The Council of the European Union recently published an updated and now effectively final draft version of Europe's forthcoming landmark regulation for the digital economy, the Digital Markets Act ("DMA"). The DMA will require large digital platform companies to adhere to a long list of obligations and prohibitions, forcing many of them to significantly change the way they interact with consumers, business partners and competitors. Responding to criticism that ex post enforcement of competition law has not led to sufficiently fair and contestable digital markets, the EU is now turning to heavy-handed ex ante regulation of so-called "gatekeepers."

The new draft consolidates all amendments to the European Commission's (Commission) initial draft that were negotiated between the Council and the European Parliament and is therefore likely to be final. Under the timeline foreseen in the DMA, the summer of 2023 will be spent "designating" the gatekeeper companies and their covered digital services while gatekeepers will need to comply with the DMA's substantive prohibitions and obligations as of spring 2024.

The DMA has the potential to fundamentally change the digital economy in Europe and beyond. The DMA challenges gatekeepers' established business and monetization practices, poses significant legal compliance challenges and requires far-reaching changes to their technical infrastructure. For gatekeepers' business partners and smaller competitors, the DMA is expected to bring new business opportunities. End customers will benefit from better control over their data and greater choice. That said, the DMA comes with high complexity, the team that will enforce the DMA at the European Commission ("Commission") has not yet been set up, and more detailed guidelines remain to be published. There are still many open questions affecting the practical implementation of the DMA.

APPLICATION OF THE DMA TO CORE PLATFORM SERVICES OF DIGITAL GATEKEEPERS: THE DESIGNATION PROCESS

The DMA applies to so-called "gatekeepers" that operate at least one "core platform service" ("CPS").

Core Platform Services

Article 2(2)1 defines 10 different types of CPS: online intermediation services, online search engines, online social networking services, videosharing platform services, number-independent interpersonal communications services, operating systems, web browsers, virtual assistants, cloud computing services, and online advertising services that are linked to another CPS. Connected televisions, which the European Parliament wanted to add, are not included in the final list.

Qualitative Gatekeeper Criteria

A company providing a CPS (a "CPS provider") will be considered a gatekeeper if the Commission finds by means of a formal designation decision that it meets the DMA's gatekeeper criteria. Article 3(1) defines a gatekeeper as a company that:

  • Has a significant impact on the internal market;
  • Provides a CPS which is an important gateway for business users to reach end users; and
  • Enjoys, or is expected to enjoy in the near future,2 an entrenched and durable position in its operations.

Article 3(8) enables the Commission to designate a company as a gatekeeper directly on the basis of these qualitative criteria, although this would first require a lengthy market investigation that takes account of factors like barriers to entry, user lockin and other aspects. The Commission is unlikely to designate gatekeepers on the basis of only these qualitative criteria anytime soon.

Quantitative Gatekeeper Presumption Criteria

Instead, the first round of gatekeepers will be designated on the basis of quantitative presumption criteria that look at the size of the CPS provider and number of its active users. Under Article 3(2), a company is presumed to satisfy the qualitative gatekeeper criteria of Article 3(1) under the following circumstances: (i) the company provides the same CPS in at least three EU Member States and, at a group-wide level, achieved an annual turnover of at least €7.5 billion within the EU in each of the last three financial years, or a market valuation or equivalent fair market value of at least €75 billion in the last financial year, and (ii) the CPS in question had, in each of the company's last three financial years, at least 45 million monthly active end users established or located in the EU, and at least 10,000 yearly active business users established in the EU.3

CPS providers have to assess if they meet these quantitative presumption criteria and, if that is the case, self-report to the Commission under Article 3(3). This notification will normally be followed by a Commission decision designating the gatekeeper and each of its relevant CPS meeting the criteria as being subject to the DMA. Article 3(5) allows CPS providers to put forward rebuttal arguments to convince the Commission that despite meeting the presumption criteria they do not meet the qualitative gatekeeper designation criteria for an individual CPS.

However, the hurdles for a successful rebuttal are high and the Commission only needs to consider such arguments in more detail if they "manifestly put into question" the presumption. Several procedural rules of the DMA and a threat of significant fines seek to encourage the CPS provider's transparency and good faith cooperation with the Commission in the designation process.

Likely Outcome of Designation Process

It is expected that Alphabet, Amazon, Apple, Meta, and Microsoft meet the quantitative presumption criteria with regard to several of their services. It remains to be seen which other companies will be designated as gatekeepers. An estimate of 15-20 companies has been suggested in the press, but this count may change and is in any event likely to increase over the years as more and more companies meet the quantitative presumption criteria. Gatekeeper designations will be made public and are specific to individual CPS so that a company may fall under the DMA for some of its CPS but not for others.

To view the full article click here

Footnotes

1. Throughout this article, and unless otherwise noted, all references are to the July 11, 2022 draft version of the DMA

2. Under Article 17(4), the Commission can designate companies that do not yet enjoy an entrenched gatekeeper position but are likely to do so in the near future as emerging gatekeepers, and impose on them a sub-set of the prohibitions and obligations that apply to gatekeepers. These situations are most likely to arise on markets that are close to a tipping point.

3. An annex to the DMA sets out specific rules how to count end users and business users, but questions can be expected to arise.

Originally Published by Intellectual Property & Technology Law Journal

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.