How Germany became the biggest Big Tech trust-buster in Europe

Patrick Andrae is an entrepreneur, thus he demands speedy results. Thus, the co-founder and CEO of Berlin-based vacation rental company HomeToGo is dissatisfied with how long it takes for antitrust regulations to open up markets and encourage competition in Europe.

Google search traffic is a major source of revenue for HomeToGo. The business and others in the industry have been actively disputing the search group since 2019 over allegations that it unjustly promoted its own services at the expense of competitors. Google says it provides consumers with the most pertinent results and has denied any wrongdoing.

But Andrae is losing patience as initiatives by Brussels to loosen Big Tech's hold on the industry take a while to materialize. In a recent interview at his workplace in a hip area in Berlin's northeast, he claims that "Europe has been naive." "The US and China are protecting their markets. You have American companies coming to Europe and because of their [powerful] position they rule everything."

He continues, "Europe needs to understand that it needs to protect our tech industry and let it grow up and think about the value that’s created here."

Despite his misgivings, Andrae has high hopes for a recent German law that is setting the bar for how Europe will eventually limit the influence of powerful internet giants.

German regulators contend that Section 19a of the German Competition Act is years ahead of the EU's landmark antitrust law, the Digital Markets Act, and has the potential to catch even more illegal activity because it is less specific about what behavior is considered to be anti-competitive.

Berlin is leading the charge in Europe's efforts to rein in the influence of big tech, where the US and EU have so far fallen short or are still lagging behind, according to the Section 19a law, which took effect in January 2021.

The law grants antitrust regulators in Germany the same authority as the DMA to pursue so-called gatekeepers like Meta, Google, and Amazon, including the right to levy sanctions like forced divestments against businesses and the potential to split them up.

Berlin has identified the gatekeepers and is aggressively chasing them, but EU regulators are still ironing out the specifics of how the DMA, which was passed into law in November, would be implemented.

The prescriptive regulations in Brussels mention a number of particular behaviors that are prohibited, including a prohibition on platforms favoring their own services over competitors. All of this is accomplished by Section 19a, but it also forbids behavior in markets where platforms are not yet dominant and provides room for future anti-competitive behavior that has not yet been recognized.

The regulator may enjoin businesses from favoring their own services over competitors', denying competitors access to data, and barring users from using their own data with competing services if the companies are determined to be of "paramount significance for competition across markets."

The largest internet corporations in the world have been the target of high-profile probes by Germany's antitrust police since Section 19a went into effect.

Even as it continues, the Federal Cartel Office's inquiry into whether Facebook gives users of its social network platforms an unfair edge on its VR glasses has benefited consumers. Users are able to use the headsets without having a Facebook or Instagram account thanks to the German watchdog.

It has initiated two separate investigations into Amazon's marketplace activities out of concern that the system is disadvantageous to third-party sellers and is also looking into Google Maps for possible anti-competitive limitations that harm rivals. The German authority was planning to file further complaints against Google's handling of personal data on Wednesday.

Andreas Mundt, director of the Federal Cartel Office, claims that instead of issuing significant fines, the focus is primarily on reforming how a corporation does business. He asserts, "I don’t think that fines change behaviour. If you want to see a change of conduct, then you need to change the behaviour and make it competitive ."

Longtime opponents of antitrust enforcement contend that penalties are simply a necessary cost of doing business for big tech firms and that market opening measures frequently arrive too late and accomplish too little to promote competition.

For instance, antitrust investigators in Brussels have been battling Google in the courts for more than ten years over three separate cases that resulted in fines totaling about €8 billion, but both parties are still engaged in appeals battles in Luxembourg and the company has yet to make a single payment. According to Google, these reforms have improved competition and benefited customers.

The DMA is less qualified than Section 19a to handle such businesses. "[The German law] is more open. It is not only backward looking but also forward looking, because if we have new tactics by the companies we will be able to catch them also," explains Mundt.

While Brussels works to establish antitrust regulations for the entire bloc, Germany is one of several EU member states that is hardening the claws of national regulators. Big Tech organizations are being targeted by antitrust watchdogs in France and Italy as well, prompting industry insiders to warn of a cascading effect that would make Europe less friendly to start-ups.

According to Alexandre de Streel, a legal professor at the University of Namur who has advised CERRE, a Brussels-based think tank partially backed by major technology companies, "if we have divergence of law in Europe that will... make the scale up of small tech in the continent more difficult."

According to Mundt, the goal of the law in Germany is to "foster innovation" in digital markets rather than to impede business ventures. "I don’t want to leave it to huge companies to decide the rules on which basis you as a competitor enter the market. That’s not the task of [Big Tech]. That should be the reality for Germany, Europe and other countries."

Pressure on gatekeepers

Big Tech is retaliating against the German legislation. Because it already competes with "many established, successful German and international companies," Amazon, for instance, is contesting the ruling that it is a platform of "paramount significance."

"We disagree with the Federal Cartel Office’s interpretation of this complex new legislation and have filed an appeal. The retail market that Amazon operates in is very large and extraordinarily competitive, online and offline," a representative for Amazon stated.

Google and Meta have not challenged the characterization of their platforms as powerful. Although it disagreed with the FCO's "reasoning" for the decision, Facebook's parent business said in a statement that it will still "work constructively" with the regulator to abide by all laws and regulations.

Customers "expect that we operate a responsible business, and that we are regulated," according to Google. We are certain that we abide by the laws. Additionally, it promised to keep collaborating with the regulator "to the extent that changes are necessary."

Even while Berlin is in the lead in Europe's fight to contain tech behemoths, Brussels will nonetheless continue to play a significant and perhaps even more significant role.

The DMA will significantly affect how these businesses have been making multibillion-dollar profits. Google and Facebook will have to make their messaging systems able to communicate with each other, and Apple will be required to accept competing app shops into its operating system.

The law, according to Margrethe Vestager, the executive vice-president of the EU in charge of digital affairs, will undergo a fundamental transformation. When the DMA went into effect, she stated that "the EU is taking a proactive approach to ensuring fair, transparent, and contestable digital markets. Gatekeepers enjoying an entrenched position in digital markets will have to show that they are competing fairly." 

Andreas Schwab, a German MEP who oversaw the rules' discussion in the European Parliament, concurs that the bill has enormous potential. He claims that the law gives Brussels the authority to take prompt action on behalf of all member states.

"Consumers will be much better protected because if there is wrongdoing, the European Commission will fix what is happening to a company in Latvia or a consumer in Croatia. The effect will be much stronger than a member state calling Silicon Valley to ask for a change," he claims.

However, the slow rate at which the DMA is taking effect raises the possibility of leaving Brussels behind. The EU will not publicly identify which businesses are covered by its IT regulations until later this year, many months after the German regulations were first made law.

Meanwhile, in the struggle to control Big Tech, the UK and the US are falling further behind. Plans to empower a new technology regulator were postponed by UK ministers in May of last year, which was a setback in the fight against the stifling of competition by big internet platforms. Bills intended to limit the influence of major tech platforms in the US are still bogged down in political wrangling in Congress.

Berlin may be moving even more quickly, according to some. Professor of law at the Technical University of Wildau and partner at the legal firm Hausfeld, Thomas Höppner contends that Section 19a has not yet had a substantial impact. "Germany was right in seeking to ensure open markets, but so far they haven’t delivered."

He is still skeptical about whether antitrust enforcers will force Big Tech to make the changes necessary for rivals to prosper. "We will have to see whether on the basis of behavioural obligations we can tame the gatekeepers and neutralise their competitive weapons. If these don’t do the job, the next step would be to break them up," he argues.

In response to this critique, Mundt asserts that it will take time for the courts to produce results. "This is still competition law."

Regulators' assembly

The fact that other EU member states are joining the antitrust action besides Germany raises the possibility of a developing regulatory "arms race" among them.

Although it is "too late" to reverse the dominating positions of current platforms, member states are better positioned to stop anti-competitive behavior in other industries, according to Benoît Coeuré, the president of the French Competition Authority.

According to him, individual nations like France have the ability to act quickly and decisively when corporations gain power. "If you want to do something which is more specific to new practices then you need to use competition law in a flexible way, either at a national or European level."

The auto and health industries, according to him, were the places where regulators could still act to restrain the emergence of dominating positions, and these were the places where "the new turf wars are going to be. There is no dominant player emerging yet" but authorities may utilize "the law to stop them becoming too big."

Undoubtedly, some national authorities in Europe will modify their calculations once Brussels starts bringing cases under the DMA.

Martijn Snoep, the chairman of the Dutch competition authority, suggested last year that it might not be worthwhile for them to go after internet companies already caught up in the EU's dragnet. He remarked, "I am not sure how many investigations we will actually launch and I’m not sure it will be an efficient allocation of resources."

The EU rule, he claimed, "will incentivise the national competition authorities to focus on the non-DMA matters — or against companies not considered gatekeepers under the DMA but who have a dominant position."

Interest groups claim that the national regulators run the risk of entangling the sector in bureaucracy. According to de Streel of CERRE, "It’s clear that the DMA will be the minimum that all countries will apply. Every individual member state will top that up with other obligations [and] impose their own antitrust laws."

"The question is whether that will hurt the internal market and will stifle innovation. If it’s not organised well it may lead to a disintegration of the internal market and therefore also a difficulty to scale up."

However, many business owners assert that additional rules are welcome as long as they level the playing field. Andrae of HomeToGo is concerned that the goals of Berlin and others will not be realized.

According to him, regulators must have the necessary tools to make a significant impact. Since the law's passage, Germany's competition watchdog has opened numerous new investigations, but neither its workforce nor its funding have significantly increased.

He asserts that "If you don’t [give regulators the resources], the regulation will never be as effective as it is on paper. They cannot go on all the cases at the same time."

By fLEXI tEAM