knowledge | 14 January 2021 |
The New Digital Markets Act – With Great Power Comes Great Responsibility
On 15 December 2020, the European Commission (the “Commission”) published its much anticipated reform package for digital services. While the Digital Services Act (the “DSA”) (see here our recent briefing), creates EU-wide obligations applicable to all digital services providers (with enhanced obligations for “very large online platforms”), the proposal for a Digital Markets Act (the “DMA”) will apply solely to large online platforms with “gatekeeper” status. By proposing new ex-ante regulation, according to the Commission, the purpose of the DMA is “preventing gatekeepers from imposing unfair conditions on businesses and consumers and at ensuring the openness of important digital services.”
The proposed DMA introduces rules for platforms that act as “gatekeepers” in the digital sector, aiming to address concerns about “weak contestability and unfair practices” that are prevalent in certain digital services.
By setting out an exhaustive list of “core platform services”1 the DMA identifies those services where the Commission says it has identified “strong evidence” of “high concentration”, “dependence on a few large online platforms” and “the power by core platform service providers often being misused by means of unfair behavior vis-à-vis economically dependent business users and customers.”
The DMA aims at preventing gatekeepers from imposing unfair conditions so as to allow end users and business users “reap the full benefits” of both the platform and digital economies “in a contestable and fair environment.”
Who is a gatekeeper?
The scope of the DMA is limited to providers of core platform services that are identified as “gatekeepers”. The proposal sets out three cumulative requirements and corresponding thresholds which, if met, create a presumption that a provider of core platform services is a gatekeeper.
- Have a significant impact on the internal market
- This requirement is presumed to be met where the undertaking/corporate group to which the service belongs either (i) has an annual EU turnover equal to or above €6.5 billion in the last three financial years or where the average market capitalisation or (ii) the equivalent fair market value of the undertaking to which the service belongs amounted to at least €65 billion in the last financial year, and it provides the core platform service in at least three Member States.
- Operate one or more important gateways to customers
- This requirement is presumed to be established where the core platform service has more than 45 million monthly active end users located in the EU and more than 10,000 yearly active business users established in the EU in the last financial year.
- Enjoy or are expected to enjoy an entrenched and durable position in their operations
- This requirement is presumed to be met where for the last three financial years, it is established that the core platform service has more than 45 million monthly active end users located in the EU and more than 10,000 yearly active business users established in the EU.
Under the DMA the Commission is empowered to set the methodology for applying these criteria, and to adjust the criteria “to market and technological developments where necessary”. Reflecting the intention to address competition concerns, the gatekeeper classification in the DMA is more prescriptive than the classification of a “very large online platform” under the DSA, which is satisfied simply where an online platform has 45 million or more monthly users. If a provider satisfies the gatekeeper criteria, it is obliged to notify the Commission within three months of the thresholds being satisfied. Providers are granted an opportunity to submit with a notification “sufficiently substantiated arguments” to demonstrate that in the circumstances in which it operates, it does not in fact hold a gatekeeper position. Following receipt of a notification, the Commission has 60 days to decide whether or not to designate the provider as a gatekeeper. “Gatekeeper” status applies only in respect of core platform services in respect of which the notification was made: if a core platform service provider that has been designated with gatekeeper status offers another service that later meets the criteria outlined above, an updated notification should be made for that service.
Alongside this self-assessment mechanism, the Commission is also empowered to identify gatekeepers on a case-by-case basis following a market investigation.
The Commission is obliged to review at least every two years whether the providers designated with gatekeeper status continue to constitute gatekeepers according to the criteria outlined above, and whether new providers satisfy the requirements and ought to be designated. The Commission will publish a list of designated gatekeepers and a list of the core platform services in respect of which they have been designated with gatekeeper status.
The “do’s” and “don’ts” of being a Gatekeeper
Once designated as a gatekeeper, a platform will have to live up to a number of obligations in relation to the use of data, interoperability and self-preferencing. The obligations prescribed by the DMA require gatekeepers to both proactively implement certain behaviour (the “do’s”) and to refrain from engaging in certain practices which the DMA classifies as unfair (the “don’ts”).
The “do’s” include:
- Allow third parties to inter-operate with the gatekeeper’s own services in certain specific situations
- Allow companies advertising on their platform access to the performance measuring tools and the information necessary for advertisers and publishers to carry out their own independent verification of their advertisements hosted by the gatekeeper
- Allow business users to offer the same products or services to end users through third party services at prices or conditions that are different from those offered through the gatekeeper’s service
- Allow business users access to and interoperability with the same operating system, hardware or software features that are available or used in the provision by the gatekeeper of any ancillary services
- Allow business users to promote their offers and conclude contracts with their customers outside the gatekeeper's platform
- Provide effective portability of data generated through the activity of a business user or end user
- Provide business users with access to data that is generated in the context of the use of the relevant core platform services by the business user’s customers
- Provide advertisers and publishers to which the gatekeeper supplies advertising services with information concerning the price paid by the advertiser and publisher, as well as the amount or remuneration paid to the publisher, for the publishing of a given ad
- Apply fair and non-discriminatory general conditions of access for business users to the gatekeeper’s software application store
The “don’ts” include:
- Refrain, when ranking services and products (e.g. in search results), from treating the gatekeeper’s own services (or services offered by any user of the service controlled by that gatekeeper) more favourably than those of unrelated third parties, and a positive obligation to apply fair and non-discriminatory conditions to such ranking
- Refrain from blocking users from un-installing any pre-installed software or apps
- Refrain from using data obtained from their business users and which is not publicly available to compete with these business users
- Refrain from restricting their users from accessing services that they may have acquired outside of the gatekeeper platform
Market Investigation Tool
The DMA also empowers the Commission to carry out “market investigations” for the purposes of examining whether an operator should be designated with gatekeeper status, investigating systematic non-compliance by gatekeepers, updating the list of core platform services and updating the obligations of gatekeepers. The DMA imposes time limits for market investigations, which vary from six months to two years depending on the purpose of the investigation, with scope for extensions. In this way, the market investigation tool seeks to build in the necessary flexibility for fast-moving digital markets, to ensure that “new or evolving practices can be the subject of intervention where necessary and justified.”
What are the consequences of non-compliance?
Unlike the proposed DSA where enforcement is to be overseen at Member State level, the Commission is charged with enforcement of the DMA. If found to be in breach of its obligation, a gatekeeper will be exposed to fines of up to 10% of its total worldwide annual turnover and periodic penalty payments of up to 5% of the average daily turnover.
Alongside the possibility of fines, the DMA also empowers the Commission to implement additional structural or behavioural remedies where, after a market investigation, it is found that a gatekeeper has systematically infringed its obligations under the DMA. Such “systematic non-compliance” is where the Commission has issued at least three non-compliance or fining decisions against a gatekeeper in relation to any of its core platform services within a period of five years prior to the opening of a market investigation.
In that regard, a structural remedy might require a gatekeeper to sell a business, or parts of it. However, the Commission would need to demonstrate that such a remedy would be proportionate and necessary for the purposes of the DMA.
The DMA also equips the Commission with investigative powers: the Commission may require information from undertakings, as well as access to databases and algorithms, and may request explanations. The Commission also has the power to conduct on-site inspections, though undertakings will be given prior notice of such inspections.
The European Parliament and the Council (composed of the Member State governments) will discuss the Commission’s proposal according to the ordinary legislative procedure – a process which is expected to take over a year. The Council and the European Parliament have the final say on whether the DMA becomes law. If adopted as a Regulation, the DMA will then be directly applicable across all EU Member States.
Also contributed by Louise O'Callaghan.
- “Core platform service” is defined as any of the following: online intermediation services; online search engines; online social networking services; video-sharing platform services; number-independent interpersonal communication services; operating systems; cloud computing services; and advertising services. Some of these terms are defined by reference to other EU legislation, while others are defined in the DMA itself.
This document has been prepared by McCann FitzGerald LLP for general guidance only and should not be regarded as a substitute for professional advice. Such advice should always be taken before acting on any of the matters discussed.