On December 15, 2020, the Commission published its proposal for the Digital Markets Act (“DMA”), which would impose a list of ex ante obligations on designated large online platforms that meet certain thresholds. The proposed DMA aims at preventing practices by large online platforms that, according to the Commission, either fall outside or cannot be effectively addressed by the existing EU competition rules. The DMA would represent a far-reaching expansion of the Commission’s regulatory powers in digital markets, and would significantly increase the regulatory burden on the designated companies.
On the same day, the Commission also published its proposal for the Digital Services Act (“DSA”) which would introduce online content moderation rules and regulate the liability of online intermediaries for third party content.
The DMA and DSA proposals follow an impact assessment and public consultation process which were launched in June 2020, and are part of the Commission’s efforts to modernize EU competition and online content rules in an era of digitalization. The proposed regulations will have to pass the ordinary legislative procedure via the Council of the EU (requiring a qualified majority of EU Member States) and the European Parliament. The Commission expects the DMA and the DSA to be adopted in mid-2022 and to enter into force by 2023, at the earliest.
The proposed DMA would apply to companies that offer “core platform services” (currently defined in Article 2) and which fulfill three cumulative criteria: market impact, gateway status, and entrenched market position (as set out in Article 3).
“Core platform services” would include online intermediation, online search engines, online social networking, video-sharing platforms, number-independent interpersonal communication services (e.g., messaging apps), operating systems, cloud computing services, and advertising. The Commission would have the power to extend the list of core platform services following a market investigation and publication of a report.
The Commission could designate the platform a gatekeeper if it meets three cumulative conditions:
- Significant impact on the internal market. The platform service must have a strong economic position and significant It will be presumed in circumstances where the platform service is provided in at least three EEA Member States, and (i) the annual EEA turnover of the platform’s corporate group amounts to at least EUR 6.5 billion in the preceding three financial years; or (ii) its market capitalization is at least EUR 65 billion in the preceding financial year.
- Gateway for business users to reach end users. The platform service must have a strong intermediation position connecting a large user base to a large number of businesses. This will be presumed where it has more than 45 million monthly active end users and more than 10,000 yearly active business users in the EU in the preceding financial
- Entrenched and durable The platform service must have a stable market position, which will be presumed if all of the quantitative criteria specified above (turnover, market value, and number of users) are met in each of the preceding three financial years. This condition may be met also if the platform will foreseeably have a stable position in the near future in which case it will be subject to a subset of obligations.
Companies will be required to undertake self- assessment and notify the Commission within three months after having met the quantitative thresholds. The Commission expects the thresholds to be met by 10 to 15 providers of core platform services. It will designate the gatekeeper status following companies’ notifications or following ex officio market investigations. A platform company will be able to rebut the Commission’s gatekeeper designation by providing sufficiently substantiated arguments that it does not meet the underlying conditions (e.g., by showing low entry barriers or customers multi-homing, i.e., using competing platforms). While not expressly stated in the Commission’s proposal, a designation ought to be appealable before the European Court of Justice under general EU law principles.
Gatekeepers’ ex ante obligations
Within six months of its gatekeeper designation, the platform will have to be in compliance with all obligations provided in Articles 5 and 6 of the proposed DMA. These consist of two sets of ex ante obligations: (i) a blacklist of seven obligations that gatekeepers have to obey without possibility for the Commission to provide further specification (Article 5); and (ii) a list of ten more open-ended obligations with which gatekeepers must comply, but which the Commission can specify in more detail (Article 6). To ensure that the applicable obligations are “future proof,” the Commission would have the power to adapt these obligations following a market investigation.
Obligations for gatekeepers
(Article 5 of Proposed DMA)
Obligations for gatekeepers susceptible of being further specified
(Article 6(1) of Proposed DMA)
|(a) Requirement for data silos, i.e., for individual user consent for combining personal data collected by one service with data collected from another service
|(a) Prohibition on using data that is not publicly available and is “generated through activities by those business users” to compete with the gatekeeper’s business users
|(b) Requirement to allow business users to offer same products on other platforms with different conditions
|(b) Requirement to allow users to be able to uninstall preloaded apps altogether (not merely disable those apps)
|(c) Prohibition on app stores from blocking in-app promotions that direct users to alternative places where they can transact with app developers
|(c) Allow third-party apps and app stores to be installed outside the core platform service, subject to proportionate measures to protect the integrity of hardware and operating systems
|(d) Prohibition against preventing or restricting business users’ ability to raise issues with public authorities
|(d) Rank third-party and the gatekeeper’s own products and services in a fair, non-discriminatory way, and refrain from treating its own products/services more favorably
|(e) Prohibition against requiring third-party services to use identification services with core platform services
|(e) Prohibition against technical restrictions of users’ ability to switch or use multiple apps and services on an operating system
|(f) Prohibition against bundling of subscriptions or user registrations for different services
|(f) Requirement to provide third-party access to, and interoperability with the operating system, hardware, and software features available to the gatekeeper’s own services
|(g)Requirement for advertising services to disclose to advertising and publisher customers the prices paid by the advertiser and publisher and revenue shares paid to the publisher
|(g)Requirement to give advertisers and publishers free access to their performance measuring tools for “independent verification of the ad inventory”
|(h)Requirement to provide data portability and the tools to facilitate data portability including “continuous and real-time access”
(i) Requirement to provide business users (including rivals) with “continuous and real-time access” to user data
and data generated from users’ interactions with their products on the gatekeeper’s platform
|(j) Requirement to provide “any third party providers of online search engines” access on FRAND terms to anonymized “ranking, query, click and view data in relation to free and paid search generated by end users on online search engines of the gatekeeper”
Limited defenses. The draft proposal explicitly excludes the absence of harmful competitive effects as a defense, and does not allow gatekeepers to justify behavior on grounds of procompetitive effects or consumer benefits. It appears at this stage that the only rebuttal options might include: (i) suspension, subject to the Commission-defined conditions and obligations, if the obligation puts the “viability” of the service at risk “due to exceptional circumstances beyond the control of the gatekeeper” (Article 8); or (ii) exemption, on grounds of public morality, public health, or public security (Article 9).
The grounds for potential justification are particularly narrow given that during the Commission’s consultation process most of the stakeholders suggested that, rather than having certain practices categorically prohibited, the Commission should scrutinize certain practices and prohibit them on a case-by-case basis in circumstances when they are most likely to have detrimental effects.
Monitoring and M&A scrutiny. The designated gatekeepers will be subject to certain monitoring obligations. Within six months of its designation, a gatekeeper will have to submit to the Commission an “independently audited description of any techniques for profiling of consumers.” The description would have to be updated at least annually. Additionally, gatekeepers would have to notify all mergers and acquisitions involving another provider of core platform services or any other digital service regardless of whether these transactions meet the EU merger control thresholds. The exact scope of the Commission’s review is yet to be clarified. Under the current proposal, the Commission’s review would not be suspensory and would not give the Commission any powers to prohibit such transactions.
Enforcement and market investigations
The enforcement of the proposed DMA would be overseen exclusively by the Commission, which plans to have a staff of 80 full-time employees dedicated to overseeing the DMA. The Commission would have enforcement tools that are typically used in antitrust proceedings, such as the powers to request information, conduct dawn raids, issue interim measures, and accept commitments. National competition authorities will be involved through their participation in a Digital Markets Advisory Committee, which the Commission will have to consult before taking certain decisions addressed to gatekeepers (e.g., on non-compliance or fines).
Failure to comply with an obligation set out in Articles 5 and 6, including failure to comply with interim measures or with commitments offered to the Commission, could lead to a fine of up to 10% of global turnover. Systematic non-compliance, defined as three or more non-compliance or fining decisions imposed in a space of five years, would be subject to a fine of up 10% of global turnover or to behavioral or structural remedies.
However, structural remedies, such as the much talked about breaking-up of certain digital platforms, could be imposed only as a last resort if “there is no equally effective behavioral remedy or where any equally effective behavioral remedy would be more burdensome for the gatekeeper concerned than the structural remedy.”
The DMA proposal does not provide for the ‘New Competition Tool,’ which was originally envisaged to give the Commission the ability to initiate market investigations and impose remedies in markets with “structural competition problems.” This instrument has been curtailed due to concerns raised by the Commission’s internal review panel, the EU Regulatory Scrutiny Board, over its necessity in light of other regulatory powers that the Commission and other authorities already have in relation to digital markets.
As a result, the ‘New Competition Tool’ has been transformed into the Commission’s powers to carry out a market investigation for purposes of adapting the ex-ante gatekeeper obligations, designating new companies as gatekeepers, or imposing behavioral or structural remedies for “systematic non-compliance.”
Key practical implications
An enforcement shift from an antitrust to regulatory arena with a lower standard of proof. The proposed DMA would complement the Commission’s antitrust powers in digital markets. In practice, however, the DMA may become the Commission’s instrument of choice in addressing practices in digital markets supplanting the Commission’s antitrust enforcement efforts. The ex-ante obligations in the proposed DMA would cover nearly all outcomes that the Commission and EU national competition authorities have sought in antitrust investigations in the tech sector thus far.
Furthermore, the proposed DMA would establish a lower standard of proof than existing competition rules for imposing remedies on large online platforms. The proposed DMA categorically prohibits a number of practices regardless of their actual effects on consumer welfare. This approach is justified by the stated objective of the DMA, which is to protect “contestable and fair markets in the digital sector” as values in themselves, without requiring the Commission to show detrimental effects on consumer welfare. We consider this to be a problematic development.
Risks of a patchwork of national rules despite increasing EU-level harmonization. The DMA seeks harmonization in this field by precluding Member States from introducing further obligations on gatekeepers for purposes of ensuring contestable and fair markets. However, Member States would still be allowed to impose rules pursuing other legitimate public interests. This issue is likely to be contentious. A number of Member States have already put in place, or are about to introduce, national rules that aim to address “market failures” in the digital sector.
As recently as on January 14, 2021, the German parliament passed profound amendments to the German Competition Act introducing, among other things, new forms of abuses by undertakings that the German competition authority (the “Bundeskartellamt”) have designated to have paramount significance for competition across markets. The amendments entered into force on January 19, 2021 and on January 28, 2021, the Bundeskartellamt already announced the first proceedings based on the amendments, by extending the scope of its investigation against Facebook.
Against this background, while the proposed draft of the DMA is an important milestone, it remains to be seen what the exact shape of the DMA will be once the EU legislative process is completed (and in particular once it has passed muster by the European Parliament).
 Commission’s Press Release QANDA/20/2349, “Digital Markets Act: Ensuring fair and open digital markets”, December 15, 2020, available at: https:// ec.europa.eu/commission/presscorner/detail/en/QANDA_20_2349; and Proposal for a Regulation of the European Parliament and of the Council on contestable and fair markets in the digital sector (Digital Markets Act) (COM/2020/842 final), available at: https://eur-lex.europa.eu/legal-content/en/ TXT/?uri=COM:2020:842:FIN (the “Proposed DMA”). The Commission staff working document accompanying the Proposed DMA is available here: https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX:52020SC0363.
 Commission’s Press Release IP/20/2347, “Europe fit for the Digital Age: Commission proposes new rules for digital platforms”, December 15, 2020.
 Including, for example, marketplaces, app stores and online intermediation services in other sectors like mobility, transport or energy.
 As defined in Directive (EU) 2018/1972, establishing the European Electronic Communications Code, according to which it means an interpersonal communications service which does not connect with publicly assigned numbering resources, namely, a number or numbers in national or international numbering plans, or which does not enable communication with a number or numbers in national or international numbering plans.
 That is to say, if a gatekeeper that is not yet considered to have “an entrenched and durable position” but it is foreseeable that it will have such a position “in the near future.” See, Proposed DMA, Article 15(4).
 Commission Staff Working Document – Impact Assessment Report – Part 2 – Accompanying the document Proposal for a Regulation of the European Parliament and of the Council on contestable and fair markets in the digital sector, Annex 2, Section 2.2 (page 17) and Annex 2.1, Section 3.6 (Digital Markets Act) (SWD/2020/363 final).
 The description must cover “the basis upon which profiling is performed, including whether personal data and data derived from user activity is relied on, the processing applied, the purpose for which the profile is prepared and eventually used, the impact of such profiling on the gatekeeper’s services, and the steps taken to enable end users to be aware of the relevant use of such profiling, as well as to seek their consent” (Proposed DMA, Preamble, para. 61).
 See also our October 12, 2020 Alert Memorandum “European Commission Announces New Policy To Accept Member State Referrals For Merger Review Even If EC And National Thresholds Are Not Met.” The proposed DMA will ensure that the Commission is notified of small transactions even if they do not meet EU and Member State thresholds.
 Proposed DMA, Articles 18 to 23.
 Proposed DMA, Article 16(2).
 Proposed DMA, Article 1(1).
 Proposed DMA, Article 1(5).
 These include Austria, Belgium, Bulgaria, Germany, Greece, Iceland, Lithuania and Romania. Also, on December 8, 2020, the Digital Markets Taskforce of the UK Competition and Markets Authority published its advice to the government on a new regulatory regime for digital markets. It would involve introducing ex ante measures applicable to certain digital firms that are designated as having “Strategic Market Status,” particularly with activities in online marketplaces, app stores, social networks, web browsers, online search engines, operating systems, and cloud computing services. See also: https://www.gov.uk/cma-cases/digital-markets- taskforce.
 See the Bundeskartellamt’s Press Release of January 28, 2021, available in English here. As reported in our November-December 2020 German Competition Law Newsletter, on December 10, 2020, the Bundeskartellamt initiated an investigation against Facebook for requiring users of its Oculus virtual reality glasses to also have a Facebook account.