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

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