Introducing the Digital Markets Act (I)
The Digital Markets Act ("DMA"), which entered into force on 1 November 2022 as an EU Regulation, aims to create fairer and more competitive markets in the digital sector and to counteract perceived regulatory gaps that have arisen due to the dynamic and fast-moving nature of digital business models. The DMA is intended to flank antitrust law, which generally subjects potential competition violations to an ex dpost examination, in the form of an additional ex ante control.
A. Normative purpose
The DMA is intended to protect undistorted competition, without prejudice to the continued applicability of competition law.1 Nevertheless, it differs from competition law. It aims at "another legal interest"2 – meant here is fairness and contestability.
The regulations of the DMA are intended to contribute to the proper functioning of the internal market in the digital economy by requiring central platform services to be "fair" toother (usually weaker) market participants.3 The DMA defines "unfair" as an imbalance between the rights and obligations of commercial users of core platform services that gives gatekeepers a disproportionate advantage.4 All market participants should be able to derive the appropriate returns from their innovative or other efforts free from discriminatory or unilaterally imbalanced conditions.
In addition to the term "fairness", "contestability" is another guiding concept in the DMA. Contestability in the sense of the Regulation is understood as the ability of companies to effectively overcome obstacles to market entry or expansion and to challenge gatekeepers with better products or services.5 The DMA thus uses the concept of contestability from microeconomics, which serves as a measure of the accessibility of a market to a potential competitor which is new in European competition law terminology.
Network, scale and data economies limit the contestability of gatekeepers' dominant market position. This reduces the incentive for gatekeepers to innovate and improve products and services, resulting in welfare losses for consumers. Therefore, the DMA prohibits gatekeepers from practices that are likely to increase barriers to market entry or expansion by their (potential) competitors, as this could lead to market foreclosure.
A low level of deniability may allow a gatekeeper to use unfair practices. Conversely, gatekeepers may use unfair practices to prevent deniability. There is thus an interaction between these two concepts.
B. Scope of application
The DMA is only applicable to so-called "gatekeepers". These are (a) companies that are operators of core platform services ("OCPS" or "CPS") and (b) also satisfy the following three cumulative qualitative requirements according to Article 3 (1) DMA (for more details see 2.):
- The OCPS must have a significant impact on the internal market;
- The CPS must serve as an important gateway for business users to reach end users;
- The OCPS has an entrenched and durable position inthe market or is expected to obtain such a position in the near future.
The fact that only the "gatekeeper nature" is taken into account and that the actual, possible or presumed effects are not relevant serves in particular to an acceleration of the process. In contrast to cartel law, comprehensive investigations of complex facts concerning the existence of a dominant position can be omitted in DMA proceedings.
What falls within the scope of a CPS is listed exhaustively in Article 2 (2) DMA:
- Online intermediation services and search engines;
- Online social network services;
- Video-sharing platform services;
- Number-independent interpersonal communication services;
- Operating systems;
- Cloud computing services as well as advertising services including advertising networks;
- advertising exchanges and other advertising brokerage services operated by the operator of one of the previously mentioned central platform services.
The term "core platform services" is to be understood as technology neutral,6 which means it is independent of the device or medium on which it is provided.
2. Legal presumption
Exceeding the thresholds of Article 3 (2) DMA results in a presumption of gatekeeper status.7 Under exceptional circumstances, it is possible for operators to prove that the above-mentioned qualitative requirements of Article 2 (1) DMA are not fulfilled despite the quantitative presumption being met. However, the burden of proof that there is no gatekeeper status even though it has been exceeded lies with the operators. On the contrary, the EC has the competence to define an OCPS as a gatekeeper even though the threshold values are not met.8
Regarding the individual quantitative presumptions:
2.1 Significant impact on the internal market
Significant influence on the internal market is presumed in accordance to Article 3 (2) (a) DMA9, if
a. the undertaking to which the OCPD belongs (i) has an annual turnover in the EEA equal to or above EUR 7.5 billion in each of the last three financial years or (alternatively) if (ii) its average market capitalisation or equivalent fair market value inthe last financial year was at least EUR 75 b billion, and
b. this OCPS provides the same CPS in at least three Member States.
In the EC's assessment of whether, despite exceeding the threshold, the requirements for designation as a gatekeeper are not met, only those pieces of evidence and arguments provided by operators that relate directly to the quantitative criteria will be considered. The EC examines the impact of the company on the internal market and goes beyond a mere consideration of turnover and market capitalisation. It also takes into account the absolute size of the company, the number of Member States in which it operates, the number of users exceeding the thresholds, the importance of the company, the overall scale of activity of the central platform service and the number of years in which the thresholds have been exceeded. In contrast, the DMA explicitly emphasises that efficiency gains do not constitute a justification, as they are irrelevant for the designation as gatekeeper.10
2.2 Access gate quality
OCPS are considered gatekeepers if the CPS is an important gateway from business users to end users. This is the case when a very large number of business users rely on a CPS to reach a large number of monthly active end-users, allowing the OCPS to influence a significant proportion of business users to its advantage.11
According to the presumption of Article 3 (2) (b) DMA, an important access gateway can be assumed if (i) more than 45 million monthly active end users established or located in the European Union and (ii) at least 10,000 yearly active business users established in the European Union have made use of it in the previous financial year. The term “monthly active end users” refers to the average number of end users12 who were active on a monthly basis during most of the previous fiscal year.
2.3 Stable market position
A OCPS must hold an entrenched and durable position with regard to its activity or it must be foreseeable that such a position will be attained in the near future.13
A stable market position is presumed in accordance to Article 3 (2) (c) DMA if it can only be contested by other market participants to a limited extent.14 For this purpose, the user thresholds used for the assessment as a gateway must have been reached over a period of at least three years in at least three Member States.15
3. Ratio behind Article 3 DMA
The recitals, encompass a justification for the choice of these three criteria. If a company has high turnover figures and meets the thresholds, it can be assumed that this company is able to monetise its users. If the market capitalisation is high, it can be assumed that there is a relatively high potential to monetise these users in the near future. From this monetisation potential,thequality of the access gateway could be inferred.16
The company’s financial capabilities would allow it to strengthen its market position, as well as provide advantages in acquiring other companies, although this has shown negative effects on the innovation activity.
The DMA considerations also focused on the gatekeepers' ability to influence when commercial users rely on a central platform service to reach a large number of end-users.1
4. Determination of the gatekeeper nature
The assessment of whether the gatekeeper nature is present, and therefore the scope of application of the DMA is opened, is carried out by the EC within the framework of a procedure described in the DMA. As indicators, the EC considers aspects such as extreme economies of scale or scope economies, very strong network effects, data-driven advantages, an ability to connect many business users with many end users due to the multisidedness of those services, lock-in effects, lack of multi-homing, conglomerate corporate structure or vertical integration. In addition, a very high market capitalisation, very high ratio of equity value over profit or a very high turnover derived from end users of a single CPS may be taken into account.18
The examination of the gatekeeper status is carried out by the EC within the framework of a requested or official market investigation. If the presumptions in accordance to Article 3 (2) DMA are met, the EC shall issue a designation decision within 45 working days.19 On the other hand, if the threshold values are not reached, but the qualitative requirements according to Article 3 (1) DMA are fulfilled, the EC shall designate in accordance with the procedure of Article 17 DMA, which prescribes a market investigation.
If a OCPS is designated as a gatekeeper, it must comply with the obligations arising from the DMA within six months according to Article 3 (10) DMA. The EC regularly reviews (at least every three years) whether the gatekeeper status continues to exist20, in order to cope with the rapid change and complexity of the CPS.21 The EC shall publish a list of gatekeepers as well as CPS and update it on a regular basis.
Overall, it can be said that the DMA represents a comprehensive reform of digital market regulation that will have a significant impact on gatekeepers as recipients, as well as commercial users and end users as protected groups of individuals.
The DMA can be seen as a supplement to the complex and often lengthy ex post enforcement in antitrust proceedings and impresses with its quick and uncomplicated enforcement. The need for such an acceleration of competition law proceedings is illustrated, for example, by the proceedings against Google Shopping due to allegations of unlawful self-preference. This process lasted from 2010 to 2017. The implementation and handling by the authorities remains eagerly awaited.
In the next part of our blog series on the DMA, we will look at the individual prohibited conduct as well as the procedural aspects.
1 although only "in certain markets" - see Recital 11 DMA.
2 Recital 11 DMA.
3 Recital 7 DMA.
4 Recital 33 DMA.
5 Recital 32 DMA.
6 Recital 14 DMA.
7 Recital 23 DMA; for thresholds see below.
8 Art 3 (8) DMA: "The Commission shall designate as a gatekeeper, in accordance with the procedure laid down in Article 17, any undertaking providing core platform services that meets each of the requirements of paragraph 1 of this Article, but does not satisfy each of the thresholds in paragraph 2 of this Article."
9 cf. "shall be presumed", Art 3 (2) DMA.
10 Recital 23 DMA.
11 Recital 20 DMA.
12 It is clear from recital 20 of the DMA that the threshold for end users was based on a significant percentage of the total population of the Union, whereas the threshold for business users was based only on the number of businesses using central platform services.
13 Art 3 (1) lit c DMA.
14 See above.
15 Recital 21 DMA.
16 Recital 17 DMA.
17 Recital 20 DMA.
18 Recital 25 DMA.
19 Article 3 (4) DMA.
20 Article 4 DMA.
21 Recital 30 DMA.
Please note: This blog merely provides general information and does not constitute legal advice of any kind from Binder Grösswang Rechtsanwälte GmbH. The blog cannot replace individual legal consultation. Binder Grösswang Rechtsanwälte GmbH assumes no liability whatsoever for the content and correctness of the blog.