29 January 2021
Download – EU and UK digital policy – 2 of 6 Insights
In the last few years many competition authorities have been debating how to address the concerns raised by the market power of large online players and whether competition rules are sufficient to address those concerns.
Although most competition authorities have acknowledged that existing competition rules are fit for purpose and flexible enough, they recognise that there are limitations in fast moving digital markets because:
In 2019, many countries issued reports on tackling the market power of large online players. In Europe the digital economy has been part of the agenda of the new president Ursula von der Leyen who tasked Commissioner Vestager with making sure that competition policy and rules are fit for the modern economy
After the publication of those reports, we expected to see some concrete actions and both the UK and the EU have now come out with far reaching regulatory initiatives.
In December 2020, the European Commission published its proposals for a Digital Markets Acts (DMA). You can read a summary of the key provisions here.
The proposal creates a completely new regulatory regime for core platform service providers designated as gatekeepers. The DMA sets up the criteria for the designation of a gatekeeper: the targets are large online platforms with a substantial number of users in the EU. It does not matter where the gatekeeper is established and therefore the Regulation will capture many of the obvious American players.
The DMA also sets out what will be considered core platform services (including online search engines, social networking services, and operating systems among others).
The designation of gatekeeper status triggers a series of obligations and substantial penalties for non-compliance. Some of those obligations are clearly linked to the concerns that competition authorities have had in recent competition cases against large online players and include obligations:
The DMA makes clear that competition law will continue to apply in parallel and the current pending competition cases in front of the Commission will continue.
The DMA will also introduce new access and interoperability obligations as well as the obligation on gatekeepers to inform the Commission of any concentration irrespective of merger control thresholds if the acquired entity provides services in the digital sector.
In this ex-ante regulatory regime, the Commission will have most of the powers we would expect in competition law investigations, including to impose fines, request information, carry out interviews and take statements, carry out dawn raids, issue interim measures and accept commitments.
On top of the already familiar powers, the Commission has introduced a new power to allow it to carry out market investigations. Earlier this year the Commission consulted on a new market tool which looked similar to the market investigation regime in the UK. Serious concerns about its introduction at EU level were raised by some stakeholders.
While a new power is included in the DMA, it is much more limited than the one originally envisaged: rather than being applicable to all sectors of the economy or all digital players, it is restricted to playing a specific role as part of this new ex-ante regime.
Its purpose is to make sure that the rules keep up in these fast-moving markets, and will be used by the Commission to:
As mentioned, the market investigation power and the power to order structural remedies are much less intrusive that what the Commission proposed in its consultation. In Brussels, lawyers have been left wondering whether, separately from the DMA, the Commission is planning to introduce a new and wider market investigation power.
The DMA has now started its legislative process and it will take at least two years to be finalised. Provisions may well be subject to change during this process.
The UK has already got a market investigation power and, in light of Brexit, will not be bound by the DMA but is busy creating its own regime intended to focus on similar issues.
On 1 July 2020, the CMA concluded its market study into online platforms and digital advertising and made several recommendations to the UK government:
All but one of the recommendations have been accepted by the government, including the establishment of the DMU within the CMA from April 2021. The exception is the power to introduce a range of pro-competitive interventions to tackle the source of market power and promote competition. The government believes more work needs to be done on this and it will consult on the form and functions of the DMU in early 2021.
The CMA also carried out its digital advertising market study. In the Spring 2020 budget, the government announced the creation of a Digital Markets Taskforce based in the CMA and incorporating expertise from Ofcom and the Information Commissioner’s Office (ICO) to work on online platform more generally. Its task was to report to the government within six months on the design of a pro-competitive regime for digital platform markets.
On 8 December 2020, the Digital Markets Taskforce published its recommendations, similar to those suggested for players in the online advertising sector, but with more detail. Those recommendations include:
We are waiting for the government's response.
After many years of discussion and debate, we can now see the beginning of a new regulatory regime in the EU and the UK for large digital players (whether defined as gatekeepers or as having SMS). It will be interesting to see how the rules are applied and the impact they will have on the innovative efforts of large online players as well as on new entrants.
These are clearly very intrusive systems but will they achieve what they are designed to do? How will companies cope with different rules imposed by different authorities? Only time will tell. Of course, these are just legislative proposals at the moment and subject to change but it is obvious that they will have significant impact going forward.
To discuss the issues raised in this article in more detail, please reach out to a member of our Technology, Media & Communications team.
by Alex Walton