Countdown to the ex ante regulation of online platforms: the Commission launches public consultation and publishes inception impact assessment

Yesterday marked the beginning of a busy summer on the regulatory front, as the European Commission fired the starting gun for the regulation of digital platforms. 

The Commission launched a public consultation on the Digital Services Act (“DSA”), a much-awaited package announced in the political guidelines of the new Commission and in the Commission’s Communication “Shaping Europe’s Digital Future”.  In parallel, it launched a public consultation on a possible new competition tool that would address structural competition problems in a timely and effective manner. Interested stakeholders are invited to respond to these public consultations by 8 September 2020. The Commission aims to adopt a proposal for a regulation in Q4 2020.

At the same time, the Commission published three inception impact assessments, inviting interested parties to give feedback until 30 June. The first two impact assessments correspond to the two work strands forming part of the DSA and relate to: (i) the modernization of the EU legal framework for digital services (centered around the e-Commerce Directive), in order to strengthen the single market and ensure that digital service providers act responsibly to mitigate risks emanating from the use of their services, and (ii) the ex ante regulation of very large online platforms acting as gatekeepers. The third inception impact assessment asks stakeholders to reflect on the initial thoughts of the Commission regarding the need for a new competition tool.  

In this post, we will look into the inception impact assessment published with regards to the adoption of an ex ante regulatory instrument for large online platforms with significant network effects acting as gatekeepers in the EU’s internal market.

Given the growing importance of the digital economy and the growing economic power large online platforms enjoy, the need for such ex ante regulation of digital platforms to complement existing competition rules has become one of the hottest issues in discussions about the EU’s digital future. The Commission observes that while over 10,000 online platforms operate in the EU’s digital economy, most of which SMEs, a small number of large online platforms are able to control platform ecosystems, acting as gatekeepers between businesses and citizens. The EU has adopted the Platform-to-Business (“P2B”) Regulation as a first step to establish a fair and transparent business environment around online intermediation services. However, there is no EU regulatory framework specifically addressing the market power held by large online platforms having a gatekeeper position.  

The Commission points out that these platforms enjoy “economic power” due to their ability to accumulate troves of data, to access different technical assets, to easily expand into new markets and leverage their advantage (e.g. data) from their services, to take over competitors and to benefit from their financial power.

The thinking is that, if large digital platforms remain unregulated, they are likely to hamper the development and functioning of the digital single market for the following reasons:

  • Traditional businesses are increasingly dependent on a limited number of large online platforms. This leads to imbalances in the bargaining power of gatekeepers vis-à-vis users and rivals.
  • In an environment where it is difficult for innovative digital firms and start-ups to bring innovative solutions, there is a risk of reduced competition and dynamism. Thus, choices for consumer and business users are reduced, and so will be their ability to take full advantage of the digital single market.
  • Large online platforms can leverage data gathered from one area of their activity to improve or develop new services in an adjacent market. This increases the risk of the adjacent market also tipping in favour of these platforms.

These risks are exacerbated by the opacity and complexity of online platform ecosystems and the significant information advantage such platforms have over regulators.

The Commission in its inception impact assessment puts forward three policy options to be considered:

Option 1: Revise the horizontal framework set in the P2B Regulation. This would not include reviewing the current provisions of the P2B Regulation, but would seek to establish further horizontal rules for online intermediation services currently falling within the scope of this Regulation. These could be prescriptive rules on different specific practices currently addressed by transparency obligations in the P2B Regulation, as well as on new, emerging practices (e.g. certain forms of self-preferencing, data access policies and unfair contractual provisions). The revised P2B Regulation could also reinforce existing oversight, enforcement and transparency requirements.

Option 2: Adopt a horizontal framework empowering regulators to collect information from large online platforms acting as gatekeepers. This option would go further than option 1, and allow a dedicated EU regulatory body to collect targeted information on the business practices of gatekeepers and their impact on users and consumers. The framework would however not vest the regulator with the power to impose behavioural and/or structural remedies on platforms. The regulator would only have enforcement powers in order to address the risk of refusal to provide the requested data. 

Option 3: Adopt a new and flexible ex ante regulatory framework for large online platforms acting as gatekeepers. This new ex ante framework would complement the P2B regulation which would continue to apply to all online intermediation services. The new framework would apply to a subset of online platforms on the basis of a number of clearly-defined criteria, such as significant network effects, the size of the user base and/or their ability to leverage data across markets. The new framework would also explore possibilities for supervision and enforcement at EU level. The Commission identifies two alternative and/or complementary sub-options:

  • Prohibition or restriction of certain unfair trading practices by large online platforms acting as gatekeepers (“blacklisted” practices). This could be done through principle-based prohibitions that apply regardless of the sector in which the online platforms intermediate (e.g. include a horizontal prohibition of intra-platform self-preferencing), as well as through more issue-specific substantive rules on problems associated only with certain actors (e.g. relating to online advertising services or algorithmic transparency).
  • Adoption of tailor-made remedies addressed to large online platforms acting as gatekeepers on a case-by-case basis where necessary and justified. The new regulatory framework could entrust the regulator with the ability to impose, where necessary and justified, tailor-made remedies, such as platform-specific non-personal data access obligations, specific requirements regarding data portability or interoperability requirements. 

A lot of food for thought and further discussion on this blog and elsewhere!

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