Briefing on the Digital Markets Act
- 27 November 2020
Please Note: This article is a continuation of Lighthouse Europe’s two-part briefing on the Digital Services Act and Digital Markets Act.
For additional context and background, please refer to Part I.
The Digital Markets Act: An Origin Story
In July 2020, one year after entering into force, Regulation (EU) 2019/1150 (the Platform-to-Business or “P2B” Regulation) became fully applicable across the EU. This Regulation aims to tackle concerns around potentially harmful trading practices, unfair contractual clauses and a lack of effective redress mechanisms in relationships between online platforms and business users.[i] To combat these concerns and help European businesses exploit the full potential of the online platform economy, the P2B Regulation introduced new rules and obligations under a co-regulatory model to promote greater fairness and transparency across the digital sector.
Although the P2B Regulation does not ban any specific practices or prescribe specific conduct, Article 49 recommends that further legislative or non-legislative measures “may be appropriate if and where the provisions established in this Regulation prove to be insufficient to adequately address imbalances and unfair commercial practices persisting in the sector.” It is likely at least partly from this Article, as well as recent evidence provided by regulatory agencies (see, for example, the “Furman Report” or the Commission’s own “Competition Policy in the Digital Era”), that the European Commission found the inspiration to introduce new ex ante rules for markets characterised by certain platforms acting as “gatekeepers” in the context of the Digital Services Act (DSA) package, even before the first formal review of the P2B.
In addition to these new rules, the Commission also launched a public consultation on a possible New Competition Tool (NCT) to address gaps in the current legal framework and to help the Commission better intervene against structural competition problems in a “timely and effective manner.”[ii] Unlike the DSA, which focuses solely on digital markets, the NCT was originally intended to address competition issues in all markets, an aim that was endorsed by the majority of stakeholders in their feedback to the Commission’s consultation.[iii] Specifically, many of these stakeholders highlighted that “no sector is immune to structural competition problems” and that as the boundaries between digital and non-digital markets become “increasingly blurred” it will likely be difficult to apply and enforce a more narrowly defined NCT.[iv]
In this same consultation, the majority of stakeholders also expressed a concern about possible overlaps between the NCT and existing or future sector-specific regulation, including the ex ante pillar of the DSA package, as well as both the P2B and telecoms regulations.[v] Accordingly, in October 2020, the European Commission decided to divorce the ex ante aspect of the DSA from the rest of the package and to merge it instead with the NCT to create what is now known as the Digital Markets Act (DMA).[vi]
The Knowns and Unknowns of the Digital Markets Act
Unlike the DSA and NCT, there have been no specific studies, reports or consultations on the DMA in its present form. From a speech made by Executive Vice-President Margrethe Vestager on 29 October 2020, we know that the DMA will be built on two pillars:
a “clear list of dos and don’ts for big digital gatekeepers”
a new “harmonised market investigation framework”
Although there are some similarities between these two pillars and their original conception in the DSA and NCT inception impact assessments, there are also clear differences. Significantly, while the NCT was originally intended as an early intervention tool for all markets, several officials at the European Commission have confirmed that the DMA will apply only to digital markets. This position is somewhat curious as it goes against the opinion of the majority of respondents to the European Commission’s public consultation on the NCT (as outlined above). Stakeholders also expressed the general view that, as the NCT aims to address structural competition problems, it should thus be “applicable to all companies in a market, rather than only to dominant companies or gatekeepers or digital platforms.”[vii] Yet, while the second pillar of the DMA will likely include tailor-made remedies that may apply to both dominant and non-dominant players, pillar one will apply to “gatekeepers” alone. Combining two distinct tools with different scopes within the same legislative package may risk possible legal uncertainty, particularly for smaller players who may be affected by one pillar but not the other.
There are several other aspects of the DMA that have yet to be defined. These include:
The question of gatekeepers: Although the Commission has made it clear that at least the majority of the DMA will apply only to a limited number of digital “gatekeepers” it has not yet defined who precisely these “gatekeepers” are. While many believe that the list will likely include the “GAFA” companies (Google, Amazon, Facebook, Apple), it is not yet known to what extent the DMA may also target other U.S. or European platforms, such as Microsoft or Booking. It is also unclear whether Chinese platforms such as WeChat or Alibaba may fall under the same regulatory scrutiny as these other players and how often this set of “gatekeepers” will be reviewed and revised.
Specific practices to be included on the list of dos and don’ts: An early draft of (potentially) unfair practices that was leaked earlier this autumn lists 30 separate items under consideration by the European Commission. This list includes possible “dos” (obligatory or “whitelist” practices), “don’ts” (prohibited or “blacklist” practices), and additional practices that will require specific intervention by a competent regulator to determine culpability (a so-called “greylist”). How these lists are eventually consolidated will be of paramount importance to the content of the DMA.
Enforcement: Similar to the DSA, it is as yet unclear who will have the primary responsibility for the enforcement of the DMA. While the NCT originally fell under the authority of the Directorate-General for Competition (DG COMP), the DSA is being drafted within the shared competencies of the Directorate-General for Communications Networks, Content and Technology (DG CNECT) and the Directorate-General for Internal Market, Industry, Entrepreneurship and SMEs (DG GROW). As the DMA represents a merger of the NCT and the ex ante competition aspect from the DSA, it is unclear whether enforcement will be managed by one of the above DGs or a combination of them within the European Commission, national supervisory authorities or a new EU-wide regulator.
As each of these aspects becomes more defined, so too will the resulting battlegrounds of the debates around the DMA. Among others issues, Lighthouse Europe anticipates the following:
How to define gatekeepers: The European Commission has repeatedly suggested that the size of a platform will likely be a significant factor in determining whether or not it qualifies for “gatekeeper” status. However, defining “gatekeepers” on the basis of their size and establishing a strict set of additional requirements beyond that threshold may discourage smaller platforms from scaling up, or make the acquisition of smaller platforms by larger companies less attractive. In addition to their size, some have also suggested that “gatekeepers” be defined on whether they have Significant Market Power (SMP), as in the telecommunications sector, or Strategic Market Status (SMS) as envisaged by the Furman Review and endorsed by the UK’s Competition and Markets Authority (CMA). Recently, European Commissioner for the Internal Market, Thierry Breton, stated that “gatekeepers” will be assessed based on whether or not they offer a service that is “unavoidable,” while a recent report argued that the term should include firms with a “conglomerate presence” who are capable of operating across markets. Each of these definitions comes with its own specific set of advantages and disadvantages, and industry stakeholders will likely have differing ideas around which set is best for them.
Complex interactions between regulatory objectives: There will likely be significant debates around the precise criteria to be included in the list of dos and don’ts proposed by the European Commission, largely due to the fact that satisfying one regulatory objective may inadvertently compromise another. For example, one of the central concerns of the European Commission is the amount of data that may be accumulated by large platforms and their corresponding ability to leverage data from one area of activity to offer new services in adjacent markets.[viii] Consequently, the European Commission has suggested mandated data sharing with business users at large. However, while this may reduce one advantage of larger platforms, it may lead to new cybersecurity challenges, as large amounts of data would be made available to competing firms, some of which may not have sophisticated data protection strategies in place. Relatedly, this may also compromise the principle of data minimisation established by the General Data Protection Regulation (GDPR). Sharing the same data across the market could also create new risks of collusion or convergence between enterprises, without actually eliminating the first-mover advantage of the incumbent platform.
Interaction with existing competition law and sector-specific legislation: The NCT was suggested originally because the enforcement experience of the European Commission and national competition authorities identified structural competition problems across markets that could not be adequately tackled by Articles 101 and 102 of the Treaty on the Functioning of the European Union (TFEU).[ix] However, stakeholders who responded to the public consultation on the NCT were fairly divided on whether Articles 101 and 102 are sufficient to address these issues.[x] While the DMA aims to close gaps in the legal framework, it also runs the risk of creating new legal uncertainty, and the possibility of subjecting businesses to regulatory remedies as well as parallel legal proceedings. The focus on early and timely intervention may also lead to concerns over a business’s right to due process, which will have to be carefully balanced. How the DMA may complement or potentially displace the P2B regulation is also likely to be a focus in the upcoming regulatory debates.
With so many questions still to be answered about the DMA, all eagerly await the expected 9 December publication date of the proposal by the European Commission. Resolving the many complex aspects of this file as it passes through the normal legislative process will leave plenty of room for negotiation as the extent of its impact on market actors and the future of Europe’s digital economy is further refined.
To learn how we may help you and your business prepare for the introduction of both the DSA and DMA,
don’t hesitate to contact us at firstname.lastname@example.org.
By Alexandra Shoichet
[iii]https://ec.europa.eu/competition/consultations/2020_new_comp_tool/summary_stakeholder_consultation.pdf - p. 1
[iv]https://ec.europa.eu/competition/consultations/2020_new_comp_tool/summary_stakeholder_consultation.pdf - p. 8
[v]https://ec.europa.eu/competition/consultations/2020_new_comp_tool/summary_stakeholder_consultation.pdf - pp 19-20
[vii]https://ec.europa.eu/competition/consultations/2020_new_comp_tool/summary_stakeholder_consultation.pdf - p. 1
[x] - p. 9