The Digital Markets Act: Preventing Unfair Practices by Gatekeepers in the Digital Sector

by Matilde Serena

The 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”) is a milestone in adjusting EU competition law and its enforcement to new digital assets and markets. The Digital Markets Act complements the current EU competition rules i.e. arts.101 and 102 TFEU and the national competition law regimes. In particular, the Digital Markets Act addresses situations that fall outside the reach of existing EU competition rules or cannot be effectively tackled due to the ex-post and case-by-case nature of EU competition law. In fact, the Digital Markets Act aims to address unfair practices ex-ante by focusing on the systematic nature of the problematic behaviours.

In light of the novelty of this piece of legislation, this post addresses the following points (1) Who will be subject to the Digital Markets Act?, (2) How will the Digital Markets Act work in practice?, (3) What are the benefits of the Digital Markets Act?, (4) What are points of criticism moved by legal scholars?

Who will be subject to the Digital Markets Act?

This piece of legislation targets “gatekeepers” i.e. companies playing a particular role in the internal market due to their size and influence on consumers’ behaviour. This is to be established according to objective criteria set out in the Digital Markets Act. There is a precondition that “gatekeepers” operate in the market for “core platform services”, such as online search engines, web browsers or operating systems. Other requirements are that the company (1) has a size impacting the internal market, (2) controls an important gateway for business users towards final consumers (3) has an entrenched and durable position. As to the first requirement, companies are deemed to impact the internal market if they have an annual turnover equal to or above €7.5 billion in each of the last three financial years or a fair market value of € 75 billion in the last financial year within the EU; moreover, the core platform service must be provided in at least three Member States.

As to the second requirement, this is fulfilled if the core platform service operated by the company enumerates more than 45 million monthly active end users located in the EU and more than 10.000 yearly active business users established in the EU.

Finally, the third requirement is presumed to be met if the second criterion is met in each of the last three financial years. Companies that are presumed to be “gatekeepers” according to the requirements set out above will have the chance to rebut this presumption by submitting substantiated arguments and argue that, based on exceptional circumstances, they should not be designated as “gatekeepers”.

How will this work in practice?

The Digital Markets Act entered into force on 1 November 2022 and will become applicable on 2 May 2023. The Commission will, then, assess which companies active in the core platform can be classified as “gatekeepers”. Firstly, companies will be required to carry out a self-assessment to check whether they meet the thresholds included in the Digital Markets Act for identifying “gatekeepers” and provide the Commission with information in this regard. Secondly, the Commission will designate “gatekeepers” based on the information collected and potentially initiate a market investigation; at this stage, companies will have the chance to provide a substantiated rebuttal. Thirdly, companies that are designated as “gatekeepers” will have to company will the Digital Markets Act’s “dos” and “dont’s”. On the one hand, examples of “dos” are allowing users to instal third-party apps with the “gatekeeper”’s operating system or allowing the promotion of offers and conclusion of contracts by business users with customers outside the “gatekeeper”’s platform. On the other hand, examples of “don’ts” are banning the use of competing data business users or ranking the “gatekeeper”’s own products in a more favourable manner than the third-party ones.

Additionally, to ensure compliance with the Digital Markets Act, the Commission can impose sanctions i.e. fines of up to 10% of the company’s total worldwide annual turnover. Fines can increase up to 20% in case of the repeated infringement. Moreover, the Commission may opt for periodic penalty payments of up to 5% of the company’s total worldwide annual turnover. Other remedies, such as obliging a “gatekeeper” to sell a business wholly or partially, are also contemplated in the sanctions’ framework.

What are the benefits of the Digital Markets Act?

Arguably, the Digital Markets Act will build a fairer business environment for business users dependent on “gatekeepers” to offer their services. Moreover, access to the market for innovators and technology start-ups will be facilitated since they will not have to company with unfair terms and conditions limiting their development to the advantage of “gatekeepers”. From the consumers’ perspective, it will be easier to switch service providers and gain direct access to services and fair prices. In a nutshell, “gatekeepers” will continue innovating and offering new services without engaging in unfair practices to gain an undue advantage over business users and consumers.

What are points of criticism moved by legal scholars?

Among the several points of criticism raised by legal scholars, this post presents the following claims: (1) the Digital Marktes Act increases regulatory fragmentation, (2) the Digital Markets Act ignores legitimate justifications, (3) the blanked prohibitions laid down in the Digital Markets Act are economically harmful.

Firstly, the Digital Markets Act hinders the EU’s capability to lead in the global digital economy by increasing regulatory fragmentation. The latter is costly and lowers scaling opportunities for tech companies. The main issue relates to the fact that, according to art. 1(6), Member States can set out rules and obligations for “gatekeepers” within the realm of national competition law. This paves the way for diverging interpretation and implementation of the Digital Markets Act in the Member States.

Secondly, the Digital Markets Act ignores legitimate justifications in the sense that the only exceptions accepted are on grounds of public morality, public health or public security. Efficiency and economic considerations are completely out of the picture.

Thirdly, scholars claim that the scope of the Digital Markets Act’s prohibitions encompasses pro-competitive and pro-innovation practices. For instance, the prohibition of self-favoring practices i.e. “gatekeepers” favoring their own products and services over their rivals” laid down under art. 5(1) fails to recognize that these are common business practices enhancing consumer benefits as a result of competition between business users. The ultimate risk is, therefore, reduction of consumer’s welfare. Moreover, one could argue that blanket prohibitions violate the principle of proportionality and right to fair trial encapsulated in the EU Treaties.

To conclude, this post introduced readers to the Digital Markets Act as an innovative tool to prevent unfair practices by “gatekeepers” in the digital sectors. By discussing the notion of “gatekeeper”, the practical implications, and pros and cons of its implementation, it emerges that the Digital Markets Act is a first step towards regulating big tech companies operating within the EU internal market. It would be certainly interesting to examine, starting from 2 May 2023, enforcement by the European Commission to express an opinion on the well-functionement of the regulatory regime set out in the Digital Markets Act.

Sources:

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”) OJ L 265, 12.10. 2022, p. 1-66.

European Commission, Proposal 2020/0374 (COD) for a regulation of the European Parliament and of the Council on contestable and fair markets in the digital sector of 15 December 2020 (Digital Markets Act) COM (2020) 842 final.

European Commission, ‘Questions and Answers: Digital Markets Act: Ensuring Fair and Open Digital Markets” (ec.europa.eu, 31 October 2022) <https://ec.europa.eu/commission/presscorner/detail/en/qanda_20_2349 > accessed 23 February 2023

European Parliament, ‘Digital markets act Impact assessment (SWD(2020) 363, SWD(2020) 364 (summary)) accompanying a Commission proposal for a regulation of the European Parliament and of the Council on contestable and fair markets in the digital sector (digital markets act) COM(2020) 842’ <https://www.europarl.europa.eu/RegData/etudes/BRIE/2021/662641/EPRS_BRI(2021)662641_EN.pdf> accessed 24 February 2023.

M Bauer et al, ‘The EU Digital Markets Act: Assessing the Quality of Regultion’, ECIPE Policy Brief, No. 02/2022 <https://ecipe.org/wp-content/uploads/2022/01/ECI_22_PolicyBrief-TheEuDigital_02_2022_LY03.pdf> accessed 24 February 2023.

A Portuese, ‘The Digital Marktes Act: A Triumph of Regulation over Innovation,’( ITIF, 24 August 2022) <https://itif.org/publications/2022/08/24/digital-markets-act-a-triumph-of-regulation-over-innovation/ > accessed 24 February 2023.