The EU Digital Markets Act in 10 points

Yesterday the European Commission unveiled its much-expected proposal for a Digital Markets Act. Our general impression is that it is a solid and sophisticated piece of work with a fairly wide scope of application (i.e., going beyond the GAFA), which would place significant constraints on digital gatekeepers.

Here is our (very preliminary) analysis in 10 points (more on this in the days and weeks to come):

• The objective of the proposal is to ensure fair and contestable digital markets in the EU. According to recital 10, this objective is complementary but distinct from the goal pursued by competition law, namely the protection of undistorted competition on the market.

• The legal basis for the proposal is Article 114 TFEU (internal market). This means that the proposal will now follow the ordinary legislative procedure where the Council (the Member States) and the European Parliament take the lead and co-legislate. The legal form chosen is that of a Regulation (meaning there will be no need for Member States to take any implementing acts once the Regulation enters into force).

• The Commission seems to envisage a full harmonization measure. According to Article 1(5), Member States are precluded from applying further obligations to gatekeepers for the purpose of ensuring contestable and fair markets. However, they may still set rules to pursue other legitimate public interests. This is likely to spark some debate, considering some Member States are currently in the process of adopting national legislation constraining digital platforms.

• Central to the DMA is the concept of the “gatekeeper”, as the obligations envisaged apply only to gatekeepers. A gatekeeper is defined as (a) a provider of a “core platform service” (b) that is designated as a gatekeeper by a Commission decision (Article 1(1)). The core platform services are: online intermediation services (including marketplaces, app stores, etc.); online search engines; online social networking services; video-sharing platform services; number-independent interpersonal communication services; operating systems; cloud computing services; and advertising services (including ad intermediation). Note that additional digital services may be added to the list.

• A provider of a “core platform service” is considered a gatekeeper if it meets three overarching qualitative criteria: (a) it has a significant impact on the internal market; (b) its service is an important gateway for business users to reach end users; and (c) it enjoys (or is foreseeable it will enjoy in the near future) an entrenched and durable position in its operations (Article 3(1)).
  • According to the proposal, these criteria are presumed to be met if the provider meets certain quantitative thresholds (Article 3(2)), namely:
    • the group to which it belongs reaches a certain annual EEA turnover (EUR 6.5 billion) / market capitalization or fair market value (EUR 65 billion), and in addition the provider offers the core platform service in at least three Member States (this corresponds to the “significant impact on the internal market” element); and
    • the core platform service has more than 45 million monthly active end users in the EU and more than 10 000 yearly active business users in the EU in the last financial year (this corresponds to the “important gateway” element); and
    • the thresholds mentioned above for end users/business users were met in each of the last three financial years (this corresponds to the “entrenched and durable position”).
  • Once a provider considers it meets these thresholds, it has to notify the Commission. However, these quantitative thresholds establish a rebuttable presumption. The provider may through substantiated arguments demonstrate that it does not meet the overarching qualitative criteria of a gatekeeper. The Commission will then decide taking into account several elements listed in the DMA, including the size of the provider, entry barriers, user lock-in and scale and scope effects.
  • In any event a provider will be considered a gatekeeper only when the Commission designates it as such through a decision.
  • In addition, the Commission may designate a provider as a “gatekeeper” even if it does not meet the quantitative thresholds. However, it may do so only after a market investigation (more on which below).
  • The Commission will periodically review the status of gatekeepers.

• Once a provider is designated as a gatekeeper, it has to comply with the obligations laid down in the DMA (and it has to do so within a short period, namely 6 months since its designation). The most important obligations are found in Articles 5 and 6. The obligations are said to prohibit practices that are either unfair or limit the contestability of markets. It is interesting to note that, contrary to what has been speculated in the previous months, there does not seem to be any “blacklist” or “greylist”. It seems that gatekeepers will have to comply with all obligations in Articles 5 and 6. However, the obligations in Article 6 are considered to be “susceptible of being further specified”. In this case, there may be a “regulatory dialogue” between the gatekeeper and the Commission, which can be triggered by the gatekeeper itself. According to Article 7, the Commission may by decision specify the measure the gatekeeper should implement to comply with the obligations laid down in Article 6.

• We will not get into a detailed presentation of the obligations in Articles 5 and 6 (this is for another post!), but we note the proposed obligations could have far reaching consequences. Examples include: an obligation to have data silos (Article 5(a)), a potential prohibition of wide MFN clauses (Article 5(b)), an obligation to allow business users to promote offers to end users acquired through the core platform service (Article 5(c) – this could have major implications for Apple’s App Store); a potential obligation to allow the installation and effective use of third-party app stores (Article 6(1)(c) – this could again have major implications for Apple); a prohibition from using non-public data generated from business users in competition with them (Article 6(1)(a) – this echoes the Amazon investigation); a prohibition of self-preferencing in rankings (Article 6(1)(d) this echoes the Google Shopping case); an obligation to apply FRAND conditions of access to app stores (Article 6(1)(k)) – according to the recitals this includes pricing conditions); and some very far-reaching obligations for providing data portability/interoperability (Article 6(1)(h))
  • Gatekeepers may request that the Commission exceptionally suspend a specific obligation when compliance would threaten its economic viability (Article 8).
  • In the case of emerging gatekeepers (those that will foreseeably have an entrenched and durable position in the near future) the Commission by decision will impose only a subset of the obligations (Article 15(4)).
  • Other obligations include the obligation to inform the Commission of intended acquisitions (but this does not trigger the EUMR – see Article 12) and an obligation to submit an independently audited description of any techniques for profiling of consumers (Article 13).

• There is no New Competition Tool. Instead, the Commission will have the power to conduct market investigations with the aim of (a) designating as gatekeepers providers that do not meet the quantitative thresholds (Article 15); (b) remedying systematic non-compliance (Article 16 – see below); and (c) adding new services to the list of “core platform services” or new practices that should be prohibited by the DMA (Article 17).

• When it comes to enforcement the Commission takes the lead. The proposal does not seem to leave much space to national authorities, save for providing for a Digital Markets Advisory Committee that will assist the Commission. The Commission will have extensive investigative powers (see Articles 19-21) and will be able to impose fines and periodic penalty payments in case of non-compliance (Articles 26-27) of the same magnitude as in antitrust cases (up to 10% of annual turnover / 5% of daily turnover for fines and periodic penalty payments respectively). In case of systematic non-compliance that has further strengthened or extended the gatekeeper’s position, the Commission may following a market investigation impose behavioral or even structural remedies on the gatekeeper, including divestiture (Article 16). Structural remedies are the ultimum refugium and can be imposed only if there are no equally effective behavioral remedies. The Commission may also issue interim measures (Article 22) and accept commitments offered by the gatekeeper (Article 23).

• All in all, the enforcement system seems pretty aggressive. The provider has to notify itself to the Commission that it meets the quantitative thresholds, and generally the deadlines for reaching decisions are very tight (in most cases maximum 12 months).

This is just a quick summary of the main points. More will follow. Stay tuned!

(Image copyright: ninog – Fotolia)