Digital Markets Act: New Rules on Contestable and Fair Markets in the Digital Sector

Posted on by

On 14 November 2022, Regulation (EU) 2022/1925 on contestable and fair markets in the digital sector  (“ Digital Markets Act“, “DMA” or “Act”) entered into force, setting the basis for fairer and contestable markets in the digital sector by prohibiting unfair practices of “gatekeepers” in the online platform economy to the benefit of business users and end users.

The DMA has been introduced in par with the Digital Services Act (“DSA”) as an effort of the European Union to regulate the effects that digitalisation – and more specifically online platforms – have on fundamental rights, competition, and, more generally, on European societies and economies.

Whereas the DSA applies horizontally to online intermediaries, the DMA introduces a comprehensive set of ex ante obligations and requirements for platforms that act as “gatekeepers” in the digital sector.

By introducing ex ante rules for the conduct of gatekeepers, the DMA complements the enforcement of competition law at EU and national level. Hence, the new rules are without prejudice to the implementation of EU competition rules (Articles 101 and 102 TFEU) and to national competition rules regarding unilateral behaviour.

Purpose & Subject Matter

According to the DMA, core platform services feature characteristics, such as extreme scale economies, very strong network effects, many-to-many connection between business and end users, lock-in effects, vertical integration, and data driven-advantages.

Due to their characteristics, market processes are often incapable of ensuring fair economic outcomes with regard to core platform services. Furthermore, ex post enforcement of EU competition law does not address effectively the challenges that these services pose to the effective functioning of the internal market

The purpose of the Act is, therefore, to contribute to the proper functioning of the internal market of the EU by laying down rules to ensure contestability and fairness for the markets in the digital sector to the benefit of business users and end users of core platform services provided by gatekeepers.

The DMA applies to core platform services. These are defined in the Act as online intermediation services (e.g. app stores), online search engines, social networking services, number-independent instant messaging services, video sharing platform services, virtual assistants, web browsers, cloud computing services, operating systems, online marketplaces and online advertising services.

In this sense, the Act is complemented by Regulation (EU) 2019/1150 of the European Parliament and of the Council of 20 June 2019 on promoting fairness and transparency for business users of online intermediation services (“P2B Regulation”), which has a much wider scope, establishing general fairness- and contestability-oriented obligations for all online platform service providers towards their business users.

Designation of Gatekeepers

Undertakings that provide core platform services and meet all of the following thresholds shall be designated as gatekeepers and be subject to the provisions of the Act:

  • A Size that Impacts the Internal Market. The undertaking should achieve an annual turnover of at least EUR 7,5 billion in the European Economic Area (EEA) and provide a core platform service in at least three EU Member States;
  • The Control of an Important Gateway for Business Users to Reach End-Users. The undertaking should provide a core platform service to more than 45 million monthly active end users established or located in the EU and to more than 10,000 yearly active business users established in the EU;
  • An Entrenched and Durable Position in Competition. in the case the company met the second criterion during the last three years.

Where it meets all of the thresholds described above, an undertaking providing core platform services will be required to notify the Commission thereof without delay and in any event within two (2) months after those thresholds are met and provide it with the relevant information. The Commission will then have two months to adopt its decision designating the undertaking as gatekeeper. Following the Commission decision, designated gatekeepers will have a maximum of six months to ensure compliance with the obligations foreseen in the Act.

The Commission may also identify and designate undertakings providing core platform services as gatekeepers in the course of market investigations.

It shall endeavour to conclude its market investigation within twelve (12) months from the date of its opening. In order to conclude its market investigation, the Commission shall adopt an implementing act setting out its decision about the designation of gatekeepers.

Finally, the Commission may also designate as gatekeepers entities that do not yet enjoy an entrenched and durable position but will do so in the foreseeable future. These entities shall only be subject to a limited set of obligations that are appropriate and necessary to prevent the gatekeeper concerned from achieving, by unfair means, an entrenched and durable position in its operations.

Obligations for Gatekeepers

The Digital Markets Act establishes sets of obligations that gatekeepers will need to implement in their daily operations to ensure fair and open digital markets.

First, the DMA imposes the following ex ante prohibitions on gatekeepers regarding practices that limit contestability or are unfair:

  • Ban on restricting business users or end users from subscribing to, or registering with other core platform services;
  • Ban on using the data of business users when gatekeepers compete with them on their own platform;
  • Ban on ranking the gatekeeper’s own products or services in a more favourable manner compared to those of third parties. Instead, gatekeepers are required to apply transparent, fair and non-discriminatory conditions to such ranking;
  • Ban on disproportionate conditions of terminating the provision of a core platform services.

Gatekeepers are also required to introduce a compliance function, which is independent from the operational functions of the gatekeeper, and provide it with sufficient authority, stature and resources, as well as access to the management body of the gatekeeper to monitor the compliance of the gatekeeper with the Act.

Finally, gatekeepers are required prior to implementation to inform the Commission about any intended concentration where the merging entities or the target of concentration provide core platform services or any other services in the digital sector or enable the collection of data; and to submit (on an annual basis) to the Commission an independently audited description of any techniques deployed for profiling consumers that the gatekeeper applies to, or across, its core platform services.

In addition, the Act establishes precise obligations for gatekeepers vis-à-vis business users, end users, advertisers, publishers and app developers on their platforms. In case of non-compliance, those harmed will have the right to enforce these obligations before national courts and be compensated for their damages.

Gatekeeper Obligations Towards Business Users

Gatekeepers have the following main obligations vis-à-vis the business users of their core platform services:

  • They are prohibited from preventing business users from offering the same products or services to end users through third-party online intermediation services or through their own direct online sales channel at prices or conditions that are different from those offered through the online intermediation services of the gatekeeper;
  • They are prohibited from requiring app developers to use certain of the gatekeeper’s services (such as payment systems or identity providers) in order to appear in app stores of the gatekeeper
  • They are required to allow business users, free of charge, to communicate and promote offers, including under different conditions and to conclude contracts with them;
  • They are required to allow and technically enable the installation and effective use of third-party software applications or software application stores using, or interoperating with, their operating systems;
  • They are required to provide business users at their request and free of charge, with effective, high-quality, continuous and real-time access to, and use of, aggregated and non-aggregated data, including personal data generated in their platform;
  • They are required to apply fair, reasonable, and non-discriminatory general conditions of access for business users to their software application stores, online search engines and online social networking services.
  • They are required to provide business users with access to the data generated by their activities on the gatekeeper’s platform.

Gatekeeper Obligations Towards End Users

Gatekeepers have the following main obligations vis-à-vis the end users of their core platform services:

  • They are prohibited from tracking end users outside of the gatekeeper’s core platform service for the purpose of targeted advertising, without their consent;
  • They are prohibited from combining personal data from different core platform services or other services of the gatekeeper through various unfair techniques without the consent of data subjects;
  • They are prohibited from restricting the switching of end users between, and subscription to, different software applications and services that are accessed using the core platform services of the gatekeeper;
  • They are required to allow end users to install third party apps or app stores that use or interoperate with the operating system of the gatekeeper;
  • They are required to allow and technically enable end users to easily change default settings or un-install any software applications on the operating system of the gatekeeper;
  • They are required to provide end users at their request and free of charge, with effective portability of data generated in their platform;

Gatekeeper Obligations Towards Advertisers & Publishers

Gatekeepers will be required to provide advertisers and publishers active on their platform with information per advertisement on a daily basis free of charge, regarding the price and fees paid, remuneration received by the publisher and relevant metrics of calculation.

They will also provide advertisers and publishers, upon their request and free of charge, with access to the performance measuring tools of the gatekeeper and the data necessary for advertisers and publishers to carry out their own independent verification of the advertisements inventory.

Interoperability Obligations for Gatekeepers of Messenger Services

The DMA includes interoperability obligations for gatekeepers providing number-independent interpersonal communications services (“Messenger Gatekeepers”).

Upon request by third party providers, messenger gatekeepers will thus be required to render basic functionalities of their platforms available for interoperability (e.g. text messages between two individual users) and more complex ones within two years (e.g. group text messages) or four years (e.g. audio and video calls between two individual users or groups of end users) from their designation.

Supervision & Enforcement

To ensure that the DMA remains future proof, the European Commission is empowered to supplement gatekeeper obligations with additional ones following a market investigation and the adoption of a delegated act.

The Commission also has the power to conduct market investigations (i) for the identification and designation of gatekeepers in a certain market, (ii) for the examination of systematic non-compliance by a gatekeeper and the adoption of an implementing act with behavioural or structural remedies (iii) for the addition of more services to the list of core platform services of the Act or for the detection of practices that limit the contestability of core platform services or are unfair.

In addition, due to the cross-border nature of gatekeepers’ activity, the Commission is designated as sole enforcer of the rules laid down in the Act. In specific, the Commission has the following investigative, enforcement and monitoring powers:

  • The power to require from undertakings to provide information, including access to any data and algorithms, as well as information about testing, as well as requesting explanations of them.
  • The power to carry out interviews and take statements from natural or legal persons for the purpose of collecting information, relating to the subject-matter of an investigation.
  • The power to conduct all necessary inspections of an undertaking, including dawn raids.
  • The power to adopt implementing acts ordering interim measures against a gatekeeper, in case of urgency due to the risk of serious and irreparable damage for business users or end users of gatekeepers,
  • The power to adopt implementing acts for the imposition of commitments or to render binding commitments offered by gatekeepers.
  • The power to monitor the effective implementation and compliance with the obligations and measures of the Act.

If a gatekeeper does not comply with the rules, the DMA grants the Commission with the power to impose fines of up to 10% of a company’s worldwide turnover in case of infringements of the Act and up to 20% in case that infringements are found to be repeated. The Commission may also impose periodic penalty payments not exceeding 5 % of the average daily worldwide turnover of undertakings in order to compel them to comply with the Act and its implementing acts.

In the case of systematic infringements, the Commission will also be able to impose behavioral or structural remedies necessary to ensure the effectiveness of the obligations. These may include an order to a gatekeeper to sell a business, or parts of it (i.e. selling units, assets, intellectual property rights or brands), or the ban on a gatekeeper from acquiring another digital service provider or the ban on the provision of services enabling the collection of data affected by the systematic non-compliance.

Conclusion

The DMA is expected to have significant benefits for  business users, innovators and end users. In particular:

  • Business users will provide their services through gatekeepers in a fairer business environment.
  • Innovators will have more opportunities to innovate in the online platform environment.
  • End users will have the freedom to choose among more and better services, more opportunities to switch their provider if they wish so, direct access to services, and fairer prices.

On the other hand, the Act imposes necessary obligations on gatekeepers only in respect of banning unfair practices towards business users and end users as means to gain an undue advantage.

Except for certain provisions related to the designation of gatekeepers and the establishment of its supervisory mechanisms, the Act shall enter into application from 2 May 2023.

The published text of the Digital Markets Act is available here.