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The EU's proposed Digital Markets Act


United Kingdom

The EU is preparing to debate the provisions of the proposed Digital Markets Act (DMA), a regulation that will place significant obligations on the largest tech firms with the aim of creating fairer business environments and encouraging competition. This blog sets out a brief overview of the key provisions of the DMA (which is currently in draft form), and what it might mean for your business.

Aim and scope of the DMA

The DMA is intended to apply to eight "core platform services":

  1. online intermediation services;
  2. online search engines;
  3. online social networking services;
  4. video-sharing platform services;
  5. number-independent interpersonal communication services;
  6. operating systems;
  7. cloud computing services;
  8. advertising services offered by a provider of any of the other core platform services. 

The European Commission views that these services are characterised by extreme scale economies resulting from nearly zero marginal costs to add users, a significant degree of user lock-in and dependency, and data driven advantages. This has, in the Commission's view, allowed a small number of large companies to emerge with considerable economic power, acting as "gatekeepers" for business users to reach their customers. The DMA will apply to such gatekeepers, where the users of their services are established or located in the EU. 

Who will be classed as a "gatekeeper"?

The current draft of the DMA provides that a core platform service provider will be presumed to be a gatekeeper if it satisfies all of the following conditions:

  1. It has a significant impact on the internal market. The group to which the provider belongs must achieve annual EEA turnover equal to or above EUR 6.5 billion in the last three financial years, or have an average market capitalisation of at least EUR 65 billion in the last financial year. The provider must also offer a core platform service in at least three Member States.
  2. It operates a core platform service which serves as an important gateway for business users to reach end users. The service must have more than 45 million monthly active end users established or located in the EU and more than 10,000 yearly active business users established in the EU in the last financial year.
  3. It enjoys an entrenched and durable position in its operations. The thresholds at 2. above must have been met in each of the last three financial years.

The European Commission may also designate as a gatekeeper a company that does not meet all of these quantitative thresholds but poses similar risks to the fairness of the market, on the basis of a qualitative assessment.

Key requirements of the DMA

Some of the key positive obligations for gatekeepers proposed under the DMA will be to:

  1. allow their business users to offer their products and services to customers outside the gatekeeper’s platform;
  2. allow end users to un-install any pre-installed software applications on their core platform services, unless those applications are essential to their functioning;
  3. allow third parties to inter-operate with the gatekeeper’s own services in certain specific situations;
  4. allow their business users to access and move around the data that they generate in their use of the gatekeeper’s platform;
  5. provide companies advertising on their platform with more information about the price paid for the advertising services run by the platform. 

Some of the key restrictions will be that gatekeepers must not:

  1. use private data generated through their business users' activities in competition with those business users;
  2. require businesses or end users to sign up to any other core platform services as a condition of access to the platform;
  3. treat products and services offered by the gatekeepers themselves more favourably in ranking than similar third party offerings on the gatekeeper's platform;
  4. technically restrict the ability of end users to switch between different software applications and services accessible using the gatekeeper's operating system.

Enforcement of the DMA

The European Commission has the power to conduct investigations into gatekeeper platforms, and impose both behavioural and structural remedies for non-compliance. The Commission will also have the power to fine gatekeepers up to 10% of total turnover in the preceding financial year.

Impact of the DMA on businesses

The DMA must be considered by the European Parliament and European Council before it is adopted as a Regulation. This process could take several years, and it is possible that the text of the legislation may change substantially. Already there have been calls to raise the proposed gatekeeper thresholds, so that only the five or so very largest firms are caught by the rules.

However, even at this stage, the DMA appears to herald a shift by the European Commission to a more interventionist regulatory stance. Whereas the competition regime is designed to intervene where companies with market power abuse their position of strength, the DMA allows the Commission to impose prescriptive rules regulating the conduct of the largest firms simply by virtue of their market position. The proposals may also enable the Commission to regulate behaviour that would not necessarily fall foul of existing competition rules, permitting it to challenge a wide array of conduct considered to give the largest firms an entrenched advantage.

Importantly, the DMA will create another regime in the regulatory landscape – following, for example, GDPR in 2018 – where authorities have significant fining powers, which is likely to create significant deterrents to non-compliance.

However, the scope of the DMA is also in a sense relatively narrow. It is designed to capture only the largest players in the market, with no obligations applying to businesses that fall below the gatekeeper thresholds. Where the Commission designates a gatekeeper that does not yet enjoy an entrenched and durable position (but will foreseeably in the near future), more limited provisions will apply. Practically, this will mean that there will be limited, if any, direct burden on businesses that fall below the above thresholds; although smaller businesses may expect to reap the benefits of some of the measures in favour of transparency and competition, and gain greater rights and bargaining power in relation to gatekeeper firms.