On 15 December, the European Commission published a proposal for a Regulation on the Digital Markets Act (DMA). Together with the Digital Services Act (DSA) it forms the foundation of the European digital strategy, aiming to create a safe digital space in which the rights of all users of digital services are protected and to establish a level playing field to foster innovation, growth, and competitiveness, within the EU and globally.
Which businesses will be affected by the new Digital Markets Act proposal?
The Digital Markets Act addresses certain behaviors of platforms acting as “gatekeepers”. It establishes a set of narrowly defined criteria for qualifying a large online platform as a so-called “gatekeeper”. To be identified as a gatekeeper, the company should provide core platform services, including online intermediation services, online search engines, online social networking services, video-sharing platform services, number independent interpersonal communication services, operating systems, and cloud computing services. The Commission proposes three key cumulative criteria with quantitative thresholds related to strong economic position, sizeable turnover, large number of users, and an entrenched position in the market that must be met to be defined as a “gatekeeper”. Companies will have to assess if they meet these criteria and provide their assessment to the European Commission, who will designate if companies are gatekeepers or not. The Commission can identify gatekeepers that meet these criteria but do not meet the quantitative thresholds, taking into account other factors (e.g. entry barriers derived from network effects and data, scale and scope effects that the provider benefits from, business or end-user lock-in, etc.). Those companies declared as gatekeepers will be obliged to comply with the new obligations established by the Digital Markets Act.
Do’s and don’ts for gatekeepers:
Among the list of obligations for gatekeepers, the Commission considers allowing interoperability for third-parties with the gatekeeper’s own services in certain situations, allowing business users to access the data they generate using the gatekeeper’s services and providing companies with the necessary tools and information to verify their advertisements hosted by the gatekeeper. Additionally, gatekeepers must allow business users to offer products and services through third-party online intermediation services, different from the gatekeeper, at different prices or conditions and let business users promote their offers and conclude contracts with customers acquired via the core platform service outside the gatekeeper’s platform.
Among the prohibitions for gatekeepers, they may no longer treat services and products offered by the gatekeeper itself more favorably in ranking than similar services or products offered by third-parties on the gatekeeper’s platform. Gatekeepers may not prevent consumers from linking up to businesses outside their platforms or prevent users from un-installing any pre-installed software or app if they wish so. Finally, gatekeepers may no longer combine personal data sourced from these core platform services with personal data from any other services offered by them (gatekeepers) or with personal data from third-party services.
How will the Digital Markets Act be enforced?
The European Commission will have investigative and enforcement powers regarding the Digital Markets Act and will be able to impose fines of up to 10 percent of the company’s total worldwide annual turnover, with the provision of periodic penalty payments of up to 5 percent of the average daily turnover. In case of systematic infringements of the Digital Markets Act obligations by gatekeepers, additional remedies may be imposed on the gatekeepers after a market investigation. Such remedies will need to be proportionate to the offence committed. If necessary and as a last resort option, non-financial remedies can be imposed. These can include behavioral and structural remedies, such as the divestiture of (parts of) a business.
What implications could the Digital Markets Act proposal have for companies?
Stakeholders from various sectors quickly reacted to the new proposal for a Digital Markets Act by pointing out that while the proposal was a good starting point, there was still a lot of work to be done. One of the criticisms concerns the negative implications of the concept of ‘gatekeepers’, with industry representatives arguing that the scope of the new proposal should look at strategic market status instead, similarly to the approach of the U.K.’s Competition and Markets Authority. As the asymmetric obligations under the Digital Markets Act will only apply to certain companies, there has been a push to include market share as a main criterion, instead of turnover. Additionally, there are concerns about the Commission’s increased enforcement powers which could result in a less objective process. Furthermore, industry representatives tend to point out the possibility of the Digital Markets Act leading to the creation of parallel national rules addressing the same issues and resulting in legal fragmentation across the EU.
Given the targeted nature of the Digital Markets Act, the impact is expected to be limited to around a dozen companies, in particular Big Tech companies, and while it does not target small companies and startups, it is expected that the DMA will impact their abilities to scale in the EU. Furthermore, the fact that the Digital Markets Act appears to specifically target a handful of companies is a source of criticism for several stakeholders as it makes it harder to develop new products to support small businesses in Europe.
Next steps in the legislative process
After the publication of the Digital Services Act and Digital Markets Act proposals, they will be the subject of long and likely arduous discussions in the Council of the EU and in the European Parliament. As confirmed by the Portuguese Presidency of the Council of the EU, the Digital Markets Act will be discussed in the Working Party on Competitiveness and Growth, falling within the remit of the Competition Council formation. Work on the proposals in the Council has already started in the first week of January, as the Digital Services Act and the Digital Markets Act will be the key files for the Portuguese Presidency.
In the European Parliament, the Internal Market Committee (IMCO) will take the lead for both files, with the Industry (ITRE), Justice (JURI) and Culture (CULT) committees poised to submit opinions on the DSA, and the Economic (ECON), Industry (ITRE) and Justice (JURI) committees on the DMA. The EP’s IMCO Committee will hold a first exchange of views on both files on 11 January.
In terms of the time frame for adopting the Digital Markets Act, France has announced a highly ambitious plan to conclude the negotiations for both proposals, so including the DSA as well, during its Presidency of the Council of the EU in the first half of 2022. The Commission shares this objective for the co-decision process to be finalized in a year and a half, however, it is useful to remember that other recent and major files, such as the General Data Protection Regulation and the Copyright Reform, took respectively 5 and 2.5 years to be adopted.
Dr2 Consultants closely monitors the developments on this file for its clients. If you would like to know more about the proposal, and how it might impact your business, please contact Dr2 Consultants.