The Digital Markets Act Represents a Change in Europe’s Approach to Digital Gatekeepers

The Digital Markets Act is not a competition tool as such. Rather, it is a market regulation whose main objective is to guarantee equal opportunities for digital players by imposing ex ante rules.

In December, the European Commission published two proposals for regulation designed to significantly transform the legislative framework applicable to digital service providers. This new legislative package was long awaited.

A public consultation, which ended in September, focused on several possible avenues: the revision of the provisions of the E-Commerce Directive 2000/31/EC, which was the first European regulation relating to online services providers, the creation of a new regulation on gatekeepers, and the possible adoption of a new competition tool. The legislative package presented on December 15 is now divided into two distinct pieces of legislation: the Digital Services Act (DSA), which updates and supplements the provisions of the E-Commerce Directive on the regulation of illegal content, and the Digital Markets Act (DMA), which imposes strict obligations on the platforms that control access to digital markets (“gatekeepers”).

The DMA is not a competition tool as such. Rather, it is a market regulation whose main objective is to guarantee equal opportunities for digital players by imposing ex ante rules. In other words, the approach no longer consists of assessing the outcomes of actions ex post but in precisely defining expected or prohibited behaviors up front.

The reason for such a turnaround lies mainly in the observation that traditional competition tools fail to correct the structure of a highly concentrated market dominated by a few over-powerful players. The largest platforms constitute two-sided or multi-sided markets in which they enjoy market power over several categories of users, benefiting from cross-network effects. These gatekeepers control the architecture of the platform—which users usually access through proprietary applications—while frequently competing with business users and privileging their own services and products within their own ecosystem. They also tend to acquire their potential competitors, which are usually small and disruptive companies, a phenomenon known as “killer acquisitions.” Finally, they have the ability to collect the data generated by users and to use it for their own benefit.

In this context of overwhelming domination and questionable practices, competition law remedies often come too late, following lengthy investigations, while, at the same time, digital markets are evolving very rapidly. Hence the choice of a regulation that precisely stipulates, in advance, which behaviors are authorized or not, under penalty of dissuasive sanctions.

The DMA specifically targets those who can control access to the market: the gatekeepers. All platforms offering their services to users established in the European Union, irrespective of their place of establishment or the law applicable to the provision of their service, will be subject to the new rules as soon as they can be considered as gatekeepers.

Gatekeepers have three main characteristics:

1. they have a significant impact on the internal market (which is presumed if they provide services in at least three Member States and have annual revenues of at least 6.5 billion euros or an average market capitalization or equivalent fair market value of at least 65 billion euros);
2. they serve as an important gateway for business users to reach end users (which is presumed when the platform has more than 45 million monthly active end users and more than 10,000 yearly active business users);
3. they enjoy an entrenched and durable position in its operation or can be expected to enjoy such a position in the near future (which is presumed if the platform has the characteristics mentioned in the previous point).

The criteria applicable to the designation of gatekeepers show that this regulation is intended to regulate what Europeans often refer to by the acronym “GAFAM” (Google, Apple, Facebook, Amazon, Microsoft). It is noteworthy that the Commission decided to take market capitalization into account so that companies that do not yet have a large number of users in the European Union but have a strong financial capacity, as is the case with some US companies, can be subject to the regulation.

Although the proposal is obviously designed to fight against the most reprehensible practices of the major platforms, one may nevertheless question the choice of an asymmetrical regulation focusing exclusively on the most important players, while smaller companies may also engage in reprehensible practices with equally harmful effects on the market. However, it will probably be possible to adapt this strategy thanks to the freedom given to the Commission, which is in charge of designating the gatekeepers (after investigations, if necessary) and has the latitude to deviate from the aforementioned criteria.

Gatekeepers are subject to strict obligations. Contrary to the information that had circulated in the press, the proposal does not include a “black list” of prohibited practices and a “grey list” of unfair practices requiring greater oversight but enumerates various obligations and prohibitions that will all have to be respected. To that end, the proposal draws a distinction between obligations that are directly applicable and those that are susceptible of being further specified within the framework of a dialogue between the Commission and the gatekeepers concerned.

Some of these obligations are aimed at providing a more level playing field especially where platforms compete with their own users. Gatekeepers will be prohibited from giving priority to their own services in their search engine results, which is reminiscent of the Google Shopping case. They will also be prohibited from using data generated through business users activities in order to compete with business users, a behavior for which Amazon is currently being prosecuted by the European Commission. Gatekeepers will have to offer application developers fair and non-discriminatory conditions of access to their application stores.

Another group of obligations seeks to ensure the freedom of choice of users. These choices include the ability to uninstall preinstalled applications without service restrictions and to use third party applications and software application stores, freedom to pick internet and software applications access provider the user wants to access, and the ability to take their data with them. End-users will be granted the possibility to link up to businesses outside the platform. Business users will be allowed to offer their services on other platforms at different prices and conditions, and to promote their offers and conclude contracts outside the platform. Gatekeepers will not be allowed to impose their own ancillary services, such as identification or payment services. For example, business users will be able to sell on the App Store without using Apple’s payment processor.

The regulation also provides a framework for the massive and systematic collection of data by the largest platforms. Gatekeepers will be prohibited from engaging in the now widespread practice of cross-referencing their users’ personal data with data obtained through other applications or collected from third parties. They will be prevented from systematically signing in end users to other services, unless the end user has expressly consented to it: Gmail users will not be automatically logged into YouTube. Gatekeepers will also have to sometimes share the data collected, especially with business users and even with competitors (like other search engines providers).

Failure to comply with all these obligations will lead to sanctions that are quite similar to those under competition law and include the possibility of structural separations. The Commission will be able to impose fines not exceeding 10 percent of gatekeepers’ total turnover or, in the case of minor violations, not exceeding 1 percent of the total turnover. It will also be possible to order, in the most extreme cases, measures such as legal, functional or structural separation, including the divestiture of a business, or parts of it. Indeed, where a gatekeeper has systematically breached its obligations and has thereby strengthened or extended its position as a gatekeeper, the Commission may impose any behavioral or structural remedies that are proportionate to the breach and necessary to ensure compliance with the DMA. In practical terms, this means that divestiture of a business could be decided primarily on the basis of the violation of the obligations set out in the DMA, but without engaging in the usual in-depth competition law investigations.

As a matter of fact, the relationship between the new regulation and competition law is ambiguous. There is no question here of targeting firms in a dominant position but those which have a very particular business model that enables them to control access to the market. However, the fact that the platform controls the architecture while competing with its business users is not considered to be a relevant condition to qualify as a gatekeeper, even though it is increasingly taken into consideration by competition law. The proposal also sets up a form of incomplete control of concentrations. Gatekeepers will have to inform the Commission of any intended concentration involving another platform or digital service provider, irrespective of whether or not the transaction is subject to control by the European or national competition authorities. This obligation seems to respond to the difficulty raised by “killer acquisitions” but the Commission cannot oppose the concentration, except if the provisions of competition law are applicable.

Finally, the proposal gives the Commission overwhelming power. The Commission will not only be in charge of designating gatekeepers but will also specify the measures to be adopted by a given gatekeeper in order to comply with the Regulation and have the latitude to make exceptions. The Commission will also be responsible for investigating and reporting violations of the regulation. It will conduct market investigations into services and practices and enjoy a broad array of investigative powers, among which the power to request information, to carry out interviews and to conduct on-site inspections. The proposal also grants the Commission the power to amend the content of the regulation, for example by listing new practices that should be prohibited. At the same time, the proposal leaves no room for maneuver for state authorities and even prevents Member States from adopting national legislation imposing further obligations on gatekeepers. All in all, the proposed DMA provides for very stringent obligations and gives the impression that Big Tech will now operate under the Commission’s scrutiny. The next step will be the adoption of this proposal by the European Parliament and the Council of the EU.