IMCO has spoken its mind – a significant step towards the adoption of the DMA

On 23 November, the Committee for the Internal Market and Consumer Protection (“IMCO”), which leads the Digital Markets Act (“DMA”) through the European Parliament, adopted its position on the European Commission’s Proposal by an overwhelming 42 votes in favour, two against and one abstention. This is a milestone towards the adoption of the EU’s ex ante regulation of online platforms acting as gatekeepers between business and end users, which aims to ensure the contestability and fairness of digital markets in which such gatekeepers are present.

Let us now have look into the most important amendments proposed by IMCO to the Commission’s text.

New core platform services

IMCO has expanded the list of core platform services captured under the scope of the DMA, by adding three core platform services to the Commission’s list: (i) web browsers; (ii) virtual assistants, defined as “software that is incorporated or inter-connected with a good, within the meaning of Directive 2019/771, that can process demands, tasks or questions based on audio, imaging or other cognitive-computing technologies, including augmented reality services, and based on those demands, tasks or questions access their own and third party services or control their own and third party devices“; and (iii) connected TVs, defined as “a system software or software application that controls a television set connected to the internet that enables software applications to run on it including for the provision of music and video streaming, or viewing of pictures.

The designation of gatekeepers 

IMCO has introduced changes in the procedure for the designation of gatekeepers, by amending the quantitative thresholds for designation and tweaking the process for the rebuttal of the presumption of a gatekeeper role in cases where the quantitative thresholds are met.

The quantitative thresholds for designation

IMCO has increased the turnover / market capitalization thresholds that, once exceeded, the first criterion for designation (i.e., the “significant impact on the internal market”) as a gatekeeper will be deemed to be fulfilled. IMCO has agreed that this criterion will be met if the undertaking provides a core platform service in at least three EU Member States and has an annual turnover in the European Economic Area (“EEA”) equal to or above €8 billion (compared to the €6.5 billion proposed by the Commission) or a market capitalization of €80 billion (compared to the €65 billion proposed in the Commission).

As regards the second criterion (i.e., the provision of a core platform service with a gateway role), IMCO has tweaked the language of the Commission’s Proposal to refer to the number of end and business users established or located in the EEA (and not the EU, as proposed by the Commission). In addition, IMCO removed the Commission’s reference to the concept of “active” end or business users. A new Annex to the DMA is also provided, setting out the methodology aimed at helping providers of core platform services to identify and calculate the number of end and business users for the purposes of this Regulation.

Finally, the third criterion (i.e., the existence of an entrenched and durable position) will be deemed to be fulfilled if the above thresholds are met in each of the last two (and not three) financial years.

The rebuttal of the presumption of a gatekeeping role

A major change introduced by IMCO concerns the rebuttal of the presumption that an undertaking which meets the quantitative thresholds for designation is a gatekeeper for the purposes of the DMA. 

Article 3(4) of the Commission’s original text provides that an undertaking that meets all the quantitative thresholds for designation, could adduce “sufficiently substantiated arguments” to demonstrate that, in the circumstances in which it operates, and taking into account elements listed in Article 3(6) (e.g., entry barriers derived from network effects and data-driven advantages, scale and scope effects, business or end user lock-in, other structural market characteristics), it does not meet the qualitative thresholds for designation. The Commission would carry out an assessment of such arguments by conducting a market investigation pursuant to Article 15 of the Proposal. 

IMCO simplifies – but at the same time stiffens – the rebuttal process. Under IMCO’s adopted text, an undertaking that meets the quantitative thresholds for designation may present with its notification to the Commission “compelling arguments” to demonstrate that, in the circumstances in which it operates, it does not satisfy the qualitative criteria for designation. The amended Recital 23 further specifies that it is the “exceptional” circumstances in which the core platform service operates that may lead to the rebuttal of the presumption. A further change introduced by IMCO is that the Commission will assess the arguments invoked by the undertaking in order to rebut the presumption, but not within the context of a market investigation and without needing to take into account the factors listed in Article 3(6) of the DMA.

It is unfortunate that the IMCO text makes it harder for companies meeting the quantitative thresholds to demonstrate that they do not satisfy the qualitative criteria for designation. Quantitative thresholds are indeed crude instruments that only reflect the size of a platform, while they say little as to whether the platform exercises a gatekeeping function. While Article 3(4) should not offer an escape route for true gatekeepers, it is important that it gives fair opportunity to platforms that happen to be large to demonstrate that they are not gatekeepers because, for instance, both end users and business users have alternative paths to interact with each other. Otherwise, the DMA will be over-inclusive, forcing the Commission to waste resources regulating platforms that do not create the type of harm the DMA seeks to prevent. 

The obligations imposed on designated gatekeepers 

IMCO has introduced numerous amendments to the obligations of Articles 5 and 6 of the Proposal, which overall improve and strengthen the text of the DMA. While a detailed analysis of the content of the amended obligations is beyond the scope of this post, let us now look into some of the most important features of IMCO’s text with regards to these obligations.

In-app payment systems now within the scope of the DMA

IMCO has added explicit reference to in-app payment systems, defined as “an application, service or user interface to process the payments from users of an app”, as an example of ancillary services. At the same time, IMCO has amended Article 5(e) which now reads as follows: “[a gatekeeper shall] refrain from requiring business users to use, offer or interoperate with an identification service or any other ancillary service of the gatekeeper in the context of services offered by the business users using the core platform services of that gatekeeper.”

The combination of these two amendments is a significant step towards ensuring fairness in the app economy, as it clarifies that the DMA addresses one of the most egregious and contested practices of dominant app store providers, notably the imposition of the use of their in-app payment systems. Apple, for example, has been obliging app developers whose apps offer “digital goods or services” through its App Store to use Apple’s In-App Purchase (“IAP”), not only requiring them to pay Apple the related commission but, most importantly, resulting in the confiscation of the customer relationship by Apple. 

Harmful conduct of gatekeepers as to ancillary services is better addressed

IMCO’s amendments extend the scope of certain obligations to cover harmful conducts adopted by gatekeepers not only with regards to the core platform services they offer but also with regards to their ancillary services. 

For example, the new Article 5(ga) (originally Article 6(1)(a) of the Commission’s Proposal) requires gatekeepers to refrain from using, in competition with business users, data not publicly available, provided or generated through or in the context of the use by the business users or their end users of the gatekeeper’s core platform services or ancillary services. Similarly, the data access obligation included in the amended Article 6(1)(i) requires gatekeepers to also provide access to data provided for or generated in the context of the use of ancillary services offered by the gatekeeper.

Such amendments are significant given that through the (often mandatory) use of their ancillary services (linked to the use of their core platform services), gatekeepers can (and have) obtained access to considerable amounts of data, which they can use to their benefit and to the detriment of their business users.

Interoperability provisions

While the Commission’s Proposal refrained from introducing extensive interoperability obligations, opting instead for a narrow focus in Article 6(1)(f) on interoperability with “operating system, hardware or software features that are available or used in the provision by the gatekeeper of any ancillary services,” IMCO takes a stronger stance towards interoperability requirements.

The amended Article 6(1)(f) requires designated gatekeepers to “allow business users, providers of services and providers of hardware free of charge access to and interoperability with the same hardware or software features accessed or controlled via an operating system […] that are available to services or hardware provided by the gatekeeper.” IMCO also introduced two novel provisions imposing interconnection requirements, notably for providers of number-independent interpersonal communication services and for providers of social networking services.

Provisions related to online advertising

IMCO elaborates on provisions on online advertising included in the Commission’s Proposal, adding further requirements to the obligations imposed on gatekeepers. For example, IMCO’s text requires gatekeepers which supply digital advertising services to provide more extensive and detailed information to advertisers and publishers or third parties authorized by advertisers or publishers on the visibility and availability of advertisement portfolio. It also requires them to provide access to “aggregated and non-aggregated data and performance data in a manner that would allow advertisers and publishers to run their own verification and measurement tools to assess performance of the core services provided for by the gatekeepers.

But perhaps the most important new addition in relation to online advertising is IMCO’s Article 6(1)(aa). This provision prohibits gatekeepers from combining, for their own commercial purposes, and the placement of third-party advertising on their own services, personal data for the purpose of “delivering targeted or micro-targeted advertising” unless they have received by an end user (who is not a minor) a GDPR-compliant “clear, explicit, renewed, informed consent.” IMCO, therefore, not only places strict conditions on the use of data for targeted and micro-targeted advertising purposes, but also imposes a ban on the processing of personal data of minors for commercial purposes, such as “direct marketing, profiling and behaviourally targeted advertising.

Stronger stance on (“killer”) acquisitions 

IMCO expands the Article 12 obligation imposed on designated gatekeepers to inform the Commission about intended concentrations, by requiring such a notification to take place for any intended concentration and not only those involving another provider of core platform services or other digital services (as the Commission envisaged). According to IMCO’s adopted text, the Commission will inform competent national authorities of such notifications, the authorities then being able to use the information they receive to request the Commission to examine the concentration pursuant to Article 22 of the EU Merger Regulation. IMCO also increases transparency by requiring the Commission to publish annually the list of acquisitions of which it has been informed. 

Most importantly, IMCO now vests the Commission with the power to restrict, for a limited period, gatekeepers from making (“killer”) acquisitions in “areas relevant to [the DMA] such as digital or to the use of data related sectors” (e.g., gaming, research institutes, consumer goods, fitness devices, health tracking financial services), where this would be necessary and proportionate to remedy the damage caused by repeated infringements or to prevent further damage to the contestability and fairness of the internal market. In doing so, the Commission might take into account different elements, such as “likely network effects, data consolidation, and possible long-term effects or whether and when the acquisition of targets with specific data resources can significantly put in danger the contestability and the competitiveness of the markets through horizontal, vertical or conglomerate effects.

Reporting obligations

An interesting addition in IMCO’s text is the inclusion of a reporting obligation for gatekeepers under the new Article 7(1a). Gatekeepers would now have to “provide the Commission with a report describing in a detailed and transparent manner the measures implemented to ensure compliance with the obligations laid down in Articles 5 and 6.” This report would have to be submitted within six months after the designation as a gatekeeper and the inclusion in the relevant list of designated gatekeepers, and would have to be updated at least annually. What is also important is that the gatekeeper should, within the same timeframe, “provide the Commission with a non-confidential summary of its report” that would be published by the Commission “without delay,” allowing third parties visibility over how each gatekeeper complies with the DMA.

This fills a gap in the Commission’s Proposal, according to which the Commission would have to monitor gatekeepers’ compliance with the DMA, but no reporting obligations as to the measures adopted by gatekeepers to comply with the Regulation’s obligations were envisaged.

Implementation and enforcement of the DMA 

Increased role for third parties

IMCO proposes a greater involvement for business users, competitors and end users of designated gatekeepers in the monitoring of the latter’s compliance with the DMA. In particular, the new Article 24a provides that these third parties, as well as their representatives or other persons with a legitimate interest, may complain to competent national authorities about any practice or behaviour by gatekeepers that falls within the scope of the DMA, including non-compliance. National competent authorities will carry out a first assessment of such complaints and report them to the Commission, which shall examine whether there are reasonable grounds to open proceedings or a market investigation.

The IMCO text, furthermore, provides that third parties with a legitimate interest will be more involved in proceedings and market investigations carried out by the Commission, as they shall be granted the right to be heard and may submit their observations to the Commission.

Increased role for Member States

While the Commission remains the sole enforcer of the DMA, the IMCO text explicitly recognizes that national competition authorities as well as other national competent authorities designated by each Member State will support the Commission in monitoring compliance with and enforcement of the DMA. In particular, the Commission may ask one or more competent national authorities to support the market investigations or proceedings it carries out pursuant to the DMA by collecting information and providing expertise. As explained above, national competent authorities may also collect complaints from third parties with regards to gatekeepers’ compliance with the DMA. Finally, two or more national competition authorities or other competent national authorities may request the Commission to open an investigation, the Commission, however, enjoying discretion to decide whether there are reasonable grounds to do so.

The High-Level Group of Digital Regulators

A novelty in IMCO’s text is the establishment of a so-called European High-Level Group of Digital Regulators, an expert group that will facilitate cooperation and coordination between the Commission and Member States in their enforcement actions. This Group will have the power to advise the Commission and assist it in ensuring the consistent application of the DMA and monitoring its compliance by means of advice, expertise and recommendations.

Stricter remedies and increased fines

IMCO enlarges the “remedies” toolbox available to the Commission in its role as the sole enforcer of the DMA.

According to IMCO’s adopted text, in cases of systematic non-compliance of a gatekeeper with the DMA, the Commission will be able to impose structural remedies not only where there are no equally effective behavioural remedies, as the Commission’s original text set out; instead, the Commission may choose “such behavioural or structural remedies which are effective and necessary to ensure compliance with this Regulation,” making structural remedies a real possibility in cases of systematic non-compliance. As explained above, in cases of systematic non-compliance, IMCO’s text also provides that the Commission may restrict intended acquisitions by gatekeepers in order to remedy or prevent further damage to the internal market. 

In addition, IMCO lowers the threshold for the adoption of interim measures, requiring the existence of a risk of serious and immediate (rather than irreparable) damage. It also expands the situations in which interim measures may be adopted: while the Commission’s Proposal provided for the possibility of adoption of interim measures only within the context of proceedings with the view of a possible adoption of a non-compliance decision pursuant to Article 25(1), IMCO’s text envisages the possibility of adoption of interim measures within the context of a market investigation pursuant to Article 17, when there is a risk that a new practice implemented by one or more gatekeepers which could undermine the contestability of core platform services or be unfair would cause serious and immediate damage to business or end users of the gatekeeper.

Finally, IMCO increased the level of fines that can be imposed on gatekeepers in cases of non-compliance with the DMA: according to IMCO’s adopted text, the Commission may impose on gatekeepers fines “not less than 4% and not exceeding 20%” of their total worldwide turnover in the proceeding financial year. The Commission had envisaged fines of up to 10%.

Shortened timeframes for compliance 

IMCO has, in various instances, amended the Commission’s Proposal by tightening the timeframes for compliance. For example, according to Article 3(3), an undertaking that meets the quantitative thresholds for designation as a gatekeeper must “notify the Commission thereof without delay and in any case within two months” after the thresholds are satisfied. The Commission’s original text required such a notification to take place “within three months”. 

In addition, IMCO has shortened the timeframe for compliance with the Article 5 and 6 obligations, reducing it from six months following the inclusion in the Commission’s list of designated gatekeepers (as the Commission proposed) to “as soon as possible, and in any case no later than four months” after the inclusion in that list.

Coupled with the fact that IMCO envisages that the DMA shall apply from two months after its entry into force, undertakings that may be captured by the quantitative (or qualitative) criteria for designation, should, sooner rather than later, start considering how to comply with this regulatory instrument.

What’s next?

Now that the IMCO position has been adopted, the DMA file is due to be voted on by the European Parliament in plenary in December 2021. The approved text will then constitute the Parliament’s mandate for negotiations with EU Member States (which have just adopted their own common position on the DMA). Negotiations between the legislators are planned to start under the French presidency of the Council in early 2022.

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