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Digital markets have seen rapid expansion during the past two decades. A few large undertakings have established their positions as dominant players in digital markets globally, creating serious challenges for competition law enforcement in ensuring efficient and effective market regulation. Existing enforcement measures proved to be outdated or too slow when attempting to regulate the conduct of the Big Tech.
As a result, the European Commission ("Commission") has made efforts to rethink and redefine the regulatory framework for digital markets. An example of these efforts is the Digital Markets Act, formally the Regulation (EU) 2022/1925 on contestable and fair markets in the digital sector and amending Directives (EU) 2019/1937 and (EU) 2020/1828 (Digital Markets Act)1 ("DMA"). The DMA aims to contribute to the proper functioning of the internal market by ensuring contestability and fairness for the markets in the digital sector, and fairness for users of core platform services provided by the Big Tech acting as so called “gatekeepers”.
After almost three years of deliberation, the DMA shall enter into force on 1 November 2022. Application of the DMA will be postponed until 2 May 2023, allowing for a six-month transitional period before the Commission takes any action. The regulation shall apply to core platform services provided or offered by gatekeepers to (i) business users established in the EU, or (ii) end users established or located in the EU, irrespective of the place of establishment or residence of the gatekeepers.
The DMA seeks to create fair, open, and contestable digital markets, by introducing new obligations for gatekeepers. The basis for most of these obligations stems from previous cases against large undertakings such as Amazon2, Apple3 or Google4, to name a few. In all these cases, the overarching conclusion of the Commission was that existing ex-post regulation does little to effectively identify and remedy competition infringements. With the introduction of the DMA, the Commission seeks to create an ex-ante regulation which aims aim to prevent competition infringements at their roots.
The DMA is also intended to enable fair play by ensuring even level playing field for entrants and smaller players vis-a-vis large undertakings and platforms.
The DMA principally applies to large undertakings, termed “gatekeepers”, and imposes a set of obligations they must comply with. Once the DMA enters into force, undertakings designated as gatekeepers will have six months to comply with the DMA.
The DMA designates an undertaking as a gatekeeper (i) if it has a significant impact on the internal market, (ii) if it provides a core platform service which is important for business users to reach end users, and (iii) if it enjoys, or it is foreseeable that it will enjoy, an “entrenched and durable position” in the market ("Gatekeepers"). The core platform services which Gatekeepers provide ("CPS") are:
To make the identification of Gatekeepers easier, the DMA sets the following quantitative thresholds.
First, an undertaking is presumed to have significant impact on the internal market, where it achieves an annual EU turnover of at least EUR 7.5 billion in each of the last three financial years, or where its global market value is at least EUR 75 billion in the last financial year, and it provides the same CPS in at least three Member States.
Second, an undertaking is presumed to provide a CPS which is an important gateway for business users to reach end users, if the CPS has at least 45 million monthly active end users established or located in the EU, and at least 10,000 yearly active business users in the EU.
Third, an undertaking is presumed to enjoy or will enjoy an entrenched and durable position in its operations if its CPS reaches the aforementioned conditions for the last three financial years.
Once Gatekeeper status is presumed, the Gatekeeper must inform the Commission of the fact without delay ie, within two months from when the thresholds above are met at the latest. The presumed Gatekeeper, unless it provides compelling evidence to the contrary, is then given the status of Gatekeeper by the Commission. Gatekeeper status of undertakings is re-evaluated every three years.
The DMA imposes certain obligations upon Gatekeepers. The DMA divides these obligations into two groups – obligations and prohibitions that must be complied with without exception (Article 5) and obligations and prohibitions for which Gatekeepers can refer to the Commission to determine whether they are in compliance with (Article 6).
Gatekeepers are expressly prohibited from:
The DMA also provides a list of obligations and prohibitions for which Gatekeepers can refer to the Commission to check whether they are in compliance with. In these cases, the Commission can open proceedings to determine whether the Gatekeeper complies with the relevant obligations, and within six months specify the measures needed to ensure compliance.
An example of Article 6 type of obligation is that Gatekeepers shall not use any data of their business users that is not publicly available in order to compete with them. Regulating this conduct in the future will prevent Gatekeepers from having an unfair advantage when competing in digital markets and will provide all market players with relatively similar information they can use to compete.
Another example is that Gatekeepers shall allow and technically enable the installation and effective use of third-party software applications or software application stores using or interoperating with its operating system and allow those software applications or software application stores to be accessed by means other than the relevant CPS of the Gatekeeper. This addresses the concern that Gatekeepers might be preventing competitors from informing users about the possibility to buy products on other platforms at potentially cheaper prices, which would hinder effective competition. Once this obligation is enforced, Gatekeepers will not be able to prevent competitors from informing users about the availability of their products on other platforms, at other prices. This will in turn enable competitors to compete more efficiently in digital markets.
Inspiration for the DMA and specific obligations imposed by the DMA on the Gatekeepers comes from the Big Tech practices that the Commission has found to be competition restrictive in its previous work.
For example, Gatekeepers being prohibited from collecting data from several sources is a result of the concerns raised by Facebook’s acquisition of WhatsApp5. In that case, the Commission allowed the merger to go forward based on claims that combining data from the two platforms would be impossible, however the two platforms proceeded to combine data after the fact, which prompted the Commission to institute this prohibition.
The obligation to refrain from using non-public information (ie, data which is generated through activities of business users and end users on the CPS of the Gatekeeper) in competition with business users, stems from the Amazon Marketplace6 case. In this case, the Commission found that this type of conduct provides Gatekeepers with an unfair advantage, because of their dominant position in the market, since they have much more information at their disposal than their business competitors making it hard to compete with them.
The prohibition of bundling practices which stems from the Commission’s case against Google. In Google Android7 the Commission fined Google for abusing its dominant position by requiring manufacturers of mobile devices to pre-install Google services on Android phones, which in turn protected and strengthened Google’s already dominant position in relation to general search services.
Another example is the prohibition of restrictive terms of use, which prevent users from engaging with competitors, stemming from the Google Search (Shopping)8 case. In this case, Google systematically positioned the Google Shopping Service while demoting competitive shopping services, meaning that users would see Google products in the search results first. This kind of self-preferencing by Google was found to be an abuse of dominance, and as such was deemed an anticompetitive practice by the Commission.
If a Gatekeeper does not comply with the obligations set out in the DMA, the Commission may impose fines of up to 10% of the Gatekeeper’s total worldwide turnover generated in the previous financial year. Notwithstanding previous fines, the Commission may further impose a fine of up to 20% of total worldwide turnover if the Gatekeeper repeatedly infringes the same DMA obligation.
In addition, if the Gatekeeper keeps making systematic infringements of the DMA, the Gatekeeper could be banned from carrying out mergers with other undertakings for a specific period of time.
Above measures are accompanied by other powers of the Commission to ensure compliance with the DMA through information requests, market studies, inspections etc.
Digital markets are characterized by the “winner takes all” principle, where once an undertaking gets ahead, it will only do better and better over time making it harder for other undertakings to compete, eventually resulting in one major player in that market. The main goal of the DMA is to level the playing field in digital markets by creating transparency and more choice for both end users and business users.
For the Gatekeepers, the DMA introduces new rules which will require systemic, technical and procedural changes to previous conduct and increased administrative and legal burden. For businesses dependent on Gatekeeper’s (platform) services, the DMA should enable fairer terms in the digital markets, which should further incentivize growth and innovation, leading to a more balanced market for both business and end users.
The DMA should provide an improved position for business users and ensure a higher level of equality and transparency, ideally leading to a fairer and contestable market. Small and medium enterprises will be able to offer and provide their services in a fairer environment, and they will stop being so reliant on the Gatekeepers to provide their services. As a result, there should be more incentives and opportunities for innovation.
Most importantly, the DMA should improve the position of consumers as end users of the CPS. The DMA should allow more freedom of choice, improved protection of user data and introduce the benefits of data interoperability and data portability. The DMA also aims to facilitate user choice of alternative options that are available beyond the limits of certain online platforms and enable fairer competitive prices which will stimulate the market.
There has been considerable criticism regarding the lack of clarity provided by the final text of the DMA. Critics have also questioned the fairness of this type of regulation towards Gatekeepers seemingly being punished for their success. The real effects of the DMA remain to be seen.
Nevertheless, the DMA presents an ambitious and innovative approach to competition law enforcement and aims to balance the power of the Gatekeepers through creating a fairer marketplace and ensuring users have more options available to protect their fundamental rights when using Gatekeeper services.
1 Regulation (EU) 2022/1925 of the European Parliament and of the Council of 14 September 2022 on contestable and fair markets in the digital sector and amending Directives (EU) 2019/1937 and (EU) 2020/1828 (Digital Markets Act) [2022] OJ L265/1.
2 Case AT.40462 Amazon Marketplace.
3 Case AT.40452 Apple – Mobile payments.
4 Case AT.39740 Google Search (Shopping).
5 Case M.8228 Facebook/WhatsApp.
6 Case AT.40462 Amazon Marketplace.
7 Case AT.40099 Google Android.
8 Case AT.39740 Google Search (Shopping).
