The EU’s proposals to take on “Big Tech”

By Anthony Rosen

01-2021

The second element of the EU Digital Services Package published at the end of 2020 is the proposed Digital Markets Act (DMA) which will seek to establish an ex ante framework to govern “Gatekeeper” digital platforms. This includes a set of ground-breaking proposals which threaten to revolutionise the governance of digital platforms and challenge “Big Tech” complementing the existing competition law framework.

Who are the Gatekeepers?

The DMA will apply to digital platforms that act as “Gatekeepers”. Firms will be “deemed” to be gatekeepers if the following criteria are met:

  1. Significant impact on the EU internal market - EU turnover equal or > €6.5bn in the last 3 years or where the average market capitalisation or equivalent fair market value amounted to equal or > €65bn in the last financial year and it provides services in at least 3 Member States;

  2. Important “Gateway” for business users to reach consumers >45m monthly users in the EU and more than 10 000 yearly active business users in the EU;

  3. Entrenched and durable position – satisfied if (i) and (ii) met for the last three years.

Any digital platforms that satisfy this “gatekeeper” test will be required to notify the European Commission within 3 months and/or seek to make arguments that it does not satisfy the “Gatekeeper” test. The EC will also have the power to designate other providers as “Gatekeepers” and this could include entities that are close to the so-called “tipping point” (i.e. they may enjoy an entrenched and durable position in the near future) pursuant to a new market investigation procedure. The EC will publish the list of gatekeepers and keep this up to date and it will be reviewed every 2 years given the fast-paced and dynamic nature of digital services.

The regime will apply to core platform services

The EU regime will apply to a range of “core platform services” (CPS) which will be kept under review:

  • Online intermediation services (marketplaces, app stores and other services like mobility, energy and transport);

  • Online search engines;

  • Social networking;

  • Video sharing platforms;

  • Number-independent interpersonal communications services ((NI-ICS) e.g., online messaging/communication services/apps);

  • Operating systems;

  • Cloud services; and

  • Advertising services.
What are the rules of the game?

The EU regime has set out a series of do’s and don’ts that will apply to the “gatekeepers” of CPS to ensure “fair and open digital markets”. Some of the obligations can also be further specified by the EC to provide further clarity on the nature of the obligations. The range of measures include:

Do’s

  • Allowing interoperability with the gatekeeper’s own services;

  • To provide companies advertising on their platform with the tools and information necessary for advertisers and publishers to carry out their own independent verification of advertisements hosted by the gatekeeper;

  • Allow business users to promote their offer and conclude contracts with the customers outside the gatekeeper’s platforms;

  • Providing business users with access to the data generated by their activities on the gatekeeper’s platform; and

  • Provide data portability.

Don’ts

  • Prohibit gatekeepers from preventing users from un-installing any pre-installed software or apps;

  • Not use data obtained from business users to compete with these business users (to address dual role risks);

  • Measures to address self-preferencing, parity and ranking requirements to ensure no favourable treatment to the services offered by the gatekeeper itself against those of third parties.

Gatekeepers will need to comply with the obligation within six months. The EC will also have residual powers to set other obligations following a market investigation as well as investigate new services and practices.

The DMA will also introduce a requirement for Gatekeepers to inform the EC (rather than a formal merger control notification) of any proposed merger or acquisition involving another provider of CPS or other digital services (irrespective of whether it triggers the EU/National merger control thresholds).

Tough enforcement regime

Clearly, with all these new powers and rules, a strong deterrent is also required. Combined with strengthened monitoring, investigatory powers and interim measures the EC will have the ability to impose fines of up to 10% of worldwide revenues and periodic penalty payments of up to 5% of the average daily turnover. In terms of break up powers, the EU will have residual powers to order divestments as a last resort in cases of systematic non-compliance.

When will the new rules come into play?

The DMA is a draft proposal and we can expect a lengthy process before the act is finally adopted. The European Parliament, European Council and Commission will have differing views and there will be intense lobbying to influence the final outcome as it passes through the legislative process. Keep a close eye on developments and how they may impact your business. A bumpy road lies ahead.

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