Digital Markets Act Now Firmly on its Way - McDermott Will & Emery

Digital Markets Act Now Firmly on its Way

Overview


On March 24, 2022 the Council of the EU and the European Parliament reached political agreement on the “Regulation of the European Parliament and of the Council on contestable and fair markets in the digital sector” (Digital Markets Act or DMA). The political agreement comes just 15 months after the European Commission (Commission) published its legislative proposal (Proposal). The DMA aims to ensure fair and contestable markets in the digital sector. It will, once formally adopted, impose a set of prohibitions and obligations on “core platform services” providers that are designated “gatekeepers” under the DMA. It will also enable the Commission to carry out market investigations and sanction non-compliant behavior.

Along with the Digital Services Act, the DMA forms part of a comprehensive reform of the digital space in the European Union, and is a key component of the “European digital strategy” to make Europe fit for the digital age.

The DMA is meant to complement the enforcement of EU and national competition law, and so is without prejudice to the implementation of EU and national competition rules regarding unilateral behavior. In the words of Margrethe Vestager, Executive Vice-President of the Commission, “no one should expect the new regulatory instrument to replace Article 101 and 102 enforcement actions”. *

In Depth


Scope of the DMA

The DMA will apply to “core platform services” providers (CPSPs) that are designated as “gatekeepers” under the DMA.

  • Core platform services – the DMA will contain a list of “core platform services” (CPS) that fall within its scope, such as online marketplaces, operating systems, cloud services, online search engines, voice assistants, etc.
  • Gatekeepers – “gatekeepers” essentially refer to “companies which create bottlenecks between businesses and consumers, and sometimes even control entire ecosystems.

    To be designated as a gatekeeper, the CPSP, in principle needs to meet certain qualitative and quantitative thresholds. The qualitative thresholds (such as the requirement to have an “entrenched and durable position” now or in the near future) seemingly remain unchanged since the amended text was adopted by the European Parliament in December 2021 (see here). It appears that the quantitative thresholds have however shifted once more. Originally, the Commission’s Proposal required an annual EEA turnover equal to or above EUR 6.5 billion in the last three financial years, or an average market capitalization of at least EUR 65 billion in the last financial year as well as for the CPSP to provide a CPS in at least three Member States. The European Parliament amended the annual turnover and average market capitalization thresholds to EUR 8 billion and EUR 80 billion, respectively. From publicly available information, it appears that this has now moved to EUR 7.5 billion and EUR 75 billion. In addition to the turnover / market capitalization threshold, CPSPs must have at least 45 million monthly end users in the European Union as well as 10,000 annual business users.

The DMA will impose a set of ex ante prohibitions and obligations on gatekeepers, such as prohibitions on “self-preferencing” (i.e., ranking or treating own products/services more favorably), combining and cross-using personal data without the user’s explicit consent, using MFN clauses, and imposing obligations to allow users to uninstall pre-installed software applications, etc.

Since the Commission proposed the draft text of the DMA in December 2020, new obligations and prohibitions have been included, as described in more detail below.

Non-compliance with the DMA may result in a fine of up to 10% of the gatekeeper’s worldwide turnover, increasing to 20% in the case of recidivism. If a gatekeeper is found to have systematically failed to comply with the DMA, i.e., three infringements in eight years, the Commission can open a market investigation and, if necessary, impose behavioral or structural remedies. This may include a ban on acquisitions for a specified period of time. In addition, gatekeepers could face collective actions from individuals and companies in national courts in cases of non-compliance with DMA obligations.

Most Notable Changes Since the Commission’s Proposal

Since the Commission proposed the draft text of the DMA in December 2020, there have been some notable changes to the scope of the DMA, such as:

  • An increase in the quantitative thresholds (as explained above).
  • Interoperability requirement for messaging services – Interoperability obligations of messaging services will be introduced in the DMA, forcing gatekeepers’ messaging services to open up and interoperate with smaller messaging platforms upon the latter’s request. As a consequence, users may send messages and files and make videos across messaging apps, leading to more user-choice. Although there do not seem to be any current plans to introduce an interoperability requirement for social network platforms, it cannot be ruled out that interoperability requirements will in the future also be introduced in relation thereto.
  • Fine of up to 20% global turnover for repeated infringements ¬– The maximum fine has, following the political agreement, been increased to 20% of a gatekeeper’s worldwide turnover in case of repeat infringements.
  • Expansion of the list of “core platform services” – Virtual assistants, connected TV as well as web browsers have now also been added to the list of “core platform services”.
  • Explicit user consent – Inclusion of the obligation on gatekeepers to obtain explicit consent from the user to process their personal data and/or combine the user’s personal data for targeted advertising purposes.
  • Prohibition on requiring the use of an in-app payment system when using another CPS– “In-app payment systems” have now been added to the list of “ancillary services” that gatekeepers cannot oblige users to use when using a CPS of the gatekeeper.
  • Inclusion of the obligation to include a “choice screen” – Gatekeepers will need to include a “choice screen” enabling the user of a pre-installed CPS on an operating system to opt for a third-party option (likely encompassing browsers, voice assistants and search engines).
  • Expansion of the list of information to be made available to advertisers and publishers – The information that a gatekeeper is obliged, under Article 5 DMA, to provide to advertisers and publishers to which the gatekeeper provides advertising services has been expanded to include price-setting conditions / mechanisms.
  • The possibility for the Commission to temporarily block gatekeepers from making acquisitions in areas relevant to the DMA in case of systematic infringements.
  • Explicit link between Article 22 of Regulation 139/2004 (EU Merger Regulation) and the obligation to provide information – Gatekeepers are required to provide information to the Commission on proposed acquisitions of CPSs or other services within the digital sector. It has now been made explicit that the information gathered may be used to trigger the referral system set out in Article 22 of the EU Merger Regulation. For more information on the Article 22 referral system, see our article here.

Next steps

The agreed legal text still needs to be finalised at a technical level and reviewed by lawyer-linguists, before being formally approved by both the European Parliament and the Council. Once this process is completed, it will be published in the EU Official Journal and enter into force 20 days thereafter. The Commission estimates that this could be as early as October 2022. The rules will apply six months after its entry into force. It will then take another couple of months to designate the first gatekeepers. Designated gatekeepers will, however, have the ability to bring an appeal against that decision before the EU General Court.

In the meantime, as per Vestager’s comments during the CRA conference of March 31, 2022, the Commission is ready to “fully engage” with “anyone” on what the DMA means for their business and has in place an “open door policy”. The Commission recognizes that the DMA will bring about big changes for companies designated as gatekeepers and that they will need time to get it right.

Gatekeepers will have a few months to ensure their compliance with the prohibitions and obligations, during which time they will have to provide the Commission with relevant information about their business. It is estimated that gatekeepers will need to be fully compliant by the second half of 2023 / beginning of 2024. Increased regulatory oversight of gatekeepers is therefore just around the corner.

*The draft DMA agreed upon by way of the political agreement on March 24 2022 is not yet available. All information contained in this article is based on publicly available sources currently available.