Some thoughts on the joint NL-DE-FR paper on Strengthening the DMA and its Enforcement

On 7 September 2021, the Dutch, French, and German governments (the so-called “Friends of an Effective DMA”) published a joint paper focusing on two important aspects of the DMA proposal: (i) future-proofness and tailor-made remediation and (ii) the role of the national authorities. Like the first paper these governments published in May 2021, this is a very helpful document, which addresses some of the criticisms regularly made against the DMA proposal. These Member States have established themselves as thought leaders in this regulatory space.

Future-proofness and tailor-made remediation

Two well-known challenges to regulating digital markets are that (i) these markets evolve quickly, and that (ii) so-called gatekeepers may have different business models and sets of incentives. There is, for instance, little in common between the business model of Facebook (which operates an ad-based model) and Amazon (whose ecommerce platform generates revenues through commissions).

This creates two important risks. First, there is a danger that the DMA may become obsolete soon after its adoption as the practices of the gatekeepers may evolve (perhaps to escape some of the obligations contained in Articles 5 and 6 of the proposal), and new practices may emerge. Second, while some of the obligations laid down in Articles 5 and 6 may fit with some business models, they may be at odds with others. In this respect, the UK DMU regime offers more flexibility as it is based on codes of conduct (on top of pro-competitive interventions), which will be tailored to the activities of firms holding significant market status (“SMS”) – e.g., one could expect different codes of conduct for general search, social networking, app stores, and online advertising.

Against this background, the Friends of an Effective DMA indicate that they “want a regulation that is both future-proof and allowing, if necessary, for a dedicated remediation tailored to the specific business model of each gatekeeper.” To that extent, they propose a new Article 16(a) (which is found in Annex I of the paper published earlier this week).

Pursuant to this approach, the paper suggests that the Commission should be allowed to “impose proportional and necessary measures to safeguard contestability and fairness in digital markets, following a market investigation.” However, the decision of the Commission would be based on a pre-defined list consisting of a set of principle-based measures it could choose from:

• access to platforms (including interoperability obligations, obligations to give access to essential APIs and obligations to use common standards)
• data-related interventions (including data mobility obligations, obligations to provide access to essential data and data silos)
• fair commercial relations (including non-discrimination obligations, bans on distortionary self-preferencing and obligations to make use of fair contractual terms),
• end-users and business users open choices (including obligations to proactively offer options to users, regulation of defaults and design of choice architecture).

[On a sidenote, I cannot help but observe some similarity with this list and the three overarching objectives that will govern the codes of conduct in the UK DMU regime, namely “fair trading”, “open choices”, and “trust and transparency.”]

While this pre-defined list of principle-based measures would somewhat constrain the discretion of the Commission, it would still it give it considerable flexibility, especially since the remedial measures would be tailored to what is needed for a specific gatekeeper. Note that these additional obligations would only be imposed if the results of the market investigation showed that, first, the obligations in Articles 5 or 6 are not sufficient to ensure fairness and market contestability in the precise case under investigation and, second, that competition law alone is insufficient to adequately and timely address the identified practices.

Thus, while the obligations contained in Articles 5 and 6 would be maintained, the Friends of an Effective DMA paper would introduce some elements of the UK DMU regime, by allowing the Commission to adopt principle-based measures tailored to the specific situation of a gatekeeper. It could of course be argued that this approach does not resolve the rigidity of the one-size-fits-all obligations contained in Articles 5 and 6. Yet these obligations are not one-size-fits-all since some of them expressly target one category of core platform services (e.g., app stores or search engines). There is thus a degree of differentiation embedded in the system. Moreover, the obligations contained in Articles 5 and 6 are not yet cast in stone, and some of them could be clarified and, in some cases, made more flexible.

Some may, of course, say that the adoption of these obligations will be too slow as the market investigation will take 12 months (with possible extensions of up to six months). While I am not sure there is a need to provide for possible extensions, the period of 12 months seems unavoidable so that the concerned gatekeeper may respond to the Commission’s objections. Article 16a(1) also provides that in its market investigation procedure, the Commission should take due account of any relevant information made by concerned third parties such as business users or end users, thus adding more work for the Commission.

A greater role for the national authorities

Another criticism regularly made against the DMA proposal is that it is excessively Commission-centric and does not leave space for national authorities. I agree with this criticism. As I indicated in an earlier post, it would be a terrible waste for the Commission not to take advantage of the resources of the national competition authorities (“NCAs”), especially since the Commission only plans to devote 60 Full Time Equivalents to the implementation and enforcement of the DMA (which is an absurdly low number). Some NCAs have also started to hire officials with the sort of skills that are particularly needed when handling digital cases, such as data scientists.

Some may say that greater involvement of national authorities could create fragmentation through inconsistent decisions, thus undermining the uniform application of the DMA. As indicated in my earlier post, my response to this criticism is that fragmentation can be avoided by making a distinction between what could be referred to as the “implementation” of the DMA (i.e., the designation of gatekeepers, the regulatory dialogue, etc.), which should remain fully in the hands of the Commission, and its “enforcement” (interventions to ensure compliance by the gatekeepers with their obligations under the DMA), where national authorities could play a role. Even at the enforcement level, fragmentation could be avoided through a coordination mechanism akin to what exists in EU competition law (the European Competition Network).

This is exactly the approach suggested in the Friends of an Effective DMA paper, which observes:

“Centralizing certain powers at EU level, such as gatekeepers’ designation or regulatory dialogue with gatekeepers improves effectiveness and prevents fragmentation. However, enforcing the DMA will need substantial dedicated staff with expertise to match the resources of the gatekeepers. National competition authorities should therefore be able to properly support the Commission and contribute with their capacities in the DMA enforcement, within a referral system similar to the one currently already in use in merger control. … For a coherent application of both legal regimes, close coordination and cooperation between the European Commission and in particular national competition authorities is indeed essential.”

That is what is needed. Concretely, the paper suggests the addition of new Chapter in the DMA proposal, which would be titled “Cooperation and coordination with national competition authorities”. According to this new chapter, “where a national competition authority considers that it is well placed to apply Articles 16a, 22, 23, 24a, 25, 26 or 27, it shall submit a request to the Commission and inform the other national competition authorities accordingly.” Conversely, “where the Commission considers that a national competition authority would be well placed to apply Articles 16a, 22, 23, 24a, 25, 26 or 27, it may ask the relevant national competition authority to initiate proceedings.” Before referring a case, the Commission would “assess whether a national competition authority is well placed to apply Articles 16a, 22, 23, 24a, 25, 26 or 27.” ln order to ensure an effective and consistent application of the DMA and competition law the Commission and the national competition authorities would cooperate with each other through the European Competition Network (ECN).

While the above approach makes sense, I am a bit surprised that the NCAs would, pursuant to the paper, be entitled to apply the newly Articles 16a, which, as discussed above, would allow the Commission (there is no reference to the national authorities) to adopt additional tailor-made remedies following a market investigation. Having NCAs apply Article 16a would in my view create a risk of fragmentation, even if this risk could be potentially diminished through coordination. I wonder whether this is an unintentional mistake or whether the Friends of an Effective DMA paper are a bit too greedy.

But overall the two proposals in the paper are very helpful and would materially improve the DMA proposal, in terms of rendering it future-proof and flexible, while ensuring it will be strictly enforced.