Authors

Alexander Schmalenberger, LL.B.

Knowledge Management Lawyer

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Stephan Manuel Nagel, LL.M. (EUI)

Partner

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Authors

Alexander Schmalenberger, LL.B.

Knowledge Management Lawyer

Read More

Stephan Manuel Nagel, LL.M. (EUI)

Partner

Read More

4 April 2022

The Digital Markets Act - A new regulation for digital markets

The European Commission has been working on the realization of the digital single market since 2014. To this end, it has created a new area of law - "digital regulatory law". This also includes regulation of digital markets in the form of the Digital Markets Act ("DMA"), which is close to antitrust law.

The view of the EU Commission

In the perception of the EU Commission, existing antitrust law is not sufficient to deal with the alleged risks to competition posed by large Internet groups: On the one hand, natural monopolies in certain digital markets are to be regulated. On the other hand, market failures caused by special features of digital markets such as network effects and data aggregation are to be counteracted. In the opinion of the EU Commission, current antitrust law is too cumbersome to counter these assumed risks.

The EU response

Against this backdrop, the European Union has chosen to regulate the platforms of the major Internet corporations, known as "gatekeepers," with the DMA. The DMA prohibits certain types of behavior that have resulted from the experience of the European antitrust authorities in recent years. This is intended to prevent anti-competitive behavior before it harms the market.

In the future, the law is intended to subject large digital groups, which as online platforms hold a special market position in the digital economy and are therefore classified as "gatekeepers" based on a number of criteria, to comprehensive ex-ante behavioral controls. It thus differs from the previous antitrust law - which continues to apply on a supplementary basis - which is based on ex-post behavioral controls. Thus, both regulatory regimes are to be used side by side to safeguard competition. Art. 101 and Art. 102 TFEU, as well as the preventive EU Merger Regulation remain applicable in parallel pursuant to Art. 1 (6) DMA.

The agreement in the trilogue of the DMA was reached on March 24, 2022, and so far (as of April 1, 2022) the text of the agreement is not yet available. Therefore, the following descriptions of the content of the DMA are based on the drafts and statements of the negotiators and parliamentarians known so far.

Gatekeepers as norm addressees - To which digital corporations will the DMA apply?

A digital company is then deemed to be a gatekeeper pursuant to Art. 2 (1) DMA if it operates a "core platform service" pursuant to Art. 2 (2) DMA and additionally fulfills the further requirements of Art. 3 (1) DMA.

The "core platform services" include:

  • Online Mediation Services,
  • Online search engines,
  • Online social networking services,
  • Video sharing platform services,
  • number-independent communication services,
  • Operating systems,
  • Cloud computing services,
  • Advertising Intermediaries,
  • Web browsers and
  • virtual assistants.

In addition, it is required that the provider has a significant impact on the domestic market and has achieved a stable market position, Art. 3 (1) DMA. To facilitate the handling of these vague terms, their realization is legally presumed if the company has at least EUR 75 billion in market capitalization or EUR 7.5 billion in annual revenue. In addition, the core platform services must reach forty-five million end users per month and 10,000 business customers per year, Art. 3(2) DMA. As soon as a provider of core platform services reaches the thresholds, it must report this to the European Commission under threat of penalty, Art. 3 (3) DMA. The Commission then decides whether the provider is a gatekeeper or - exceptionally - not, Art. 3 (4) DMA.

Core platform service providers that do not meet the thresholds can also be classified by the commission as gatekeepers.

Positive and negative behavioral obligations of gatekeepers.

The DMA subjects gatekeepers to a series of positive and negative conduct obligations in Art. 5 and Art. 6 of the DMA, which are binding six months after a company's gatekeeper status has been determined by the Commission.

Gatekeepers will be required to, among other things:

  • ensure the interoperability of their instant messaging services;
  • Provide advertisers with information so that they can conduct their own independent review of their advertising on the Gatekeeper platform;
  • allow their commercial users to advertise their offer and freely conclude contracts with their customers outside the Gatekeeper platform;
  • Provide commercial users and end users with real-time data access to their activity data (data portability);
  • Provide access to generated usage and transaction data of products or services of the commercial user;
  • Provide smaller search engine operators with access to anonymized ranking, search, click, and view data on FRAND terms;
  • offer commercial users fair and non-discriminatory terms and conditions when using online sales platforms for application software (e.g., the App Store).

Gatekeepers will be prohibited from, among other things:

  • aggregate end-user personal data collected across multiple platform services without explicit consent;
  • forcibly register end users with other proprietary platform services without explicit consent;
  • to give preferential treatment to its own products and/or services ("self-referencing");
  • make the use of a core platform service dependent on the use of another core platform service ("bundling");
  • Prevent users from uninstalling software and apps preinstalled by Gatekeeper or accessing non-platform services;
  • Require commercial users to use, offer, or cooperate with Gatekeeper identification services;
  • prevent commercial users from offering their products and services on third-party platforms at different terms and prices;
  • exploit their platform data to compete with commercial users.

Merger control of gatekeepers

Gatekeepers will be required to inform the Commission of a proposed concentration involving other platform providers from the digital sector. This obligation exists regardless of whether the merger would be subject to notification to the Commission or a national antitrust authority under the relevant merger control rules. This is intended to enable the Commission to monitor market developments in the digital sector and to become aware of "killer acquisitions" (large corporations swallowing up hopeful start-ups with little revenue but a lot of potential) at an early stage. Explicit reference is made to Art. 22 of the EU Merger Regulation, so that competition authorities in the Member States can request that such mergers be examined by the Commission under the EU Merger Regulation. This means that killer acquisitions in particular can be examined via the mechanism of Art. 22 EU Merger Regulation even if the thresholds of the EU Merger Regulation or national merger control regimes are not exceeded.

The DMA classifies these behavioral obligations into those that are considered "self-executing" (Art. 5 DMA) and others that are "susceptible to specification" (Art. 6 DMA). For the latter, the gatekeeper must independently develop a concept for the adequate implementation of the conduct obligations. To control these measures, the DMA provides the Commission with various instruments. Art. 7 DMA requires gatekeepers to notify the Commission of measures taken. Art. 7 DMA provides that, with respect to the obligations set forth in Art. 6, the Commission may, within six months of the initiation of a proceeding, specify concrete measures to be implemented by the gatekeeper concerned if the measures it has taken to date do not ensure effective compliance with the DMA requirements.

Sanction mechanisms of the DMA

If a gatekeeper violates the rules of conduct pursuant to Art. 5 and Art. 6 of the DMA, it may be subject to fines of up to 10% of its worldwide annual turnover. Repeated violations of the DMA's rules of conduct may even result in fines of up to 20% of global annual sales. In addition, the Commission may impose periodic penalty payments of up to 5% of the total worldwide annual turnover of the gatekeeper concerned in the event of non-implementation of orders.

In the event of systematic violations of the DMA rules of conduct, the Commission may, pursuant to Art. 16 DMA (i.e., based on a market investigation), impose behavioral and structural remedies, up to and including the ultima ratio of breakup.

In addition, in the event of systematic violations, the gatekeeper may be prohibited from carrying out mergers, at least for a limited period of time.

Such a systematic violation is presumed if the Commission has issued at least three decisions for violations of the DMA within an eight-year period.

These sanctions options are flanked by extensive powers to verify compliance with the DMA through requests for information (RFIs), interrogations, and searches (Arts. 19 - 21 DMA).

Responsibility

The Commission is given exclusive competence for the application of the DMA to ensure uniform enforcement throughout the Union. However, Member States may also authorize their respective national competition authorities to investigate possible violations of the DMA and to forward the results of their investigations to the Commission.

According to the statements of MEP Schwab in the press conference of March 25, 2022, in addition to the enforcement of rights by the Commission, the instruments under national law can also be used to achieve private enforcement with regard to the obligations pursuant to Art. 5 and 6 DMA. Express reference was made to instruments for individual and collective enforcement (private enforcement). This probably refers to actions based on national acts against unfair competition and tort law as well as collective actions by consumers.

The future

It is possible that the DMA could shift the balance of power in the digital markets significantly in favor of the smaller companies. However, the actual effect of the DMA will probably depend on enforcement practice. In addition, technical issues still need to be clarified, for example with regard to establishing the interoperability of messenger services. Further developments should therefore be monitored.

Authors: Alexander Schmalenberger, LL.B.,  Stephan Manuel Nagel, LL.M. (EUI), Parsa Tonkaboni

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