The EU’s efforts to regulate the gatekeepers of the digital world: The European Union Digital Markets Act (DMA) could take effect in 2022
Europe might be lagging behind the US, Japan and China in terms of technological innovation - The world’s 15 largest digital firms are not European - but in terms of regulations, the European Union is leading the way given its prominent role in digital regulation and ambitious regulatory agenda. In July 2021, I published an article on Finextra.com where I stated that "the EU proposal to regulate AI will be a brake on innovation and a a challenge not to be underestimated for promising start-ups that are using artificial intelligence". The Digital Markets Act speaks again for the EU's role as digital regulator. In fact, the European Union Digital Markets Act (DMA) was proposed by the European Commission in December 2020 to control the digital world's "gatekeepers," and is now nearing completion. The law, which would be implemented as an EU rule, might go into effect in 2022. But what is the DMA all about and why is there an urgent need of regulating the digital world's "gatekeepers"?
The DMA is a legislative proposal by the European Commission to ensure greater competition in the European digital market, prevent large companies from abusing their market power and allow new players to enter the market.
The DMA is a legislative proposal by the European Commission to ensure greater competition in the European digital market, prevent large companies from abusing their market power and allow new players to enter the market. The proposal by the European Parliament and of the Council on the DMA applies to online platforms that provide essential platform services with a “gatekeeper” status, acting as a bottleneck between businesses and consumers for basic digital services. A year of public debate and debate over the EU Digital Markets Act (DMA) has highlighted the unique challenges of several major digital platforms acting as gatekeepers, mediating the relationship between businesses and their customers.
Simply put, the DMA prohibits certain activities and seeks to stimulate and guide the market to achieve those results through a controlled environment that includes sanctions and administrative measures. The DMA also provides for the possibility that three or more member states may request the Commission to conduct market investigations based on suspicion that a major platform service provider should be appointed as gatekeeper. In addition to the commandments and prohibitions on unfair or restrictive challenge "practice", Article 12 of the DMA imposes an obligation on the nominated guardian to notify the Commission of any proposed concentration under the EU Regulations on mergers involving another major platform provider or any other service provided in the digital realm, whether or not it requires notification under merger control at the European or national level. Once a digital company is designated as its gatekeeper by the Commission, the DMA will decide what to do and what not to do with its main platform services. As an added bonus, gatekeepers must also notify the Commission of any alleged digital transactions, whether they are required to notify the Commission or any national competition authority. The European Commission could restrict or temporarily ban gatekeepers from making "killer acquisitions" that could damage and lead to a lack of competition in the market.
In other words, the DMA aims to blacklist certain practices used by major gatekeeper platforms (companies with disproportionate power in their markets) and allow the European Commission to investigate and punish misconduct in the marketplace. The European Parliament has also proposed new obligations and bans that directly apply to large platforms acting as gatekeepers. The Commission also proposed new standards for large platforms as gatekeepers, aimed at creating a fairer and more competitive market for online platforms in the EU. The Commission wants the rules to apply to companies with an annual turnover of at least € 6.5 billion in the last three years in Europe and a market capitalization of at least € 65 billion in the last fiscal year. Companies violating the new laws can be fined up to 10% of their global income. Legal texts released by the Commission in December 2020 set rules forcing tech companies to better control content on their platforms and increase digital competition by curbing the growing power of tech giants like Google, Apple, Amazon, Facebook and Microsoft.
Since this regulation only applies to large companies with the aim of weakening the competitive advantage enjoyed by their dominant market position and preventing possible abuse of their position, it is clear that everyone agrees that something needs to be done and that DMA could be the right tool. Following the recent high-profile complaints from US antitrust authorities against Google and Facebook, the DMA represents the EU's proposed solution on how to keep digital markets open and competitive, while also maintaining effective competition in the domains of major digital platforms. The DMA intends to address the Commission's long-standing concerns that its existing enforcement powers are insufficient to address competition challenges in rapidly changing digital markets, and that they are not providing sufficient disincentive for key digital players. Appointing the Commission as the final arbiter on how to apply the DMA will ensure harmonization of rules across the European market, as well as provide accountability and legal certainty for those who will rely on the DMA. But for everything to work as intended, legislators will need to agree on a unified enforcement system, with the European Commission having the final say. Consistent enforcement is key to making DMA work and fit in the digital age. By staying focused and making DMA effective, Europe will make a significant contribution to the fairness and competitiveness of digital markets around the world.
The Digital Markets Act - Risking a potential confrontation with the United States?
DMA regulates digital gatekeepers because they pose competitive risks even if they do not dominate their respective markets. The flexibility of the gatekeeper concept, justified by the rapidly changing nature of digital markets, can lead to legal uncertainty. In the case of DMA gatekeepers, it would be very difficult to compete for the market because gatekeepers took full advantage of the platform's core services to create a near-impregnable position. Indeed, the controversy of the underlying platform's services suggests that DMA is solely intended to uproot digital gatekeepers' market positions in favor of other digital players. As a result, the confusion between promoting greater competitiveness of core platform services and digital markets seems to indicate that the Commission's real intention in this regard is to replace current digital gatekeepers with other digital entities regardless of the benefit to users. However, it is unclear if the DMA wants to increase the adversarial nature of digital markets in general, or more precisely, increase the adversariality of the underlying platform's services. By achieving more competitive base platform services, the DMA is helping non-market leaders replace today's digital gatekeepers. Since Microsoft, the EU's enforcement of competition has protected incremental innovation in the digital economy, although this has never been explicitly stated. Among the DMA's offerings, so-called large platforms will be banned from engaging in conduct deemed detrimental to the "competitive and fairness" of the online marketplace. This will introduce new rules (list of obligations and prohibitions) for large online platforms seen as gatekeepers. Any company found to be in violation can be fined up to 10% of its global turnover. Fines for non-compliance with the rules are set at no more than 10% of the company's annual turnover worldwide. Implementing the new rules will be essential in the fight against big technology, but it would be a mistake for the EU to believe that legislation alone will solve the digital dilemma. This is the question that underlies the European Commission's commitment to restoring the EU's technological "sovereignty" as officials will have to decide whether or not to risk a potential confrontation with the United States or to impose restrictions on European champions who currently do not have the global market power of American companies.
