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Article of LAWBACH: The Digital Markets Act - European framework for online competition (Part 2)

The Digital Markets Act - European framework for online competition (Part 2)

On 15 December 2020, the European Commission presented, in parallel to Digital Services Act, the Digital Markets Act (DMA), a proposal for a safer and more transparent European digital single market that will be subject to the ordinary legislative procedure.

The draft regulation creates a new category of operator "gatekeepers" while preserving existing anti-competitive provisions(1).


THE GATEKEEPER QUALIFICATION

Article 2§1 enshrines the notion of a gatekeeper designated as a "provider of core platform services designated pursuant to Article 3".

"Essential services" means services such as social networks, search engines, advertising services, but also video-sharing platform services.

The qualification of gatekeeper implies the meeting of 3 criteria:

  • it has a significant impact on the internal market. This first condition will be presumed to be met if the essential service is provided in at least 3 Member States and has an EEA turnover of at least EUR 6.5 billion in the last 3 financial years. An alternative criterion is also proposed - a capitalisation of at least EUR 65 billion in the last financial year.
  • it operates a core platform service which serves as an important gateway for business users to reach end users. This second condition will be presumed to have been met if the service is used by at least 45 million active users per month established or located on the territory of the Union (this criterion is reminiscent of the criteria for qualification as a very large platform contained in the DSA). As for professionals, 10,000 active users must be registered during the last financial year.
  • it enjoys an "entrenched and durable position", or it is foreseeable that it will enjoy such a position in the near future. This condition will be met if the second condition is fulfilled during the last three financial years.

Thus, meeting the economic thresholds referred to in the Regulation gives rise to a presumption of qualification as a gatekeeper(2). Any gatekeeper meeting these criteria, established in the Union or not will then be subject to the DMA.

However, the qualification of gatekeeper is not fixed: indeed, the Commission may question its assessment by means of the verification of the said criteria (on request or on its own initiative), and must necessarily review the status of the entities designated as such every 2 years(3). The obligation of transparency requires that the list of gatekeepers be published.


WHAT ARE THE OBLIGATIONS FOR ALL GATEKEEPERS?

Article 5§1 of the DMA sets out the obligations of all gatekeepers.

As the DMA is intended to create a more equitable and fair trading environment, most of the new provisions are geared towards the protection of business users, even if their application in practice will necessarily result in an improved digital experience for end users(4).

The new measures to protect professionals include several prohibitions on unfair practices by gatekeepers.

Thus, gatekeepers will not be able to prevent business users from promoting their goods or services through third party online intermediation services and on different terms.

The regulation dissociates the phase of promotion of the professional's offers and the phase of conclusion of the contract with the end user. Indeed, professionals should be able to conclude a contract with end-users without using the platform, while having the possibility to promote their offers on the platform. This provision tends to reduce the legal and economic dependence of the professional on the platform.

To neutralise certain restrictive clauses against professional users, the Commission facilitates the reporting of abusive practices. Indeed, the gatekeepers must not prevent the professional user from notifying the competent authorities of the existence of such practices.

Finally, platforms will have to improve the transparency of their pricing policy and make available to advertisers or publishers, free of charge, all information enabling them to identify the price paid but also the amount granted to the publisher to implement an advertisement.

Article 5 also contains certain prohibitions for the protection of end-users.

Gatekeepers must end the practice of signing up for multiple platform services(5). Users will no longer be forced to sign up to services other than the platform's main service.

Also, the regulation imposes a prohibition on combining users' personal data with another service without their consent. This obligation is intended to prevent any massive exploitation of data to promote another service provided by the gatekeeper, unless the end user has given his express consent.


WHAT OBLIGATIONS ARE "SUSCEPTIBLE OF BEING SPECIFIED" IN RELATION TO THE SERVICES OFFERED BY THE GATEKEEPER?

In addition, the Commission proposes in Article 6 of the DMA an array of obligations for the various gatekeepers depending on the services offered.

In this respect, the Commission will have to determine the undertaking concerned to which the gatekeeper belongs and to specify the list of core platform services which are provided within that same undertaking(6).

Thus, Article 6 prohibits gatekeepers from using data generated by business users on the platform to compete with them - such a prohibition includes data not accessible to the public, but also data generated by the activity of business users and that of end users (consumers).

The gatekeeper must allow software, applications, or application shops to run effectively on its system.

Furthermore, in ranking services it must not privilege its products and services to the detriment of third parties and must guarantee the portability of data of any user (professional and consumer)(7).

Advertisers and publishers may be granted at their request and free of charge, access to the various performance measuring tools used by the gatekeeper(8). Also, professional users will be able to consult aggregated or non-aggregated data on the use of the service provided by the platform, in the context of their activity of providing goods or services.

The gatekeeper shall disclose the data generated by the use of its search engine and shall provide any business user with fair and non-discriminatory access to its application shop.

Finally, end-users must be able to uninstall any pre-installed application in its essential platform service, provided that the application must not be essential to the functioning of the operating system(9). Furthermore, the gatekeeper must not interfere with the user's free choice in the use of certain applications or services, as well as in the choice of internet service provider.


IMPLEMENTATION OF GATEKEEPER'S PROVISIONS

In order to ensure the effective implementation of the obligations, the Regulation states that the Commission may examine the measures taken by gatekeepers and, if it considers that these do not allow for "effective compliance with the obligations" provided for in the text, to specify the obligations remaining with the gatekeeper.

Like the Digital Services Act, the regulation provides for a series of rules(10) aimed at preventing circumvention of the obligations, as well as the annual establishment of an audit on techniques used to target end-users(11).

A particularity of the DMA is that the gatekeeper has a duty to inform the Commission of any merger(12).

Two exceptions to the implementation of the obligations are nevertheless provided for in the text.

First, the gatekeeper may request due to "exceptional circumstances beyond the control of the gatekeeper (which would threaten) the economic viability of the operation of the gatekeeper in the Union"(13) from the Commission to suspend one or more of its obligations: they may be partially or fully suspended.

Such an exception will only be granted by the Commission for the time necessary to "remedy this threat to its viability". No permanent suspension in the form of an exemption shall take place.

The Commission will then review the situation annually to see whether the "threat" is still present(14).

The gatekeeper (or the commission on its own initiative) may also request an exemption from one or more obligations, justified by the public interest.

Such a request shall be based on public morality, public health or public safety.

The decision will therefore require a comparison of the compliance of the gatekeeper's obligation with the public interest imperative, as well as the effects on the latter and on third parties.

As with suspension, such an exemption may be subject to conditions and obligations decided by the Commission and imposed on the gatekeeper.


WHAT ARE THE SANCTIONS?

It is the Commission which shall establish by decision(15) the breaches of the obligations referred to in the Regulation. It may impose a penalty in the same decision:

  • fines of up to 10% of the company's total annual worldwide turnover;
  • periodic penalty payments up to 5% of average daily turnover;
  • in case of systematic breaches of the DMA obligations, additional corrective measures may be imposed on gatekeepers. These measures should be proportionate to the infringement committed. It is interesting to note here that as a last resort, non-financial remedies may be imposed by the Commission. These may include behavioural and structural remedies(16) such as the divestiture of (parts of) the business.

Finally, Article 26 introduces collective liability in the case of a group of undertakings. It provides that when a fine is imposed on an association of undertakings considering the turnover of its members and the association is not solvent, the latter is required to call for contributions from its members to cover the fine.


By: Lora Shalganova

    (1)Art. 101 and 102 TFEU;

    (2)The Commission may still designate a gatekeeper even if it does not meet the economic thresholds set out in Article 3, using other criteria such as size, number of business users, barriers to entry resulting from network effects or data collection etc.(Art.3§6);

    (3)Art. 4 of the Regulation;

    (4)According to the Commission, these provisions will give users a choice between more and better services, more possibilities to change supplier if they wish, as well as direct access to services and fairer prices;

    (5)This provision concerns both professional users and end-users;

    (6)Art. 3§7;

    (7)Any user can create competition between gatekeepers by transferring their data from one platform to another;

    (8)Such access will allow advertisers and publishers to compare performance between platforms and the different criteria used to judge performance;

    (9)The Commission does not formally prohibit such a practice, but announces its supervision by allowing the consumer to be able to uninstall the said application, which is considered secondary to the functioning of the operating system;

    (10)Art. 11;

    (11)Art. 13;

    (12)Art. 12;

    (13)The notion of "exceptional circumstances beyond the control of the gatekeeper (which would threaten) the economic viability of the operation of the gatekeeper in the Union" appears rather vague. Indeed, as this text is aimed at gatekeepers which, in essence, hold a certain economic weight on the digital market, it is difficult to imagine the exceptional circumstances generated by the obligations of the regulation which would jeopardise the economic viability of the platform;

    (14)Art.8§2;

    (15)Taken in accordance with the advisory procedure referred to in Article 32;

    (16)The practical implementation of such a decision could not take place without difficulties, especially if it targets companies located outside the EU.