The entry into force of the Digital Markets Act kicks off new era of digital regulation in Europe

Key takeaways

• The DMA strengthens EU-level regulation of large digital platforms, termed “gatekeepers”: the main provisions will apply from 2 May 2023, with the European Commission (EC) working in the meantime on implementing rules, including a notification form for gatekeepers.
• A public consultation on the implementing rules is expected shortly, and technical workshops aiming to develop practical ways to comply with DMA obligations are also scheduled. The workshops offer an important opportunity to help shaping the new regime and all stakeholders are encouraged to participate.
• When gatekeepers’ conduct comes within the DMA, the DMA will apply “by default”: EC officials have confirmed that they have started to allocate pending cases between DMA and competition law enforcement on this basis. But the DMA will not replace antitrust.
• Some uncertainty remains about the interplay of the DMA and national laws, in particular national platform rules.
• The EU has moved more quickly than other legislators worldwide, although policy reports abound internationally on how to address digital markets. Gatekeepers will likely need to consider whether to apply EU requirements also beyond the EU. This soft power implicit in the EU’s early move may in turn yield comparable law reforms elsewhere.

On 12 October the Digital Markets Act (DMA)¹  was published in the Official Journal of the European Union. The DMA will enter into force on 1 November 2022 and will apply as of 2 May 2023.

The DMA introduces European-wide ex ante regulation in the digital sector, to address perceived market failures that were considered insufficiently addressed by ex post competition law enforcement. The DMA makes it unlawful per se for gatekeepers to engage in a number of practices, largely based on conduct that has previously been subject to antitrust scrutiny (e.g. lack of interoperability, self-preferencing). The obligations imposed on gatekeepers are intended to ensure contestability and fairness in the digital sector. The EC’s Directorates General for Competition, and for Communications Networks, Content and Technology, will jointly enforce the new rules.

Who are the gatekeepers? The DMA will apply to gatekeepers designated by the EC, although the burden is on companies to self-assess whether they are within scope and to notify the EC within two months of reaching gatekeeper status. The deadline is 2 July 2023 for companies meeting the criteria on 2 May 2023. The EC then has 45 days to adopt a designation decision.

Gatekeepers are defined by the DMA as companies (i) having a significant impact on the internal market, (ii) providing a core platform service acting as an important gateway for business users to reach end users, and (iii) enjoying an entrenched and durable position. The designation decision will specify the (one or more) core platform services relevant for each gatekeeper.

The DMA creates a presumption that a company falls within scope of the gatekeeper definition – for a specific core platform service – if certain quantitative thresholds are met. Companies can rebut the presumption. EC officials have said that the rebuttal option is limited and does not open the door for a typical market definition or dominance assessment under competition law – market shares and market power will not be examined or taken into account.

The EC is also required to designate companies as gatekeepers in certain circumstances even if the qualitative criteria are not met. The EC will rely on a list of factors such as network effects or conglomerate structure. This process will be especially relevant for companies providing a core platform service whose position is unlikely to be contested even though they have only recently met the quantitative criteria.

A new set of obligations and sanctions. Gatekeepers will have to comply, in their provision of a relevant core platform service, with a broad set of obligations and prohibitions (see Articles 5, 6 and 7). The obligation applies six months after designation in relation to a given core platform service. The obligations listed in Article 5 are relatively straightforward, e.g. prohibition of most-favoured-nation provisions, whereas the obligations under Articles 6 and 7 are more complex and may require significant business model changes. Although the compliance burden rests on gatekeepers – who need to ensure and demonstrate compliance – the DMA allows for (i) bilateral dialogue between the EC and the gatekeeper on these obligations and (ii) the adoption of so-called implementing acts by which the EC identifies the measures a gatekeeper should adopt (Article 8).

The gatekeepers are exposed to fines of up to 10% of global turnover for non-compliance. The EC can also impose periodic penalty payments (up to 5% of daily worldwide turnover) if gatekeepers do not comply with a decision adopted under the DMA. In case of circumvention or systematic non-compliance, e.g. following three findings of non-compliance within 8 years, fines can be increased to up to 20% of global turnover, and the EC can impose behavioral or structural remedies, including a ban on acquisitions of businesses providing core platform services or other services in the digital sectors, or of businesses that enable the collection of data. In theory, structural remedies may go as far as a break-up of existing groups.

Indirect increase in merger scrutiny. Gatekeepers must inform the EC – before implementation – of every transaction where the merging entities or the acquisition target provide a core platform service, any other service in the digital sector, or services that facilitate data collection. The impact of this provision will be substantial and will require gatekeepers to inform the EC about effectively all of their M&A activity. This is not in the first instance a full-blown notification under EU merger control rules, but the DMA is explicit that the information can be used to inform Member State decisions to refer cases to the EC under Article 22 of the EU Merger Regulation (EUMR). The EC recently adopted a new approach to Article 22, encouraging Member States to refer non-notifiable deals to the EC. The deal would then be subject to suspension and full EUMR notification and review.

DMA and EU competition law. EC officials have referred to a “DMA by default” approach, i.e. if a situation can be addressed under the DMA, it should be. Three criteria will be used to decide whether in particular pending antitrust investigations should instead now be dealt with under the DMA: (i) is the case in scope of the DMA, (ii) timing of assessment under the DMA compared to competition law, and (iii) if the behavior is covered by the DMA but it is appropriate to punish the conduct, an antitrust investigation would add value.

That said, competition law will remain relevant. As Executive Vice-President Vestager stated on 16 September: “… synergies between antitrust and the DMA will be at the centre of our enforcement of both instruments. At the same time, the DMA will not replace antitrust enforcement.” For instance, competition law will continue to apply to gatekeepers for conduct not covered by their DMA obligations. Similarly, non-gatekeepers remain subject to competition law in relation to conduct that is governed (for gatekeepers) by the DMA.

DMA and national competition law. Although the DMA provides for cooperation with national authorities to ensure “coherent, effective and complementary enforcement of available legal instruments”, the DMA does not prevent a national competition authority from enforcing competition law against a gatekeeper. The DMA is generally without prejudice to the application of national competition rules insofar as they are applied to companies other than gatekeepers or amount to the imposition of further obligations on gatekeepers.

Some Member States have previously adopted specific rules directly or indirectly targeting gatekeepers that go beyond the scope of traditional EU rules designed to address abusive behavior of dominant companies. For example, Section 19a of the Act against Restraints of Competition in Germany allows the FCO to designate companies of “paramount significance for competition across markets” and prohibits a series of practices. Similarly, 2022 amendments to Italian Law No. 192/1998 on abuse of economic dependence introduced a presumption of economic dependance for users of “gatekeeper” digital platforms. It remains to be seen how those national rules will be applied alongside the DMA in practice. Other Member States such as France have not implemented specific regulation but will continue to apply Article 102 TFEU and corresponding national provisions with particular scrutiny of the digital sector.

Next steps in the application of the DMA. Although most DMA provisions will not apply before 2 May 2023, significant preparatory activity is expected in the next months in which all businesses are invited to participate, not only potential present or future gatekeepers:

• The EC will issue a consultation on its implementing regulation before year end. The DMA empowers the EC to set out procedural and practical points in an implementing regulation. EC officials have indicated that the implementing regulation will focus on procedural aspects, including a specific notification form for gatekeepers. The EC aims to adopt the implementing regulation in the first quarter of 2023.
• The EC will organize technical workshops for all stakeholders to discuss the DMA obligations. EC officials have confirmed that they are already in discussions with likely gatekeepers, and Executive Vice-President Vestager announced on 27 September 2022 that the EC will hold technical workshops involving candidate gatekeepers, competitors, customers and consumers. These could take place as early as December.
• The DMA also provides for the possibility of adopting guidelines. EC officials have indicated that they do not expect to issue such guidelines in the near future and rather wish first to develop concrete experience under the DMA. This is a familiar pattern, e.g. from the early days of the EUMR, but time will tell whether it will be followed in this case.

Other upcoming and pending regulations. The DMA is but one of several new instruments that will regulate the digital industry in Europe including the Digital Services Act, the Data Governance Act and pending proposals such as the Data Act and Artificial Intelligence Act. The next few years promise to bring plenty of questions and controversies – as indeed was the case in the early years of the EUMR. And as companies and enforcers prepare for increased regulatory oversight, lessons may be learned from industries such as telecommunications and energy that have seen similar paradigm shifts in the past.

The international dimension of these reforms will be an area to watch. While the DMA applies only in the EU (and by extension in the European Economic Area), gatekeepers must inevitably ask themselves whether they will bifurcate their activities geographically, or instead play to DMA rules internationally or even globally. In the meantime legislation is pending in other jurisdictions, not least in the U.S. The EU has been the first-mover, although reports abound around the planet on the reforms that given countries might adopt. The DMA may show itself to be a source of soft power, because gatekeepers choose to play by DMA rules beyond the EU, and/or because the DMA offers a template for local legislation.

Without doubt there are testing and challenging times ahead for all concerned: gatekeepers, their users, and regulators alike.

Footnotes:

¹Regulation (EU) 2022/1925 of the European Parliament and of the Council of 14 September 2022 on contestable and fair markets in the digital sector and amending Directives (EU) 2019/1937 and (EU) 2020/1828 (Digital Markets Act)