Digital Markets Act: A Proposal to Redefine Competition Laws In the European Union
Digital Markets Act: A Proposal to Redefine Competition Laws In the European Union

The Digital Market Act (DMA) is a legislative proposal initiated in the European Union (EU) that aims to create a level playing field among various small and large entities in the EU digital economy. It was introduced on December 15, 2020 by the European Commission to ensure fair and contestable Digital Markets. The proposal cleared a yearlong hurdle in the European Parliament Plenary Session on December 14, 2021, where the Parliament allowed commencement of negotiations with Member States on the various provisions of the Act. Not only does this piece of intended legislation mark an important update to the internet regulations in EU, it is also a breakthrough in competition laws. This is a crucial step in the EU’s digital strategy

The Internal Market Committee of the European Parliament agreed on a compromise text based on the suggestions by the Members of European Parliament and the Digital SME Alliance. The subsequent changes introduced in the original draft blacklist certain practices of large platforms, increase the threshold for qualifying as a “gatekeeper” and propose centralized enforcement of the Act by the EU Commission, in cooperation with national authorities.

DMA acknowledges the noted improvement in efficiency and effectiveness that has taken place in the EU since the digital economy boomed. However, this spurt in online interaction among consumers and service providers is dominated by a small number of very large platform companies, among the thousands of other companies operating in the economy. Some of these giant establishments control the ecosystem of the EU digital economy and prevent new companies from contesting themselves, irrespective of how innovative they may be.

This disparity has forced policymakers to reconsider the digital environment and applicable laws by strengthening and updating the regulatory model. It is widely agreed by experts that the existing competition policy procedures in the EU are unable to keep pace with the rapid changes in the digital economy. The remedies may be insufficient to deal with the complex challenges produced by the wave of digitization over businesses. In light of this, an expert panel constituted by the Directorate-General for Connected Networks, Content and Technology and other institutions, found it necessary to regulate the activities between platforms and regulators and users.

Why existing competition rules cannot operate in the digital framework

Competition in the European Union is governed by Title VII of The Treaty on Functioning of the European Union (TFEU). The wordings of Article 101 and Article 102 of TFEU imply that competition authorities can only intervene ex post, after a case-by-case assessment of the situation has been made. An evaluation of the market conditions, environment and the platform at hand will be followed by a determination of whether the platform is a dominant one or not. Thus, even if a supplier of online platform services has a big turnover and a large number of business or end users, the competition authority cannot simply conclude that it has a dominant position within the meaning of Article 102 TFEU. It should instead identify the relevant market first and then examine its characteristics to determine whether such a platform is dominant or not. If the competition authority establishes that the platform in question has a dominating market position, it must demonstrate that it misused the position.

Four main factors are to be considered on a case to case basis, namely, defining the relevant market, assessing market power, keeping a check on anti-competitive behavior of the players and tracking mergers that are not notifiable under EU Laws. This process leads to an ultimate situation where a remedy is accorded after damage has been caused, and therefore, is not an ideal situation

“Defining Gatekeepers”

The most striking feature of DMA is the categorization of dominant forces as “gatekeepers”. It is a new legal category of platforms that connect the buyer and the seller and provide essential and core services such as search engines, front end display, messaging services and even social networking platforms.

Article 3 under Chapter II of the Act defines “gatekeepers” as a core platform service provider that has a significant impact on the internal market operating as a gateway for businesses to reach out to potential consumers and maintains an entrenched and durable” position in its operations.

In addition to this basic definition, the DMA adds certain additional criteria to identify an online service platform as a gatekeeper. It should exceed a number of size thresholds. As per the newly approved draft, it should have a turnover of more than 8 billion pounds in the last three financial years, 45 billion monthly active end users, 10,000 business users and a market capitalization of 50 billion pounds. These thresholds are designed to identify those platforms which capture the largest portions of the digital economy and have the potential to manipulate the same with the large quantities of data and sensitive information it possesses. It almost always comes down to the GAFAM tech giants (Google, Amazon, Facebook, Apple and Microsoft). Furthermore, the compromise text foresees restrictions on killer acquisitions, in which incumbents seek to eliminate future innovation and competition by acquiring nascent competitors. In situations of systemic noncompliance, the Commission may prohibit gatekeepers from undertaking acquisitions in sectors relevant to the DMA in order to repair or avoid additional harm to the internal market.

Digital Markets Act and competition policy

Articles 101 and 102 of TFEU have as their objective undistorted competition in any market. The DMA on the other hand aims at ensuring that markets, especially digital ones, where gatekeepers operate, remain free and fair and contestable. They should not suffer from the actual, likely or presumed effects of the conduct of dominant players like gatekeepers on the market that are covered by the proposed legislation.

EU Market is nothing but the Single Market, defined at its core by the Four Freedoms, i.e., free movement of goods, services, capital and person. Considering that services provided by the gatekeepers have a cross border nature, it is especially important for them to uphold the sovereignty among all Member States. Therefore, Article 1(5) of the Act prohibits Member States from imposing any further obligations on gatekeepers for the purpose of contestable and fair markets.

Further, Article 1(6) states that the DMA is unaffected by the implementation of Articles 101 and 102 TFEU and their corresponding national laws. It may be assumed in this context that this provision is not prejudicial to the application of national competition laws to companies that do not meet objective criteria to be designated as gatekeepers under the DMA, but also to those undertakings that do meet objective requirements (designated gatekeepers).

These provisions under DMA, in addition to the prohibitions on the use of data for targeted or micro-targeted advertising, will become essential to keep in check the exploitative practices of social media giants, like Facebook, as apparent from the 2019 Bundeskartellamt case. In this case, the German Federal Court confirmed charges of abuse of dominant position against Facebook, on account of the platform’s activities forcing its users to share data with other Facebook-owned services like WhatsApp and Instagram. The court acknowledged the dominant position of Facebook in the German market, the volume of sensitive data it possesses and the lack of choice available to its users.

Conclusion

The DMA is a novel and innovative approach to curb anti-competitive behavior of gatekeepers in the digital market. The ambit of digital markets under the Act has now been expanded to include connected TVs, virtual assistants, and web browsers. Although the DMA is intended to be an ex-ante regulatory tool to address issues that cannot be (effectively) addressed by EU and national competition policies and should not prejudice the application of these policies, the concurrent existence of this regulation and competition law may result in over-enforcement – or double-enforcement – against the same undertaking for the same behaviour. A temporal and conceptual separation of ex-ante DMA regulation and ex-post competition enforcement in digital marketplaces has been proposed in order to avoid double enforcement.

This harmonic combination of ex-ante and ex-post rules may at present be the best solution to the complex challenges posed in the digital framework. Traditional competition laws are too slow and narrow to be able to address these issues and in many cases the harm cannot be undone. The confluence of elements seen in large platform ecosystems, such as direct or indirect network effects, economies of scale, and data-driven economies of scope, can result in market tipping behaviour that is difficult to address by ex post regulation. To ensure market contestability, we must instead carefully build deep structural solutions. The Centre on Regulation in Europe suggests that the DMA should promote competition, market contestability and innovation by complementing competition law when it is ineffective or unable to intervene. Further, the DMA should be allowed to grow as a single piece of legislation and should not be fragmented by laws of Member States governing the activities of gatekeepers.