Yesterday, the European Commission published its proposals for the Digital Markets Act (“DMA Proposal”) and Digital Services Act (“DSA Proposal”), proposing new regulation of “intermediary services” and “designated gatekeepers”. The proposals would impose new obligations on providers of digital services and augment enforcement powers.
I. Identification of Designated Gatekeepers
The regulation of “designated gatekeepers” has been the subject of much debate in recent years. Just last week, the UK’s Competition and Markets Authority published advice to the UK Government regarding the design and implementation of a new regulatory regime for digital markets.
The DSA and DMA Proposals are two central elements of the European Digital Strategy. The DSA Proposal focuses on the legal framework for “digital services”, which has remained largely unchanged since the E-commerce Directive of 2000. It imposes various transparency and content-related obligations on providers of “intermediary services” (see our analysis of the DSA Proposal here).
The DMA Proposal focuses on “designated gatekeepers”, defined as companies that control “core platform services”, meaning online intermediation services, online search engines, online social networking services, video sharing platform services, certain messaging services, operating systems, cloud services and advertising services (Article 2(2) of the DMA Proposal). They are subject to the DMA if they meet the following three conditions (cumulatively):
- they have a significant impact on the internal market – this is presumed to be the case “where the undertaking to which it belongs achieves an annual EEA turnover equal to or above EUR 6.5 billion in the last three financial years, or where the average market capitalisation or the equivalent fair market value of the undertaking to which it belongs amounted to at least EUR 65 billion in the last financial year, and it provides a core platform service in at least three Member States”;
- they operate one or more important gateways to customers – this is presumed to be the case “where [the undertaking] provides a core platform service that has more than 45 million monthly active end users established or located in the Union and more than 10,000 yearly active business users established in the Union in the last financial year”; and
- they enjoy, or are expected to enjoy, an entrenched and durable position in their operations – this is presumed to be the case if the undertaking met the other two criteria in each of the last three financial years.
Identification as a “designated gatekeeper” would trigger the application of a number of obligations. They are framed as being either absolute (e.g., the obligation to share advertising data) (under Article 5 of the DMA Proposal) or as being “susceptible of being further specified” considering of how they apply to the relevant “core platform service” (e.g., obligations to ensure interoperability) (under Article 6 of the DMA Proposal).
II. Prohibitions set out in the DMA Proposal
The DMA Proposal would establish a series of obligations and prohibitions relating to self-preferencing, interoperability, data-related practices and tying.
First, in relation to self-preferencing, the DMA Proposal would prohibit companies from favouring their own services over those provided by third parties in specified circumstances. This prohibition underpins many of the provisions of the DMA Proposal. For instance, “designated gatekeepers” would be prohibited from preventing “business users” from offering their products or services through third party “online intermediation services” at prices or conditions that are different from those offered through the gatekeeper’s “online intermediation services” (Article 5(b) of the DMA Proposal). Similarly, they would be obliged to allow “business users” to promote their offers and conclude contracts with third parties. (Article 5(c) of the DMA Proposal).
Further, when competing with “business users”, “designated gatekeepers” would be required to refrain from using “any data not publicly available” which are provided or generated by “business users” and their “end users”. (Article 6(1)(a) of the DMA Proposal). “Designated gatekeepers” would also be prohibited from favouring their own services and products over third party services and products in “rankings” (Article 6(1)(d) of the DMA Proposal).
Second, in relation to interoperability, “designated gatekeepers” would be required to generally “allow end users to un-install any pre-installed software applications on [their] core platform service” (Article 6(1)(b) of the DMA Proposal). Further, those offering operating systems would be required to “allow the installation and effective use of third party software applications and software application stores using, or interoperating with, [their] operating systems” (Article 6(1)(c) of the DMA Proposal), and “refrain from technically restricting the ability of end users to switch between and subscribe to different software applications and services to be accessed using [their] operating system” (Article 6(1)(e) of the DMA Proposal). Finally, they would be required to “allow business users and providers of ancillary services access to and interoperability with the same operating system, hardware or software features that are available or used [by themselves] in the provision of any ancillary services” (Article 6(1)(f) of the DMA Proposal).
Third, “designated gatekeepers” would have a number of data-related obligations, including a requirement that they “refrain from combining personal data sourced from [their] core platform services with personal data from any other services offered by [them] or with personal data from third-party services, and from signing in end users to [their] other services in order to combine personal data unless the end user has been presented with the specific choice and provided consent” (Article 5(a) of the DMA Proposal). Other than in relation to personal data, they would need to “provide business users, or third parties authorised by a business user, free of charge, with effective, high-quality, continuous and real-time access and use of aggregated or non-aggregated data, that is provided for or generated in the context of the use of the relevant core platform services by those business users and the end users engaging with the products or services provided by those business users” (Article 6(1)(i) of the DMA Proposal).
Finally, in relation to tying, “designated gatekeepers” would need to “refrain from requiring business users or end users to subscribe to or register with any other core platform services … as a condition to access, sign up or register to any of their core platform services” (Article 5(f) of the DMA Proposal).
III. Procedure and Next Steps
The DMA Proposal would grant the Commission new enforcement and sanctioning powers. As Commissioner Vestager noted, it includes investigative powers that had been discussed in connection with a proposed “new competition tool”, such that the “new competition tool [has been] folded within the DMA” to enable the Commission to “make sure that we don’t have tipping of markets that create other gatekeepers”. Specifically, the Commission would be empowered to conduct investigations to identify designated gatekeepers and their core services, and to ensure their compliance with the DMA.
The Commission would have the power to impose fines and periodic penalties of up to 10% and 5%, respectively, of an undertaking’s worldwide annual turnover. In the event of “systematic non-compliance” (the Commission has issued at least three non-compliance or fining decisions), the Commission would have the power to impose structural remedies, such as requiring the sale of units or assets. Enforcement of the DMA Proposal would rest with the Commission, but three or more Member States would be able to request that the Commission open an investigation.
The DMA Proposal would be applied without prejudice to Article 102 TFEU and national competition rules, as is currently the case with ex ante regulation in the energy, communications and financial services sectors. Commissioner Vestager has indicated that she expects that ongoing investigations of companies that could fall within the scope of the DMA Proposal would continue.
Finally, the DMA Proposal contemplates that “designated gatekeepers” would be required to notify the Commission of all concentrations involving “another provider of core platform services or of any other services provided in the digital sector”, irrespective of whether the EU Merger Regulation thresholds are met.
The DMA Proposal is the first step in the EU legislative process, which includes the European Parliament and the Council of the European Union that can amend the Commission’s proposal.