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Innovation is King. Or is it?

Paul Lugard, David Cardwell, Oct 05, 2012

Nowadays, it is undisputed that innovation is a key driver of consumer welfare. As a result, unwarranted restraints on desirable innovative activity as a consequence of enforcement errors that incorrectly condemn pro-competitive or competitively neutral conduct (Type 1 errors), are potentially most damaging. Obviously, by the same token, private restraints-whether through mergers, cartels, or unilateral conduct-which hamper innovation may bring about significant negative effects.

Against this background, one would expect that, over time, the application of EU competition law under Articles 101 and 102 TFEU, as well as the European Commission's ("Commission") enforcement practice under the EU Merger Control Regulation ("EUMR"), would have given rise to a refined analytical framework as to how to adequately integrate dynamic efficiencies (as well as restraints on innovation) into the overall analysis of business transactions.

However, it is striking that, despite the general recognition that innovation is an important source of welfare gains, the precise significance of innovation in EU competition law has remained, at best, opaque. In fact, it appears that, in many instances, the very notion of innovation is given remarkably short shrift and is, as a result, not yet well developed. This is particularly surprising as the Commission has, over the past few years, risen as a pro-active leader in single-firm conduct enforcement by bringing abuse of dominance actions against firms including Qualcomm, Intel, and Microsoft and, more recently, against Samsung and other owners of standard essential patents ("SEPs") in the smart phone sector.

Regardless of whether the outcome in these matters is correct, it has sometimes been argued that the Commission has paid little-perhaps too little-attention to the nature and significance of the specific type of innovation that is of importance in the market. This argument is particularly made in relation to the European Microsoft case. In general, in Commission decisions under Article 102 TFEU one searches in vain for an analysis of the innovation potential of the various players on the market, let alone an attempt to weigh the innovation benefits that those parties bring to consumers against those of the dominant company.

 

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