On 5 July 2022, the European Parliament formally adopted the Regulation on contestable and fair markets in the digital sector (Digital Markets Act (“DMA”)). The DMA creates rules for online platforms that behave like “gatekeepers” in the digital sector. The objective of these new rules is to stop such platforms from applying supposedly unfair terms to businesses and customers. Among the companies impacted by the new rules will be businesses offering cloud computing, online social networking, video-sharing platform, and independent interpersonal communication services.
Some of the objectives of the DMA are to:
- prevent users from un-installing any pre-installed software or app if they wish to do so;
- favour the gatekeepers’ own goods or services over those of competitors who utilise the platform as well (self-preferencing);
- prevent consumers from linking up to businesses outside their platforms.
Obligations for gatekeepers:
- Under Article 14, gatekeepers are under an obligation to inform the European Commission of their proposed mergers and acquisitions;
- Under Article 3, gatekeepers have a duty to inform the European Commission when they meet the threshold of being considered gatekeepers;
- Under Article 15, once the classification of gatekeeper has been established, the company must perform an independent audit regarding the profiling method of customers and send it to the European Commission.
To determine whether a business is a gatekeeper, the DMA establishes three qualitative criteria. The DMA links each qualitative criteria with financial and/or user base levels, which, if established, generate a duty to file with the European Commission as a gatekeeper. The company must do so within a time period of three months from the moment it is established that it meets all three criteria.
|Article 3 DMA||Qualitative Criteria||Financial and/or user base levels criteria|
|An undertaking shall be designated as gatekeeper if:||An undertaking shall be presumed to satisfy:|
|1a) it has a significant impact on the internal market;||2a) the requirement in paragraph 1 point (a) where it achieves an annual Union turnover equal to or above EUR 7.5 billion in each of the last three financial years, or where its average market capitalisation or its equivalent fair market value amounted to at least EUR 75 billion in the last financial year, and it provides the same core platform service in at least three Member States;|
|1b) it provides a core|
platform service which is
an important gateway for business
users to reach end users; and
|2b) the requirement in paragraph 1 point (b) where it provides a core platform service that has at least 45 million monthly active end users established or located in the Union and at least 10 000 yearly active business users established in the Union in the last financial year;|
|1c) it enjoys or is expected to enjoy an entrenched and durable position in its operations.||2c) the requirement in paragraph 1 point (c) where the thresholds in point (b) were met in each of the last three financial years.|
However, the European Commission can take into account factors such as the size of the company, entry barriers derived from network effects and user lock-in to classify a company as a gatekeeper, although the quantitative criteria is not met.
Given the significant degree of concentration in the EU digital market, it is likely that companies with a high market share will be classified as gatekeepers. It is expected that the following companies will meet the threshold of gatekeeper: Microsoft Windows (with 78% of the desktop OS market), Google Chrome (with 60% of the web browser market), Google Search (with 90% of the search market), Facebook (with 90% of the social media market), Amazon (with 30% share of users and 60% in terms of market revenues of the e-commerce market), Netflix, Amazon Prime Video, HBO, Sky and Dazn (with 90% of the market revenues of the video streaming market), Spotify, Apple Music/Amazon Music (with 55% and 25% respectively of the music streaming market) and Google Android, Apple iOS (with 72% and 27% respectively of Mobile OS (global market)).
The European Commission has 45 working days from the moment of receiving a filing to make a decision regarding the status of a company as a gatekeeper. If the company in question is not content with the European Commission’s decision it can ask for a judicial review of the European Commission decision in the Court of Justice of the European Union (Article 45).
European Commission’s investigation powers and sanctions mechanisms
The DMA confers on the EC the following powers:
- Where the market investigation shows that a gatekeeper has systematically infringed the obligations under the act, the European Commission can impose behavioural remedies (Art 18);
- The Commission can conduct a market investigation for the purpose of examining whether an undertaking should be designated as a gatekeeper (Art. 17);
- The European Commission can conduct market investigations into new services and new practices (Art. 19).
Consequences of non-compliance:
- Fines of up to 10% of the company’s total worldwide annual turnover;
- Periodic penalty payments of up to 5% of the average daily worldwide turnover;
- Fines up to 20% of its total worldwide turnover in the preceding financial year in case of repeated infringements;
- and in the event of systematic breaches, the Commission can ban the gatekeepers from acquiring other companies for a certain period of time.
Will the DMA make any difference to an enforcer’s existing tools?
The DMA is a significant piece of legislation in respect of ex ante competition regulation that will compliment the existing EU competition laws, which is structured on data-based, case-by-case evaluations. The DMA has two presuppositions: that existing competition rules have not produced the anticipated outcome of controlling the dominant conduct of the big American digital companies; and that taming the commercial practices of the big U.S. tech companies is essential for the EU to enhance its attainment in the digital sphere. In short, the DMA, represents another way to utilise an ex ante supervisory tool meant run alongside with existing EU competition rules.
Moreover, given that the DMA proposals and current antitrust rules are expected to come into joint existence within the next 2 years, enforcement action at both EU and member state level will still be taken through Article 102 TFEU in respect of the large digital platforms.
Is the application of the DMA supposed to be forward looking rather than looking at historic infringements?
Given that the DMA classifies a gatekeeper as a supplier of “core platform services” that: has a substantial effect on the internal market, offers a vital platform for businesses to reach consumers and has an established and lasting position in the market either currently or anticipated in the near future, it seems that the Act applies to forward looking rather than historical infringements.
Will the new law mean that the enforcer will get more budget for enforcement?
Other than a mention in the slight increase in the Commission’s budget with respect to staff, it would appear that there is no other indication regarding an increase in enforcement expenditure at EU level in respect of the DMA.
Is the new law more of a headache than a help for beleaguered businesses and enforcers?
As the gatekeeper thresholds set out in the DMA are quite high, it seems that the new law will only affect the big companies active in the digital sector. Therefore, it is anticipated that smaller companies will not have the burden of complying with additional regulation governing this sector.
In respect of the U.S. tech platforms that will classify as gatekeepers, the DMA will impose additional regulatory burdens and some minor compliance costs, which are estimated to be around €1.41 million per year, for each platform.
In respect of national enforcers, there will not be additional enforcement burdens as the DMA establishes the Commission as the sole enforcer of the new laws. The National Competition Authorities (“NCAs”) will only have a side role to play in the enforcement of the Act. The NCAs can only support the Commission with non-binding advice regarding the implementation of decisions taken in the Digital Markets Advisory Committee (Article 37 and 38(6) DMA) and the NCAs can also ask the Commission to open a market investigation (Article 41 DMA).
The principal aims of the DMAs are to ensure that companies active in Europe can compete as fairly online as they do offline and to make sure that both the providers and the customers of digital services in Europe have the advantages of innovation, safety and business opportunities. Whether competition and business opportunities in the digital services sector will be improved by the DMA remains to be seen.
Find out more about the DMA here.
Please contact Tim Cowen if you have any questions regarding the above.
The material contained in this article is only for general review of the topics covered and does not constitute any legal advice. No legal or business decision should be based on its content.