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How Facebook’s Aquila initiative provides an impetus to rethink the boundaries in competition law

Aquila is the Latin word for eagle, but it is also an ambitious Facebook project to provide internet access by solar-powered drones. In India, the project was supposed to provide internet access to the rural and most impoverished areas. Yet, the project was prohibited by the telecoms regulator for several reasons, one being net neutrality. The project would have offered free access to Facebook and some associated web pages and access to the rest of the internet for a fee.

While this case was decided under the telecommunication regime, the issue could equally arise in the context of competition proceedings. The question then would be: should the competition authority take account of the fact that the internet would be available in the rural most impoverished areas in India? This issue goes to the heart of a long-standing debate about the interaction between competition law and public policy. In the following, I argue that we will be seeing more and not less of these issues in the future. It is time to revisit the debate.

A wide held belief amongst the competition community is that competition law and public policy are two separate areas, not to be mixed. Competition cases should be assessed ‘purely’ on competition grounds and issues of public policy should be kept apart. These should be dealt with by other policies areas and the (democratic) policies in place in these areas.

A wide held belief amongst the competition community is that competition law and public policy are two separate areas, not to be mixed.

This thinking is grounded in a specific understanding of the role of the company and the State in society. Economic theory tells us that the company provides private goods while the State provides public goods (those are goods that are non-excludable, non-rivalrous and thus from which no profit can be made—a classical example: national defence). In short, the idea holds that profit maximization by individuals and companies will maximize total welfare (ie for everyone in the society). The role of the State is to address negative externalities and/or to provide public goods. This seems to make sense from a constitutional point of view. The company is concerned about making profit and has no democratic accountability so should not be trusted with issues of public policy. In contrast, the State is (democratically) accountable and therefore possesses the legitimacy to determine what is in the public interest.

At least since the 1950s the traditional understanding of the role of the company in society has been challenged, for example, by the emphasising the social responsibility of the company (Corporate Social Responsibility, CSR). While CSR is rightly viewed critical for the risk of green-washing, a business case for CSR can also be made. For instance, greater consumer demand for environmentally friendly products and higher energy costs are pushing companies to sustainability.

The traditional understanding is also challenged by the idea of social enterprises. The Grameen Bank established by Muhammad Yunus in 1983 and for which he received the Nobel Peace Prize is possibly the most prominent example. While the classical entrepreneur aims at creating wealth through exploiting opportunities, the social entrepreneur aims at creating value for the society through exploiting opportunities which is combined with a willingness to sacrifice (some) profit. The idea of social enterprises has gain traction in last decade and it is now part of the curriculum of many leading business schools such as Harvard and Oxford.

How do we handle cases where a company sacrifices profits for a public benefit in line with the aims set by its articles of association?

Possibly the most fundamental challenge to traditional thinking stems from the incorporation of ideas like CSR and social enterprises into the legal framework. While previously the aim of a corporation was profit, new legal forms provide other options. Countries like the UK, Germany or the US have created new company forms within their laws. In these, public policy matters take a central role as the aim of the company. For example, shareholders of Public Benefit Company (available in Delaware-US since 2013) can hold the board accountable would the company pursue profit maximization over its public benefit mission.

As these new company forms take hold and a new, successful and innovative company like Kickstarter, make use of it, the competition community will need to ask itself: how do we handle cases where a company sacrifices profits for a public benefit in line with the aims set by its articles of association?

Three options seem available: first, orthodoxy prevails: issues of public policy are not considered in competition law. Second, an attempt is made to adjust the interpretation of the competition provisions—to the extent possible—to allow public policy to be considered. Third, fundamental re-design of competition law takes place to regulate the interaction between competition and public policy.

With the emergence of more companies like Kickstarter and initiatives like Facebook’s Aquila, it will be time to ask again: what message does competition law send to businesses? Can competition law cater for public benefits or should companies not even try to promote the public good?

Featured image credit: ‘101123-F-4684K-688′ by U.S. Department of Defense Current Photos. Public Domain via Flickr.

Recent Comments

  1. Sanjay Bhowmick

    Hi Julian
    Thanks for the topical piece.
    Wd like to make two remarks:
    – I find it hard to accept that Facebook’s proposal is driven by public good concern and that it is not violating Net neutrality. Supporting the argument for the company’s action/ambition is only possible if fashioned after the philosophical tradition of American Pragmatism which, I am afraid, I find unconvincing.
    – On a practical plane, did you mean ‘memorandum of association’?

  2. Julian Nowag

    Hi Sanjay,
    thanks for this!
    And sorry for the late reply, surprisingly, I did not get a notification about your comment.
    Two good points to which I would like to reply in the following.

    – I am not making the claim that the concern for the public good is the driver or even that public good (is this case) is promoted.
    The argument put forward here is rather one concerning the legal framework. Such argument cannot be advanced even if they hold true.

    -On the practical plane: In a blog post like this I would not want to be very technical (not sure that really worked).
    What I mean is essentially, the ‘constitution of the company’ which regulates the relationship between directors and shareholders.
    This might be called differently in different jurisdictions, as a first point, you could also have a look here: https://en.wikipedia.org/wiki/Articles_of_association

    Best
    Julian

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