The EU Digital Markets Act – What Is Different Compared to the EU Competition Law Rules and What Are the Anticipated Impacts on Companies and Consumers?
15 November 2023
Author: Laura Sainio
In February 2020, the European Commission (“EC”) published the European Data Strategy which aims to create a single market for data that will ensure Europe’s global competitiveness and data sovereignty as well as boost the EU’s share and role in the global data economy by 2030. As part of the strategy, the EC launched five legislative proposals (“big five”) in order to regulate the dominant players, provide fair rules for data sharing, and use and strengthen people’s control over their data. The Digital Markets Act (“DMA”) is part of the big five package and entered into force in November 2022.
A Shift to Ex Ante Regulation
While competition law enforcement regarding the conduct of dominant companies is based on ex post evaluation, the DMA introduces an industry specific ex ante regulation with a number of strict prohibitions and obligations on digital gatekeepers offering core platform services. However, the DMA has strong competition law roots, and it aims to complement the EU competition law rules.
The DMA’s goal is to prevent unfair trading practices that companies and consumers encounter when using the online platforms of the largest platform companies operating as the so-called gatekeepers in the EU internal digital market. The ultimate objective is to promote innovation, reasonable and competitive prices, high-quality digital products and services as well as users’ freedom of choice in the EU single market. The regulation challenges the power of the largest big tech companies in the digital markets, which currently are mainly based in the USA and China.
Who Are the Gatekeepers?
The prohibitions and obligations laid down in the DMA apply only to the largest companies that provide the core platform services in the EU and that have specifically been named gatekeepers under the regulation. Core platform services include search engines, operating systems, social networking services, video sharing platform services, number-independent interpersonal communications services, web browsers, virtual assistants, cloud services, advertising services, and various online intermediation services, such as marketplaces.
A company (or usually a group of companies) will be considered a gatekeeper for one or more core platform services if the following criteria are met:
- The company has a significant impact on the internal market. This is presumed to occur when the group’s annual EU-wide turnover equals EUR 7.5 billion or above in each of the last three financial years, or where its average market capitalisation or its equivalent fair market value amounted to at least EUR 75 billion in the last financial year, and it provides the same core platform service in at least three EU Member States.
- The company operates a core platform service which serves as an important gateway for business users to reach end users. This is presumed if a service has more than 45 million monthly active EU end users and more than 10,000 active EU business users per year.
- The company enjoys an entrenched and durable position in its operations, or it is foreseeable that it will enjoy such a position in the near future. This is presumed if the user-based thresholds indicated above have been exceeded in each of the last three financial years.
Companies may seek to rebut the above presumptions.
In September 2023, the EC designated six gatekeepers: Amazon, Meta, Alphabet, Apple, Microsoft, and ByteDance. The obligations imposed on gatekeepers will become applicable 6 months after the designation, meaning that the DMA will become enforceable in March 2024.
Dos and Don’ts
To safeguard the fairness of core platform services, the DMA lays down a set of rules that apply only to gatekeepers.
The DMA requires the gatekeepers to report to the EC all digital-sector-related and data-related M&A transactions, regardless of their size. If supported by at least one Member State, the EC will be able to investigate whether the transaction restricts competition. This means that the EC can now review any merger involving a gatekeeper, even those below national merger control thresholds. In addition, the gatekeepers are obliged to prepare and submit to the EC annual reports on consumer profiling, which will then go to the European Data Protection Board and can be used to enforce data protection law.
Most importantly, the DMA lays down a list of dos and don’ts for the gatekeepers. Many of these are inspired by the EC’s past and current antitrust cases against big platforms. Below are some examples of these obligations and prohibitions.
- allow the end users to uninstall pre-installed apps or change default settings on operating systems, virtual assistants, or web browsers that steer them to the products and services of the gatekeeper.
- allow the end users to install and effectively use third-party software applications or software application stores in the gatekeeper’s own operating system.
- allow service providers and equipment suppliers free-of-charge access to hardware or software features (for example, access to additional functions on smartphones for application developers).
- provide business users with access to the data generated by their activities on the gatekeeper’s platform.
- ensure the compatibility of the basic functions of different messaging services, such as sending messages and making voice calls between different communication services (for example, in the future, it may be required that users of messaging services WhatsApp and Signal could communicate with each other).
- rank more favourably own services or products compared to similar third-party services or products.
- connect personal data between different services without the consent of the person concerned.
- require the use of the gatekeeper’s own payment or identification service as a condition for the use of a core platform service.
- introduce practices that make it difficult for end users to terminate the use of the core platform service.
- prevent other business users from offering the same products or services to end users.
What Is Different Compared to the Competition Law Rules?
The DMA does not change the EU competition law rules, which will continue to apply fully. However, the DMA aims to complement competition law by offering ex ante regulation with tools to intervene in the digital markets even before any harm is done.
The most important difference between the DMA and the competition law rules regarding dominant companies is the fact that under the DMA, the authority does not have to prove dominance for the rules to apply – it is sufficient that the companies meet the gatekeeper criteria set out in the DMA. The EU competition regulation is based on case-by-case evaluation, and proving dominance generally requires an extensive investigation and definition of the relevant markets, which in turn means that the court proceedings are usually long and not an agile way to react to market distortions. Moreover, gatekeepers will not be able to justify practices based on economic efficiency or innovation.
Furthermore, the possible sanctions of the violations under the DMA may be heavier. In addition to the possible fine of 10% of the group’s total worldwide turnover, the gatekeeper may face a fine of a maximum of 20% of the total annual turnover in the case of repeated violations of the same obligation.
Anticipated Impacts on Companies and Consumers
The obligations and prohibitions of the DMA have several implications for companies (particularly those designated as gatekeepers) and consumers.
The increased regulatory burden may require substantial changes to the gatekeepers’ business practices, and this may limit the ways in which gatekeepers operate as well as require significant investments in legal resources and technology infrastructure. While the DMA’s ultimate purpose is to promote innovation, fairness, and competitiveness of the EU digital markets, it could also potentially stifle innovation of the tech giants that are considered gatekeepers and, at least in the short term, also cause negative effects to consumers. This is enhanced by the fact that, contrary to the competition law rules, under the DMA the gatekeepers cannot use the efficiency defence and, for instance, claim that a certain practice is not prohibited because it improves consumer welfare or product improvement by technological innovation.
The DMA specifically notes that “gatekeepers […] are not necessarily dominant in competition-law terms”. Critics note that the DMA permits treating firms with similar market positions differently and enables an interpretation where some dominant companies that have not been designated as gatekeepers will be exempted from the application of the DMA while some non-dominant companies meeting the criteria of a gatekeeper will be subject to the rules of the DMA.
In contrast, the DMA improves consumer rights by, for example, providing the consumers with freedom of choice when selecting and using digital core platform services. The DMA also increases interoperability in the market, makes it easier for consumers to switch providers and take their data with them, and aims to eliminate unfair market practices, such as preferencing the gatekeepers’ own products and services and tracking users without their consent.
To the business users of the core platform services, the DMA brings both opportunities and challenges: it allows more customised product promotion on gatekeepers’ platforms but also creates stricter rules for the use of personal data in advertising. As the gatekeepers will have to establish rules for the use of their platforms to be compliant with the DMA, all business users will naturally have to comply and align their own business operations with them to ensure continued access to the gatekeeper’s services. Hence, non-compliance could lead to severe impacts on the business.
The DMA will also ease the market entry to digital markets for new businesses and give smaller players in the EU a chance to grow. Due to the imposed requirements for the gatekeepers to ensure that users can easily stop using or uninstall services from their devices, smaller players have a better chance to attract users to their platforms. In the long run, the regulators expect this to foster innovation and lead to more competitive pricing.
It remains to be seen how the DMA will eventually reshape the digital landscape in Europe and whether it will result in the European tech companies becoming more competitive. The anticipated effects on innovation are debated, and while the short-term effects may even be hindering gatekeepers’ innovation initiatives, at least the policy-makers in the EU believe that the long-term impacts will lead to greater innovation, more transparent digital markets, and improved consumer rights. Either way, the DMA has a potential to result in sweeping changes to how business users, EU citizens, and potentially consumers around the world interact with major tech companies. The regulation will certainly cause a heavy regulatory burden and costs to the gatekeeper companies, and hence, it is expected that we will see plenty of DMA-based case law in the future. Moreover, it is anticipated that several jurisdictions may develop and adopt similar legislation of their own.