The status of the European copyright reform and the impact on publishers

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UPDATE 5 February 2019: Germans and French delegations found a kind of agreement reported in a new compromises proposal by the Romanian presidency, whereby the exemption in favor of SMEs is eliminated while a soft-regime is granted to micro-entreprises (with a turnover less of 10 million Euro).  The latest draft of art. 13 is quite messy and will make very difficult life for videosharing platforms, unless they install overblocking filters. Censorship seems to be the most convenient and practical solution for operators wishing to avoid legal issues with rightsholders.

The European copyright reform is currently delayed because of disagreements amongst Member States about some crucial aspects of the new legislative text. The Rumanian presidency failed in proposing an acceptable compromise and its mandate request, which would have permitted to the Council to rapidly close the negotiations with Parliament and Commission, was rejected on January 18, 2019.

The apparent stallo between France and Germany

Apparently, the main stallo situation is about a potential exemption clause in art. 13 (the upload filters provision) for small enterprises: Germany defends the exemption, while France opposes. This is why Germany and France are reported to talk together and bilaterally, in order to find an agreement and speed up the end of the legislative process. The timing is crucial: the stakeholders supporting the reform (commercial broadcasters as well as traditional media and publishers) fear that the new European Parliament (to be elected in May 2019) may be less favourable to their interests, therefore they hope that everything should be finalised within the current legislature. To be fully sure to complete the legislative process without interferences, the plenary session of the European Parliament should approve the copyright reform by March 14, 2019.

The disagreement about the “small enterprise exemption for upload filters” seems to be a minimal question with respect to the ambit of application of the entire copyright reform. Therefore, it is more reasonable to believe that France and Germany are negotiating, with the support of the Commission, in order to define all pending details and getting a final agreement. The rumours about the matter to be escalating to Macron and Merkel are likely instrumental to this effect: to submit to the others a plan which is final and  not negotiable any longer. This byzanthine behaviour may be disliked by other Member States, however this is the way things often happen in Brussels. The weight of a joint French-German position may be so relevant to overcome whatever blocking minority in the Council.

What the impact for publishers?

If the above is true, and provided that legislators act rapidly, the copyright reforms may be approved before the “Copyright Barbarians” will conquest the next parliament. What could be the possible impact for the publishing industry?

Despite official declarations, most stakeholders (including publishers) are skeptical about the concrete outcome of this reform, whether or not it could provide a (at least monetary) solution for the crises of traditional media. At the current situation, it seems more a matter of principle and a “contentino”, namely a cake for a kind.

In this respect, on should consider whether the ancillary right provided by art. 11 of the new Directive could be waived by publishers (as it happened in Germany with the 2013 local legislation) or not (as it happened, instead, in 2014 in Spain). The European proposal has been always ambiguous to this point, although the current Council’s text seems to favour the German solution: “Nothing in this Directive should be interpreted as preventing holders of exclusive rights under Union copyright law from authorising the use of their works or other subject-matter for free, including through free licences, when they consider it appropriate” (recital 43b). To undermine this result, the Parliament proposed a different wording: “the listing in a search engine should not be considered as fair and proportionate remuneration”.

The German scenario (i.e.: publishers may waive the ancillary copyright)

In case of a “German scenario” publishers may waive the compensation from Google as well as other news aggregators (and, in general, from whoever should pay the fee because displaying an article or a simple snippet, entirely or via a hyperlink). It is well-known that small and innovative online publishers are against this reform and therefore will be more than happy to make the waive. But what would happen with the big publishers which have been supporting this reform? When the German copyright law was enacted, most publishers accepted the waive with Google but then some big of them filed a recourse with the antitrust authority for abuse of dominant position. Would this happen also with the European legislation and with which chances? Google is super-dominant in many markets, but not as Google News in the market of news aggregations, since this market is evolving and other platforms and communicating tools, including Facebook and Whatsapp, play an important role. To better attack Google and find it dominant (and potentially abusive), one should address the entire online advertising market (where also Facebook operates, however). This move, however, would weaken the competition case for the ancillary copyright, which is much more specific than online advertising. A competition assessments is always based on valid economics, not on lobbying declarations, and therefore there might be the risk that a competition authority states that a non-dominant Google News has a legitimate interests in offering the news aggregation service for free because it gains from it much less than what the publishers do. This is confirmed by a consistent perception that publishers need news aggregation and digital sharing irrespective from a potential remuneration via an ancillary copyright.

The Spanish scenario (i.e.: publishers cannot waive)

In case of Spanish scenario, publishers would not be entitled to waive their rights vis-à-vis Google and whoever. This is a complex scenario because a mandatory licensing system would be complicated to set-up and, in any case, the big fishes, Google in primis, still would have the choice between the nuclear option (closing the business limited to news aggregation) or grant the minimum. Fact is, it is doubtful whether the economics of the online news market may compensate publishers for what they have lost during the years. As mentioned by Quintarelli, the margin of Facebook in Europe per user is 1,3 Euro/month (with ARPU at 2,4 Euro), while for Twitter is only 10 Eurocent/month/. Margins may be higher for Google but, as mentioned above, the case is about Google News, not the entire’s Google business. In other words, there is no decent pie to share amongst the hundreds European traditional publishers.

The Spanish scenario may be further complicated by third parties setting the fee on the basis of various criteria, with subsequent appeals by opposing operators. The practical enforcement of the compensation will be delegated to the national authorities and the directive does not say very much about. The legal uncertainty resulting from that may likely undermine any potential gains.

The impact for small publishers and users

The above uncertain scenarios will be mostly problematic for small and innovative online publishers providing quality and local content. For them the Spanish scenario would be chaotic since they would not be able to set up decent licensing system with the entire market because they do not have sufficient resources to do it. Such operators will certainly be in favour of the German scenario (i.e.: the ancillary copyright may be waived). By contrast, poor informative or low-quality publishers may be interested with the Spanish system because their business is based on sharing whatever content and rapidly, from fake news to kittens.

The uncertainty will be detrimental for the Internet in general, in particular because the foreseen complex regulation of hyperlinks and snippets, with various conditions, carve-out and exemptions attached. To make an example, the text agreed sofar by the Council (recital 34) states that: “The rights granted to the publishers of press publications should not ….. extend to the mere facts reported in the press publications”. The need to rule this clear, self-evident principle, which is fundamental for the freedom of speech, is an explanatory evidence of potential disturbing consequences deriving from the regulation of hyperlinks and attached statements (the so-called snippets).

The hyperlinks 

The current drafts of  art. 11 (the so-called link-tax) keep uncertain the status for the hyperlinks. Article 11 (press publishers’ rights). The text of the Romanian Presidency insists with the quantitative criterion to exclude snippets, while other delegation would prefer a qualitative criterion. The application of a quantitative criterio may look like simpler in theory, however it will end up with arbitrary results: an hyperlink will be subject to a fee depending of the number of words attached to it. In addition, there is no clear carve-out for individual users (bloggers and so on) and micro-enterprises. An appropriate exemption is foreseen by the Parliament:

“the rights ……. shall not prevent legitimate private and non-commercial use of press publications by individual users”

however its practical implementation is doubtful due to uncertain border between personal commercial use in the Internet, because of adverttising, terms and conditions of blog services as well as professional interests mixed with private uses.

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What next? Germans and French should soon let us know what they have decided under the support of the Commission. We understand that next COREPER I meeting is scheduled on February 8, while the Trilogue could take place on February 11. The last plenary session of the Parliament is scheduled in April 2019 but, for technical reasons, it would be advisable for the copyright legislator to close the file in March 2019.

 

 

The increasing uncertainty about mobile consolidation in Europe

 

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Mobile consolidation within domestic markets has always been in the European telcos’ wish list. However, in the last 5 years this ambition hardly clashed with the European Commission’s approach, in the persons of Margareth Vestager, heading the Competition directorate (“DG COMP”) of the Commission, who treated the subject with severity during her mandate. Vestager opened the doors to panEuropean mobile mergers, but showed to be very strict towards domestic mergers (unlike her predecessors Almunia, who cleared 3 domestic mergers, such as in Germany, Austria and Ireland). To achieve this scope, Vestager made national mobile mergers (unlike transnational) subject to a remedy of divestment of spectrum and other mobile resources, in favor of a new entrant mobile operator, so as to maintain at least 4 network operators in the national market and avoid the reduction to only 3. This “rule” was consistently applied in important merger operations in Denmark, the United Kingdom and Italy, despite mobile operators claiming (in vain) that consolidation was necessary to support investments, especially for 5G.  DG COMP offices never bought this argument, and they may have some reason, considering the high sums paid by mobile operators in 5G auctions, irrespective of consolidation.  However, this approach of the Commission may also be criticized because it supports competition merely on pricing arguments, while the market needs to move towards more innovation and diversification.

But a few weeks ago, on 27 November 2018, the European Commission authorized, with some surprise, a domestic mobile merger happening in the Netherlands: it was about the purchase of the small Tele2 (5% of market share) by the third Dutch operator  T-Online (20% of market share), resulting in the reduction of mobile network operators in the Netherlands from 4 to 3. One wonders if this decision constitutes a precedent for starting a new approach in the merger policy of the European Commission, or whether it is an accident. At the moment this is not known, because European Commission’s officials are reported to exclude a revirement from the merger practice developed so far, while the Dutch case should be regarded as the result of exceptional circumstances. This approach, however, is misleading because the Commission did not provide any convincing arguments that the Dutch market conditions were so different from other cases dealt by the Vestager’s offices with much more severity. Therefore, this new case, rather than providing new guidelines for the future, only provokes uncertainties.

The merger between Tele2 and T-Online in the Netherlands led to the creation of a JV owning a consolidated market share of 25%, with the loss of the smallest and most competitive operator in the market (Tele2). One could believe that this scenario would strengthen competition, as the incumbents KPN and Vodafone / Ziggo would have now to face a stronger, consolidated third competitor (and no one else). However, the Commission’s competition practice developed so far (at least before this case) sounds different: the presence of a small group of operators (only 3) with similar market shares (between 25 and 35%) does not clearly help competition, while it may provoke the opposite effect, in particular the alignment of commercial practices – a normal behavior in small oligopolies. The traditional mantra of the Commission has normally been that competition is surely created by a Maverick operator, that is to say a small, hungry challenger who needs to be aggressive (with low prices but not only) to attract new customers and use efficiently its network (which otherwise would be empty). In the Dutch case the classic Maverick operator was Tele2, which with only 5% of the market had no chance but being very aggressive. However, thanks to the authorization of the Commission, Tele2 will now disappear, while it is not clear which incentive should bring the new JV to continue to be so aggressive, since with a consolidated market share of 25% it could find more convenient to align its pricing policy with the rest of the Dutch market. In previous cases, such as Italy and the UK, the Commission’s strict approach had led to the imposition of the entry of a Maverick operator, in these cases the French Iliad, which then actually entered Italy (but not in the UK). The entry of Iliad in Italy has caused a dramatic fall of domestic prices. One would correctly question why the entry of Iliad (or whatever low-cost operator) was imposed for Italy, and not for the Netherlands. 

The reason why the Maverick operator’s rule was disregarded by DG COMP in the Netherlands is unknown. The Dutch Tele2 was financially weak and poorly developed, it only had the 4G network and for the rest depended on national roaming agreements. It was a kind a super-MVNO, like Iliad in Italy. However, being small and week has never been an argument to decrease competition. By contrast, as previously said, Tele2 was the only operator in the Netherlands in real need to be aggressive to acquire new customers and market shares. Fact is, it was the only one to have offered an unlimited data plan. This type of competition will now disappear, although the new JV has offered to continue to maintain this aggressive offer: but it is unilateral commitment, not a remedy, which could be withdrawn any time.

No surprise that, at the news of the T-Online/Tele2 merger’s authorization, KPN’s shares jumped upwards, demonstrating that the disappearance of the Maverick operator in the Dutch market will weak competition and allow prices to rise.

If the European Commission had argued and explained that the time had come for a change of direction, that’s is to say: “welcome domestic mobile mergers”, then everyone would have understood. There are many reasons to support the idea that domestic mobile mergers make more sense than cross-borders ones. Fact is, the latest European regulatory developments suggest that the mobile market is and will remain marked by national borders: spectrum policy remains firmly in the hands of national authorities; the new European code strengthens the powers of national authorities to decide national cases on the basis of local specifications; wholesale caps roaming are well above retail domestic prices, thus preventing permanent roaming. In other words, European regulation has done very little to support a business case for pan-europeans mobile mergers, unlike domestic ones, therefore one should wonder why this scope should be boosted by a single leg of the European Commission (DG COMP), while the other legs are rowing against.

On the contrary, the DG COMP has made a striking exception to the merger practice implemented so far, but at the same time denying that something may have changed. In this way, the doubt remains that the Dutch case is a more political* rather than a market decision, and that there are no clear rules for the future. Belgian authorities are planning to open the market to a 4th mobile operators, while in other countries (France, Spain) there are reflections about consolidating down to 3. What lesson to be learned from this Dutch case? Boh.

*I would not be surprised to learn, one day, that this decision may have been taken at pure political level, with some senior officials dissenting or even opposing it. A similar situation likely happened during the Almunia’s term (2009-2014) when other 4 to 3 mobile mergers were authorized, despite the likely contrary opinion of the offices. However, there are no official evidence for that, since the eventual dissenting opinion of the offices cannot be reported in official minutes or drafts. We have to stay with doubts and suspects, made more inconvenient by the fact that the beneficiary of this strange decision is the German incumbent Deutsche Telekom.

Shared use of Internet at home cannot be an excuse for piracy

 

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Attenzione! …. for those who perform acts of piracy from the Internet connection at home. The fact of residing in a home with other roommates, all potentially capable of using the Internet, will not be enough to exempt themselves from liability by claiming, as a defense, that offender could be someone else. The Court of Justice of the European Union has ruled that there must be a way to allow the a copyright holder to defend his interests in case of violation perpetrated through shared Internet connections.

It may seem like a common sense solution but, in the case originated from Bavaria, the German rules on the protection of family life did not allow further investigations within the family unit that used the offending Internet connection. In fact, a German publisher, Bastei Lübbe AG, had sued a Bavarian citizen, Mr. Strotzer, because through the latter’s Internet connection had been downloaded, and subsequently shared on a peer-to-peer platform, a file containing an audiobook of the publisher. Mr. Strotzer defended himself by denying having infringed the copyright of the publisher and stating, moreover, that his parents, with him cohabiting, had equal access to the connection, without however providing further clarification on the possible use that the parents themselves would have made of the Internet connection. The Bavarian court of first instance rejected the application of Bastei Lübbe, considering that the fundamental right for the protection of family life prevailed in this case. However, the appeal judge felt differently and asked the European court whether such a defense may be sufficient to exclude the responsibility of the holder of the Internet connection.

The European court simply stated that right holders must have an effective form of redress or tools to enable the competent courts to order the disclosure of the necessary information. It is therefore not a question of weakening the fundamental right to privacy, but rather a signal sent to the German authorities to provide all the necessary instruments to ensure that there is a balance between the various interests at stake, including protection of intellectual freedom. In the present case, Mr Strotzer will therefore have to argue better about the use of his Internet connection by third parties, including mother and father.

The case of shared Internet connections can go beyond home and involve broader situations, such as the communities of students, workers, friends, as well as public WiFi connections. The European ruling does not oblige the holder of the Internet connection to ensure the identification of each user, rather to make themselves more cooperative with the courts in the search for offenders. The European court evokes a possible remedy, namely an objective liability of the Internet subscriber (as it happens with cars), but this seems to be an extreme solution, to be used only when the national legislator does not allow operations to identify the offenders among those who have access to a shared Internet connection.

The present case may seem a little excessive given the family context from which it originates, but it must be borne in mind that the objective of the judicial action was not the illicit use of a protected content (a condemnable action but with a modest impact on the publisher), rather the uploading of a file on a peer-to-peer platform accessible to anyone.

The European copyright reform: next steps after Parliament’s approval, and risks for 2019 elections

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Today the plenary session of the European parliament approved the controversial copyright reform proposal submitted by the rapporteur, Axel Voss, with a majority of 438 members (approx. 60 vote above the needed majority).

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Apart form the EPP, all other main European parties (socialists, ALDE, conservatives) have been split, while antiEuropean groups have voted against the proposal.

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What will happen next?

The rapporteur Voss will now start the Trilogue procedure with Council and Commission. Because of the end of the legislature (April 2019), there will be a rush against time since the outcome of the Trilogue, if any, will have to be approved again by the plenary session of the Parliament and by the Council. This means that the substantial agreement amongst the European institutions should happen at beginning of 2019, in order to make possible the subsequent necessary formal votations.

In general, ordinary Trilogue procedures, less controversial than the copyright one, take between 3 and 4 months, therefore one could wonder whether the lime left may be sufficient to complete and adopt the directive. However, Council and Parliament do not seem very much distant and we may foresee that they will be do their best to find a deal and avoid the act to fall down. One should see whether the main points of disagreement may be dealt easily: for instance, the Parliament draft is unclear about the concept of snippet (how long, how many word, which other criteria to assess whether an extract is taxable or not?) and the scope of the reform (should small provider, start-ups and SMEs be exempted by the art. 11 link tax?).

In addition, the Parliament’s text will need to be technically refined because some parts appear legally uncertain, for instance  where it is stated (art. 13) that whatever happens on a platform (i.e. upload of whatever content by a user) must be considered an “act of communication to the public” and platforms are liable for that: this assumption is contrast with the Electronic Commerce Directive and the conflict should be solved somehow. Also the implicit obligation for filters imposed by art. 13 (deriving from the liability of platforms for protected content uploaded by users) may be in contrast with current European jurisprudence. Therefore, the Trilogue procedure may legally reshape the parts of the proposed Copyright directive which are in contrats with the European acquis and one could imagine that the Council will play an important “technical role” in this.

Assuming that Council and Parliament will do their best to reach an agreement in short time, then the timing issue seems to be a different kind: from today onwards up to the end of the procedure (mid-2019), the copyright reform will likely become part of the political campaign for the 2019 European elections and may play a role on the choices of electors. While mainstream media (biggest publishers and broadcasters) are supporting the reform on the basis of well-know arguments (Google and others US guys have to pay journalists and artists!), the opinions debated in the Internet media are more complex and different: is is undoubtful that many citizens, scientists, academics, small companies and Internet gurus and so on are against the reform because of potential impact on the use and access to social platforms and Internet in general. In other words, the copyright reform risks to become a subject to be played against the so-called European establishment. Many MEPs and governments may be at risk when supporting this reform and campaigning in the same time for re-elections.

It will therefore wise for Council and Parliament to agree on a text that reduce at most the potential risks for freedom of speech and access to/exchange of information in the Internet. This is not only advisable but also necessary, because on one side the position of the Parliament will be weak (due to the not great majority won by rapporteur Voss, which does not provide him with a strong mandate), while on the other side the Council will be cautious, because of the electoral implications.

In addition, a big country like Italy, which originally supported a strong position in support of the copyright reform, is expected to radically change its view (because of the new government in charge since March). Ne vedremo delle belle.

Why the copyright reform is useless for publishers

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NB: on September 12 the copyright provisions regarding publishers have been approved, and the content of the post is more valid than ever!

Is the current European copyright reform something really good for press and journalists? While mainstream newspapers publish appeals in support of the reform, the reality seems to be more complex and fragmented. Beside traditional publishers vehemently pushing for the approval of the new rules, innovative and online press are against. An important group of journalists sent a letter to the Parliament supporting the new bill, while others have started to publish opposite positions (see for instance Luca Sofri and Federico Ferrazza of WiredItalia. I have personally talked with various journalists and some of them do not understand or support the reform, while remaining silent (maybe to avoid potential retaliations by their publishers). Such discrepancies within the press sector is an evident signal that this reform is problematic and it may not be as good as it was conceived at be beginning.

It is all about Art. 11 of the Copyright Reform proposal providing for a remuneration (technically: an ancillary copyright) that online platforms (mainly news aggregators) should pay to the publishers for their news reported by them, entirely or via excerpts (the so-called snippets). No one has figured out how this payment should be collected and how much could amount at the end. However, it is unlikely that the most important target of publishers, such as Google, will pay a single penny to publishers. By contrast, Google may adopt different way to avoid such payment:

1. it will stop its aggregation service (Google News) in case of approval of the new rules, as it already happened in Spain, thus causing substantial damage to publishers which were profiting of his traffic;

2. it could limit the aggregation of news to the mere title of the article with the  hyperlink, as it already happened in Germany;

3. it could negotiate the ancillary copyright to an amount equal to zero, by bargaining its indexation and traffic service (which until now was for free). These conditions may be acceptable for some publishers but not to others. However, the latter will end up being excluded from the aggregation services and may suffer a competitive disadvantage against the publishers who have accepted it. Probably, at the end, everyone will have to accept the conditions offered by Google, because being the sole publisher excluded by Google News will be detrimental.

Without Google to pay, it is doubtful whether the reform will provide any penny to the publishers, since the other news aggregators left, small guys or start-ups, would probably close down that business or would be unable, in any case, to provide the cash flow expected from Google.

It has doubtful whether the reform could be applied to Google as such, that is to say to the search engine. In such a case Google could simply de-index the European press with an enormous damage for the publishers.

It has been argued that Facebook could be an alternative target for the publishers, but the current reform will not help on that. News on Facebook are uploaded by publishers themselves (which may also have agreements with Zuckerberg’s company) or shared by users. Thus, the ancillary copyright could not apply, although there might be some uncertainty with regard to the previews of articles (are such previews part of the hyperlinks or do they constitute a distinct act of communication to the public?).

To sum up, whatever will happen in the Parliament (on September 12, when the plenary session will have to vote) or later (in the Trilogue procedure) publishers are running the risk to remain with nothing, even if the reform will be approved in the best ideal form. So much ado about nothing.

How could we end up with this paradoxical situation? Everybody agree that press and journalists should be able to be remunerated adequately and that a solution should be found for the impact suffered because of the digital transition, which has drastically affected the traditional press business. However, the European copyright reform started in the wrong way, pushed by German publishers convinced that the solution simply consisted in a mechanism to force Google to share some of its profits. The German commissioner Oettinger endorsed the proposal.

However, this initiative has not worked out, firstly because the Google News business have been overestimated. Users have access to news mainly via Google search engine and Flipboard, and then via e-mail, apps and Facebook. Google News is well below in this rank and in fact Google would prefer to close it, instead of paying publishers. The rest of the news aggregation market is highly fragmented and poorly financed, therefore there is nobody else who could provide publishers with a substantial financial stream based on the news aggregation business.

But, more importantly, the press market is changing. The high-quality publishing industry is progressively migrating toward paying models, while free-to-view press, still remunerated with advertising, is left for generic or less qualified news services. This means that the current copyright reform is based on a model – Internet traffic and advertising – which is disappearing, at least in economic terms. In other words, this copyright reform is old-fashioned even before to exist in legal terms.

The new copyright rules would however be in force to operate some negative effects: the news aggregation business model would risk to be killed since, at the end, only Google was able to extract some money from that because of profiling activity of users. Such source of revenue would be excluded for other operators and start-up which do not own the same critical mass of data of Google. Therefore, they will close or will never start.

The good news is that other negative effects should be avoided (at least we hope): the latest legislative drafts seem to exclude the application of the ancillary right upon hyperlinks and upon users and individuals (other than digital companies). The bad news is the small and SME companies are in the scope of the linktax (while an exemption is foreseen for videosharing and filtrers under art. 13).

At the very end, the most dramatic consequence of this copyright reform is that politics and media believe that the legislative initiative will solve the economic problems of the press sector, while it will not. Unfortunately, it will take some years to understand the mistake, because of the time of the legislative process, the implementation period and the time for the assessment of the effects. Something between 5 and 6 years will be lost, while they could have been devoted, instead, to more effective and reasoned interventions.

Unlike the Shopping Case, now the European Commission strikes at heart Google’s dominance

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Today’s decision of the European Commission strikes at the heart of the dominance of Google, namely its dominance in the Internet search, but not its business model and its ability to provide popular and innovative services. The Commission has in fact sanctioned the (alledged) behaviors through which Google – starting from the free installation of Android – has consolidated its dominant position as a general Internet search engine over the years. From this dominant position (90% in most European markets) derives wealth and power of Google: thanks to the ability to analyze the traffic of (almost) all users who do searches on the Internet, Google has accumulated over the years a huge quantity of information. These big data can then be monetized elsewhere, particularly in online advertising. A per-se lecit activity, without doubts: but the problem, according to Commissioner Vestager, lies with the conduits through which Google is suspected to have eliminated potential competition from other search engines, imposing in various ways to the manufacturers of Android smartphones the pre -installation of Google Search.

The case in question is therefore crucial for Google’s global commercial strategy, much more than the Google Shopping case, which now appears of secondary importance, because – unlike Google Search – the online comparison market is ancillary and not central to the Californian search engine. Because of that, what really matters in the decision of Brussels is not the fine of € 4.3 billion, a sum-monstre that could however be placed one off on the budget without too much pain on the part of a company of this size (31 billion turnover in the first quarter of 2018). What instead worries Google is the order of the Vestager to end, within 90 days, the alleged abusive behaviors: in other words, the producers of Android smartphones should be entitled to pre-install any app, including search engines other than Google Search. The impact of these new rules on the business of Google is substantial but will materialize only in the long run, since it will take some time for competitors to (re)emerge. The European Commission will also monitor on this phase: it is probable that, unlike in the past, Google (as well as other dominant OTTs) will not be allowed to buy and incorporate potential competitors.

If the European Commission’s analysis is correct – but we will only know it at the end of the inevitable Google’s appeal – users will only have to be happy: not only will Google continue to continue its business, but there will be room for potential competitors, a novelty for many Internet users, many of whom – for age reasons – have never imagined the possibility of a search engine other than Google.

Some final considerations: someone will say that the sanction to Google is an act of war of Europe against US, and now Trump will well impose duties on German and French cars, and maybe even on Ferrari and Parmesan. In truth, the biggest Google complainants are US companies, which today have succeeded in obtaining in Brussels what Washington never delivered until now. The same happened in 2004 to Microsoft, which had been attacked by Sun Microsystem in front of the Commission. In other words, the great US antitrust battles are now being played in Europe, not in the United States.

From this it derives another consequence: if there were no European Union with supranational institutions with binding powers, such as the European Commission with its antitrust sanctioning powers, the European states would be defenseless in the face of global multinationals, should they be US, European or Chinese. Those who think they can govern the great global issues from an exclusively regional perspective should be aware of it.

The EU/Japan data flows agreement is a strategic move against US trade wars

Schermata 2018-07-18 alle 01.07.20

(NB: the original version of this article was published in Italian on La Stampa)

European Union and Japan agreed to create the world’s largest area of safe data flows, allowing their companies to securely process personal data of both European and Japanese citizens anywhere within this vast territory. This creates the digital market among the largest but above all the most important in the world, made up of almost 640 million consumers with an average spending capacity higher than the world population.

For European and Japanese companies it is a breath of fresh air in times of commercial wars. Thanks to the agreement, exchanges will be facilitated, especially in services and sophisticated and high-tech goods, which are mainly based on the processing of personal data of users: ranging from services via the Internet, from the most common (e-commerce and billing) to more sophisticated ones (e.g. cloud), but also to many innovative assets like connected-TV, consoles for electronic games, all kinds of IT assets. Even seemingly less sophisticated but valuable assets, such as luxury or gastronomy, will benefit the data agreement, to the extent that the sellers need marketing policies focused on certain customer segments.

European Union and Japan have agreed that the respective data protection systems (in Europe the famous “GDPR” entered into force on 25 May 2018) are equivalent and therefore the respective companies will be able to process and transfer consumer data anywhere from Lisbon to Tokyo in an homogeneous framework, without having to question whether something is allowed or not from a coast to another of this huge market. Conversely, in the absence of such an agreement a European or Japanese company should instead make an ad hoc analysis whenever its business involves the processing of data of the other party’s citizens, and whether is is lawful under the other country’s legislation.

It is interesting to note that the agreement between the European Union and Japan does not constitute a compromise between the two parties: on the contrary, it is basically Japan that has agreed to adjust its data protection legislation to the European GDPR, which sets more rigorous levels of protection.

From a geo-economic point of view, the agreement is extremely significant, because it happens during the explosion of research on the Internet of things, connected cars, robotics and artificial intelligence, extremely sophisticated sectors which need access to a large amount of user data. The creation of this unique big data market helps European and Japanese industry that normally suffer the competition of US and Chinese, which usually enjoy greater economies of scale as well as an accumulation of data (also of European citizens). This is an advantage, however, that will tend to decrease, at least as regards the processing of data of European and Japanese citizens, since US and Chinese can no longer freely process such information after May 25, 2018 (date of entry into force of the GDPR).

In fact, although US and Chinese may be able to do at home what they want (in compliance with the respective local legislation), it is not the same for their global businesses, which will have to comply with the GDPR. This is a problem that Google, Facebook and other non-European OTTs are considering seriously: in other words, even if a company is quartered in California, it is unthinkable to divide its global data business depending on whether data of European citizens are involved or not. From a technological point of view such a separation would be complicated and expensive, and there would still be the risk of European fines for every mistake. Therefore, it may be better, at the end, to adapt the whole business to the European GDPR, even if US legislation is less stringent. At this point, however, it would be even better for US OTTs to adapt US legislation to European legislation, that is, to the GDPR, in order to close the circle.

It is precisely what Japan has done, anticipating and resolving the problem of its multinationals, whereas Trump’s administration, committed to the contrary in worsening international trade, is not catching this opportunity in time. But they will have too, sooner or later.