).

6 [1998] 2 S.C.R. 129 [“Eli Lilly”].

7 Eli Lilly para 69 (emphasis added). The Supreme Court of Canada decision in Monsanto Canada Inc. v Schmeiser [2004] 1 S.C.R. 902 (concerning the cultivation of herbicide resistant canola containing patented genes and cells) is said to be a rejection of patent exhaustion (see de Beer, J. and Tomkowicz R, n 2 supra at 14). However, the underlined portion in Eli Lilly is instructive. Since Monsanto licensed its herbicide resistant seeds, it can hardly be said that its rights were either exhausted or fell foul of the dictum in Eli Lilly.

8 [1984] 1 S.C.R. 583.

9 Consumers Distributing Co. v Seiko Time Canada Ltd [1984] 1 S.C.R. 583. The court likened the situation to that of reselling a car: “The better analogy here would be to the buyer of a Chevrolet from an authorized dealer or source, who then sells the car without any status of dealership from the manufacturer. Assuming title to the car was lawfully acquired and that no misrepresentation of the condition of the vehicle and the right of warranty was made, would a duly authorized dealer of the manufacturer, or the manufacturer itself, or anyone else, have recourse to injunction to prevent such a sale of the Chevrolet? Clearly not, and the answer is the same whether the car be new or used.” (citing Morris Motors, Ltd v Lilley, [1959] 3 All E.R. 737).

10 Passing mention is also made in Coca-Cola Ltd. v Pardhan (c.o.b. as Universal Exporters), [1999] F.C.J. No. 484 (FCA) upholding an application to strike the appellant's statement of claim.

11 [2002] 2 S.C.R. 336 [“Théberge”].

12 Ibid. at paras 30–33.

13 “The appellants purchased on the open market a quantity of posters of the respondent's artistic works. They subjected these posters to a technique which involved spreading a special resin or laminating liquid across the face of a poster. The resin is designed to bond with the surface inks. After the applied coating is dried (or cured), the coated poster is submerged in a bath of solvent which loosens the paper substrate but leaves intact the fixed ink/resin layer, thus allowing the latter to be peeled off the former. The rear of the ink/resin layer is then coated with a suitable adhesive resin and transferred to a canvas substrate, which is then smoothed and finished.” (Théberge at para 35).

14 Ibid. at para. 37.

15 Ibid. at paras. 31 and 32.

16 For a similar omission see Euro-Excellence Inc. v Kraft Canada Inc. [2007] 3 S.C.R. 20 (concerning the parallel importation of chocolate bars). Here a majority of the court accepted that the copyright in the chocolate bars' labels and logos can be infringed through parallel imports. Justice Fish, in a separate concurring judgment, almost invites a discussion of the doctrine: “Without so deciding, I express grave doubt whether the law governing the protection of intellectual property rights in Canada can be transformed in this way into an instrument of trade control not contemplated by the Copyright Act.” (ibid., para. 56). Arguably, this is the closest the court gets in terms of doctrine per se.

November JIPLP now out

The November 2015 issue of JIPLP is now available in full online.  Its contents are reproduced below (the most recent issue's contents are always available on http://jiplp.oxfordjournals.org/content/current). You don't have to be a fully-committed subscriber to enjoy these items: you can visit the JIPLP website and purchase limited-time access to the content of your choice.

Emir Crowne's Editorial will be posted in full on this weblog later today.


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