Part 2: Digital Markets Act: establishing a level playing field

In our previous article, we discussed the introduction of two pieces of legislation in the European Union, to overcome the challenges presented by the acceleration of digitalisation.  We discussed the Digital Services Act at length. In this Part 2, we will dig deeper into its sister legislation, the Digital Markets Act.

What is the Digital Markets Act?

The main aim of the Digital Markets Act (the “DMA”) is “to establish a level playing field for innovation, growth, and competitiveness, both within the European single market and globally”.

In short - the DMA aims to limit the economic domination of very large digital platforms. 

In fact, according to the European Commission’s estimations, more than 10,000 online platforms operate in the European digital market, but only a small part of these players capture the bulk of the economic value generated by these activities. This includes Google, Apple, Facebook (now Meta), Amazon and Microsoft (known as GAFAM) and other industry giants, who are now considered to be in a position to control access to digital markets.

Who is impacted by the Digital Markets Act?

The DMA includes rules governing the economic activities of the largest online platforms, which are defined as those that have a “strong impact on the internal market, are an important access point for user businesses to reach their customers and have or will have in the foreseeable future, a strong and sustainable position.”

These players are referred to as “access controllers” (or “gatekeepers”) by the Commission - meaning that they have become gatekeepers for businesses and consumers to enjoy the benefits of the Internet, making such users dependent on their services and preventing competition from other companies.

Under the DMA, the following thresholds determine whether a platform is considered to be a gatekeeper:

• A strong economic position with a turnover of more than €7.5 billion in the European Economic Area or a market capitalisation of more than €75 billion with control of one or more core platform services in at least three Member States;

• Control of a core platform service (such as search engine, social media network, messaging, online marketplace, etc.) used by more than 45 million European users per month and more than 10,000 professionals per year in the European Union;

• A “strong and sustainable” market position with the previous two thresholds exceeded in the previous three years.

The EU executive may also qualify a company as a gatekeeper on the basis of other, more qualitative criteria, or conversely, decide to exempt a company that would otherwise in theory meet the definition of a gatekeeper.

There are also exemptions for small to medium enterprises (SMEs) (apart from exceptional cases), to ensure that the rules laid down in the Regulation are proportionate.

Furthermore, there is also an “emerging gatekeeper” category to impose obligations on companies whose competitive position is demonstrated but which cannot be considered to be “sustainable” – thus, ensuring the progressive nature of the obligations.

What are the obligations under the Digital Markets Act?

Organisations that meet the above criteria must identify themselves as gatekeepers or will be subject to enquiries in order for authorities to make such a determination.

Several obligations and prohibitions are imposed on such gatekeepers, which include:

• ensuring users’ rights to unsubscribe from platform services under conditions similar to subscription;

• ensuring the inter-operability of their services (a gatekeeper offering several services cannot force a user to use a service that is ancillary to the essential platform service, in line with the existing prohibition of tying under competition law);

• giving sellers access to their marketing or advertising performance data on the platform;

• not favouring their own services or products over those of other companies in the same market (self-preference);

• not using personal data collected during one service for the purposes of another service;

• not imposing unfair conditions on business users;

• not imposing the most important software by default when installing their operating system (e.g. browsers or search engines); and

• being prohibited from requiring application developers to use certain services in order to be listed in app stores.

What are the sanctions for non-compliance?

The European Commission will be the only body able to enforce the DMA. 

It will be able to engage in a dialogue with gatekeepers to ensure that they have a clear understanding of the obligations imposed on them and to clarify their application, if necessary. 

An advisory committee and a high-level group will also be set up to assist the Commission.  The Member States will also be able to empower national authorities to initiate investigations into possible infringements and to transmit their findings to the Commission.

In the case of non-compliance with the DMA, gatekeepers risk a fine of up to 10% of their total worldwide turnover.  In the event of a repeat offence, a fine of up to 20% of worldwide turnover may be imposed.

Also, if the gatekeeper breaches the regulations at least 3 times in 8 years (systematic non-compliance) – the Commission may open a market investigation and if necessary, impose behavioural or structural remedies.

When does the Digital Markets Act come into effect?

Negotiations of the DMA led to an agreement between the European Parliament and the EU Council on 24 March 2022. The Act was expected to enter into force 6 months after this date, however, formal adoption is now expected by Spring 2023 at the latest, according to the Executive Vice President of the European Commission, Margrethe Vestager speaking at the International Competition Network in May 2022. 

In any case, the DSA and the DMA will be exciting additions to the EU’s toolkit to regulate the BigTech players who have so far profited from the lack of comprehensive, harmonised and up-to-date legislation in Europe (and elsewhere). If you have any questions, please do not hesitate to contact us.

Article by Gabrielle O’Sullivan and Evane Alexandre, Gerrish Legal.