Interoperability in the Digital Economy

Author:Wolfgang Kerber - Heike Schweitzer
Position::Professor of Economics, Marburg Centre for Institutional Economics, School of Business & Economics, Philipps-University Marburg - Professor of Law and Managing Director of the Institute for German and European Economic Law, Competition Law and Regulatory Law, Freie Universität Berlin
Pages:39-58
SUMMARY

Interoperability has become a buzzword in European policy debates on the future of the digital economy. In its Digital Agenda, the EU Commission has identified a lack of interoperability as one of the significant obstacles to a thriving digital economy. The EU Commission and a number of other actors have advocated far-reaching policies for ensuring the interoperability of digital goods, services, ... (see full summary)

 
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Interoperability in the Digital Economy
2017
39
1
Interoperability in the Digital Economy
by Wolfgang Kerber, professor of Economics, Marburg Centre for Institutional Economics, School of Business &
Economics, Philipps-University Marburg
and Heike Schweitzer, professor of Law and Managing Director of the Institute for German and European
Economic Law, Competition Law and Regulatory Law, Freie Universität Berlin
© 2017 Wolfgang Kerber and Heike Schweitzer
Everybody may disseminate this ar ticle by electronic m eans and make it available for downloa d under the terms and
conditions of the Digital P eer Publishing Licence (DPPL). A copy of the license text may be obtain ed at http://nbn-resolving.
de/urn:nbn:de:0009-dppl-v3-en8.
Recommended citation: Wolf gang Kerber and Heike Schweitzer, Interoperability in the Digit al Economy, 8 (2017) JIPITEC 39
para 1.
Keywords: Interoperability; standards; digital economy; digital goods; platforms; communication networks
to ensure horizontal and vertical interoperability and
IP law exceptions in favor of interoperability. The
complex trade-offs between benefits and costs of
a higher degree of interoperability suggest the need
for a careful and separate analysis of each specific in-
teroperability issue, caution regarding a (top down)
imposition of mandatory standards and interopera-
bility obligations, and a greater focus on unilateral so-
lutions of interoperability problems, such as adapt-
ers or converters. Within the framework of Art. 102
TFEU, EU competition law may be better advised to
develop a workable test to address hurdles for uni-
lateral interoperability solutions created by dominant
firms, than to continue focusing on the essential fa-
cilities doctrine to mandate interoperability.
Abstract: Interoperability has become a buzz-
word in European policy debates on the future of the
digital economy. In its Digital Agenda, the EU Com-
mission has identified a lack of interoperability as one
of the significant obstacles to a thriving digital econ-
omy. The EU Commission and a number of other ac-
tors have advocated far-reaching policies for en-
suring the interoperability of digital goods, services,
platforms and communication networks. In this pa-
per, we present a systematic framework for discuss-
ing interoperability problems from an economic and
legal perspective and apply it to several interopera-
bility issues such as, e.g., standardization, interoper-
ability regulation in the field of electronic communi-
cation, duties of dominant firms (including platforms)
A. Introduction
1
Interoperability has become a buzzword in European
policy debates on the future of the digital economy. In
its Digital Agenda, the EU Commission has identied
a lack of interoperability as one out of seven1 “most
signicant obstacles” to the “virtuous cycle” of
digitalization.2 Effective interoperability between
1 The other obstacles are: fragmented digital markets;
rising cybercrime and risk of low trust in networks; lack
of investment in networks; insufcient research and
innovation efforts; lack of digital literacy and skills; and
missed opportunities in addressing societal challenges –
see EU Commission, A Digital Agenda for Europe, Brussels,
19.5.2010, COM(2015)245 n., p. 5-6.
2 EU Commission, A Digital Agenda for Europe, Brussels,
19.5.2010, COM(2010)245 n., p. 3.
networks, devices, applications, data repositories
and services has thus become a major goal of the
European Digital Agenda, which aims to stimulate
the emergence of “a truly digital society” and to
boost innovation and European competitiveness.
3
Signicant market players shall be led to pursue
interoperability-friendly business policies.4
3 See, for example, EU Commission, A Digital Agenda for
Europe, Brussels, 19.5.2010, COM(2010)245 n., p. 14-15; EU
Commission, A Digital Single Market Strategy for Europe,
Brussels, 6.5.2015, COM(2015)192 n.
4 See EU Commission, A Digital Agenda for Europe, Brussels,
19.5.2010, COM(2010)245 n., p. 15: The Commission
will examine the feasibility of measures that could lead
signicant market players to license interoperability
information while at the same time promoting innovation
and competition”.
2017
Wolfgang Kerber and Heike Schweitzer
40
1
2
Indeed, in an interconnected economy,
interoperability of a broad variety of networks,
devices and services will be key.5 The expected
benets of the Internet of Things and Industry 4.0
hinge on the interoperability between networks,
software and data. Yet, interoperability is a complex
concept. Any interoperability policy which strives
to intervene into the market-driven determination
of the degree of interoperability will come at a cost.
Such trade-offs must be taken into account.
3 In our paper, we shall offer a systematic framework
for discussing interoperability and the EU’s
interoperability policy, and we will analyze the
existing legal framework on this basis. In chapter
B., we introduce the concept of interoperability,
provide an overview of its benets and costs and
the ensuing tradeoffs, and show that the market
determination of interoperability can be subject
to serious market failures where the degree of
interoperability is determined unilaterally by a
dominant rm, or where the market gravitates
towards a uniform technical standard with natural
monopoly characteristics. In the following chapters
(C.-F.), we shall inquire how these insights translate
into law and public policy. Both law and public policy
have to consider that the need for interoperability
may differ depending on the market setting, and
that different paths towards interoperability exist,
all of which have both advantages and costs. In
certain settings public intervention may be justied;
however, there should be a clear and strong reason
for mandating and/or regulating interoperability.
4
Firstly, we shall look at standard-setting in this
light, analyzing the different variants of standard
setting, with a focus on the EU Commission’s pro-
collective standard-setting policy (C.). Electronic
communications networks provide an example
where mandated interoperability may be justied
– based in particular on a public service rationale.
This rationale cannot easily be extended to digital
platforms, however (D.). Competition law should
be cautious in imposing interoperability remedies,
in particular when they are based on a vague and
potentially over-broad “essential facilities”-doctrine
(E.). Instead, law and policy should focus more on
protecting market solutions to non-interoperability.
On the side of IP law, both the Software Directive6
and the Trade Secret Directive7 provide for
decompilation exceptions to promote unilateral
efforts to ensure interoperability. Competition law
may apply where dominant rms try to hamper
5 For a broad account of the role of interoperability in the
digital environment see Palfrey/Gasser, Interop, 2012.
6 Directive 2009/24/EC on the legal protection of computer
programs.
7 Trade Secret Directive 2016/943 of 8 June 2016, OJ 2016 L
157/1.
competitors in their efforts to invent around
interoperability impediments. Taken together, these
two instruments may be a promising and innovation-
friendly alternative to broad public interoperability
mandates (F). Chapter G. will conclude.
B. Interoperability: Benefits, costs,
trade-offs, and market failure
I. What is interoperability?
5
One of the difculties of the interoperability
discussion is the absence of a clear denition of
interoperability. Broadly speaking, interoperability
denotes the ability of a system, product or
service to communicate and function with other
(technically different) systems, products or services.
Interoperability issues in the digital economy will
typically relate to information exchange and data.
In this context, Palfrey and Gasser, two leading
gures of the interoperabilit y debate, dene
interoperability as the “ability to transfer and
render useful data and other information across
systems, applications, or components”.8 The EU
Software Copyright Directive9 and the EU Draft
Directive on Digital Goods and Services10 entail
similar, but more context-specic denitions.
Interoperability is thereby a sub-category of the
broader, but also vaguer concept of compatibility;
namely the “ability of two or more systems or
components to perform their required functions
while sharing the same hardware or software
environment”.11 Since it is the communication and
exchange between systems, products and services
that is key in the digital economy, we shall focus on
the concept of “interoperability”.12 The boundaries
8 Palfrey/Gasser, Interop, 2012, p.5, and the „Standard
Glossary of Software Engineering Terminology” (IEEE 610)
of the Institute of Electrical and Electronics Engineers:
Interoperability is „[t]he ability of two or more systems
or components to exchange information and to use the
information that has been exchanged ...”.
9 Directive 2009/24/EC on the legal protection of computer
programs. See recital 10: “The function of a computer
program is to communicate and work together with other
components of a computer system and with users and, for
this purpose, a logical and, where appropriate, physical
interconnection and interaction is required to permit all
elements of software and hardware to work with other
software and hardware and with users in all the ways in
which they are intended to function.”
10 According to Art. 2 No. 9 “interoperability means the
ability of digital content to perform all its functionalities in
interaction with a concrete digital environment”.
11 See the „Standard Glossary of Software Engineering
Terminology” (IEEE 610) des Institute of Electrical and
Electronics Engineers.
12 In this context the relation between the concepts of

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