Alexey Ivanov: Digital monopolies dress up in sheep's clothing


The threat of increasing monopolisation in the digital sphere, due to the transition of business and everyday activities from physical to the cyberspace, has become one of the main topics of the session of the SPBILF - "9½: the Rules of Corona".

Within the framework of the online St. Petersburg International Legal Forum participants 'attended' "Antitrust regulation in a pandemic" session. In a COVID-19 pandemic, antitrust authorities must respond immediately to changes in medical products. At the same time, pandemic puts restrictions on their work and poses new, unusual challenges. The participants in the session talked about how the antitrust regulation procedures have changed due to the coronavirus outbreak and what else needs to be done.

The session was moderated by Sergey Puzyrevsky, deputy head of the Federal Antimonopoly Service. He noted that in different sectors, the economic situation is developing antithetically: while in some areas, there has been a recession, in others, such as medicine and food products there is an excessive demand. Puzyrevsky emphasised that it is essential to reduce the burden on business in a period of a crisis. Due to the current situation, a ban on conducting scheduled inspections has already been introduced, and unscheduled ones have been reduced, where possible. The unscheduled inspections are carried out mainly if the issue is related to the availability of medical products and food. FAS is now considering some cases remotely, while other cases are being rescheduled for the later dates. The pandemic is recognised as force majeure in the field of public procurement, and FAS takes this into account, said Puzyrevsky. FAS has introduced three-month instalments for the issued fines, in order to reduce the burden on entrepreneurs.

There are areas in which demand significantly exceeds supply, as, for example, in relation to medical masks, and in this situation, standard market mechanisms for regulating prices are not enough. Government intervention is required. The deputy head of FAS emphasised that a 'jump' in prices in areas where there is increased demand with a sufficient volume of goods is a violation of antitrust standards. Puzyrevsky noted that the service responds promptly to those violations, despite the fact that many employees work remotely. FAS pays special attention to the activities of natural monopolies.

Puzyrevsky also stressed that sanitary restrictions placed on citizens in order to limit the spread of coronavirus should not restrict the movement of goods, which would cause a shortage. This would also be considered to be an antitrust violation.

Furthermore, nowadays, commerce is increasingly moving to the Internet, which means that the number of possible violations there will increase. The fifth antitrust package, which introduces restrictions on digital platforms that have significant market power is especially crucial in this situation. Now, when almost all day-to-day activities and tasks are transferred from the physical realm into an online one, digital companies are rapidly accumulating the resources and are becoming significant players in all markets and covering larger territories day-by-day. If earlier, we talked about the role of natural monopolies, now during a pandemic, a new type of natural monopoly is emerging, which is replacing the old - digital platforms. Their role in the modern economy, which has rapidly overcome the last digital mile of digital transformation during the pandemic, is becoming vital, and such an increase in the online component requires an entirely different methodological approach from regulators. If we miss the moment when the digital giants become so powerful that we can no longer move them from the leading positions, then we will lose as a society and as a civilisation. We will be forced to live in a digital gosplan, and this is a favourable situation for monopolists, who will be able to increase their income, but consumers will lose.

The director of the HSE-Skolkovo Institute for Law and Development and the BRICS Competition Law and Policy Research Centre Alexey Ivanov said that it's necessary now to think one step further and anticipate the consequences that will occur after the end of the pandemic. In particular, he underlined the growing importance of digital companies. "A new type of natural monopoly is digital platforms," he said. In a new type of economy, they are becoming necessary. And if earlier digital platforms claimed that they were not monopolists, referring to offline markets, now these alternatives are rapidly disappearing. Ivanov emphasised that it is essential not to miss the moment when Internet platforms grow so much that it will be impossible to stop them.

He continued by stating that: - "Competition is a value and ethical principle". It cannot be abandoned by solving the tactical tasks that the pandemic poses before us. We cannot "throw out with water" these most important principles of a democratic economic system - Alexey Ivanov emphasised.

Today, digital monopolies dress up in sheep's clothing, supposedly coming to the aid of consumers during the COVID-19 outbreak, while in reality pursuing their own interests. There are many examples of such behaviour - lower prices for goods, charitable promotions that open paid services, that attract more consumers- and people begin to use services provided by those "sheeps" more actively. From the point of view of antitrust law, there is the so-called "predatory pricing concept", it is used by companies to "clear" the market, crowd out other participants and consolidate their dominant position. Today, antitrust authorities should think about tomorrow and apply measures in relation to such practices, realising that this is often done not out of good intentions, but proceeding from the practical tasks of strengthening one's own power.

The fifth antimonopoly package that is being discussed now contains precisely such anti-crisis measures to limit the power of the "digital giants", including the removal of antitrust immunities for the IT industry.

The speaker noted that the pharmaceutical industry was not well prepared for a pandemic. It is essential to understand why this happened and how to avoid this in the event of new medical challenges. Large pharmaceutical companies are making less and less effort to prevent the spread of new infections - perhaps this should be the area of interest for the antitrust authorities, Ivanov said. Large companies often buy solutions that could solve the problems that the world is facing now and hinder their development. Such practices should be blocked by antitrust authorities, including at the BRICS level, the lawyer emphasised.
'BigPharma' today is driven by simple commercial interests, the commercialisation of current developments plays too significant a role, and it is practically not invested in strategic decisions. Moreover, innovation enterprises are being absorbed by the 'BigPharma' in order to eliminate competitors with their breakthrough solutions - the practice of the so-called 'killer acquisitions', and it is the responsibility of the antitrust authorities. It is possible that significant projects to combat viral infections could enter the market if they were not absorbed and put on the shelf at the start-up stage in order to eliminate a possible competitive threat to existing pharmaceutical products.

Here is an example from recent American history. After the SARS and MERS epidemics, the US government in 2016 decided to develop cheaper and more efficient forms of mechanical ventilation devices. Such a device was under development at the Newport start-up, which found it possible to reduce the price from $ 10,000 to $ 3,000. A little later, the start-up was bought by the monopolist, a huge medical company Covidien, and very soon the start-up was forced to freeze work on a cheap ventilator, not having time to get certified, and later completely disappeared from the market. We see that the "big pharma" in its business practice is devoid of incentives to combat epidemics.

Large companies are focused on long-term income, and the existing IP management system encourages them to commercialise old developments, aggressively blocking the entry of new solutions into the market. If the antitrust authorities do not prevent such practices of evergreen patenting, abuse of intellectual property rights and buying up start-ups, then we will not be ready for the next pandemic.

Ioannis Lianos, president of the Greece Competition Commission, called the pandemic situation unique: now there is a shock in both the supply and demand sectors. The first reaction to rising prices, as a rule, is a request for their state regulation. Ioannis Lianos noted that this could lead to disastrous consequences if the set price is below the fair level. Therefore, the antitrust services of Greece consider the collection of information as the most crucial aspect of its work. For this, the Greece Competition Commission had to take innovative steps, including a survey of more than 4,000 companies, the results of which experts are analysing now. The commission specially formed the "COVID-19 team", which interacts with business and other countries specifically on the problem of coronavirus.

Ioannis Lianos reinforced - "Those decisions that we already have are applicable to the normal economic situation, but it is impossible to imagine how they will act in such crisis conditions". He cited an example of the "overflow" of deficiency from antiseptics to the alcohol market, with which the population tried to replace them. It is important to change approaches to market analysis, to not only rely on familiar models that are created for a stable economy, he noted.
Lianos agreed that digital platforms gain additional influence during the period of self-isolation, and it is imperative to ensure that their activities do not become monopolistic.

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