Yesterday finally saw the European Commission's publication of the two long-awaited and much-discussed draft regulations for digital services: the Digital Markets Act and the Digital Services Act. These two Regulations could have far-reaching consequences, especially for large tech platforms.
The proposed Digital Services Act contains rules on aspects such as transparency and combating disinformation with the aim of protecting users of digital platforms. The proposed Digital Markets Act contains additional rules for what are known as digital gatekeepers.
Digital Markets Act
The Digital Markets Act imposes obligations on online gatekeepers. The gatekeepers are identified according to three (alternative) criteria:
The Digital Markets Act imposes obligations on online gatekeepers. The gatekeepers are identified according to three (cumulative) criteria:
- The platform has a strong economic position, a significant impact on the internal market and operates in several EU countries. This is the case if the platform has achieved an annual EEA-wide turnover of EUR 6.5 billion in the last three years, or if the average market value in the most recent financial year was at least EUR 65 billion and the services are offered in at least three EEA Member States;
- The platform has a strong mediating position, which means that it links a large user base to a large number of companies. Under the current proposal, this is the case if the platform has more than 45 million monthly active end users established or located in the Union and more than 10,000 active business users established in the Union in the most recent financial year; and
- The platform has (or is about to gain) a deep-rooted and enduring position in the market. According to the proposal, this means a stable position where the above-mentioned thresholds for end users and business users were met the last three financial years.
The proposal allows the European Commission to review compliance with the gatekeeper criteria every two years.
Do's & Don'ts for gatekeepers
The European Commission takes the view that if a platform qualifies as a gatekeeper, it has a certain amount of responsibility to ensure that there is competition in the digital markets, in much the same way as the idea behind the ban on abusing a dominant position. The Digital Markets Act requires gatekeepers to observe certain do’s and don’ts. Some examples:
- It is not permitted to favour services and products offered by the gatekeeper itself over similar services or products of third parties;
- Nor is it permitted to restrict users from uninstalling pre-installed software or apps;
- The platform must make its own services accessible to third parties in certain situations;
- The platform must give business users of third parties access to the data they generate when using the gatekeeper's platform;
- The platform must give advertisers and publishers that advertise on a gatekeeper's platform the tools and information they need to independently verify these advertisements; and
- The platform must enable business users of platforms to promote their offerings and enter into contracts with their customers outside the gatekeeper's platform.
As well as increasing the European Commission's power to exercise ex-ante supervision of compliance with the do’s & don'ts, the Digital Markets Act also broadens merger control. When it has come into effect, gatekeepers will be required to report all acquisitions in the digital sector, even if they remain below the current turnover thresholds.
Violations of the Digital Markets Acts are subject to fines by the European Commission. As with the usual competition fines, they can be imposed up to a maximum of 10% of the worldwide group turnover.
The entry into force of the Digital Markets Act would represent a fundamental change to competition supervision in the EU, not least since it gives the Commission far-reaching ex-ante powers. It should however be noted that the initial idea was for a broadly deployable enforcement instrument referred to as the New Competition Tool. The scope of this proposal is limited to current and potential gatekeepers. The aim is to prevent these gatekeepers from suddenly acquiring a totally dominant market position after reaching a tipping point. This may be a legitimate concern, but the question is whether the additional rules for gatekeepers are proportionate to achieving that goal and whether the Commission will be able to carefully determine which of them meet the criteria (and when they cease to do so). The market for platforms is a very dynamic one: the Dutch social media platform Hyves that was so popular ten years ago disappeared without a trace within a couple of years. In short, these proposals will undoubtedly be the subject of intensive debate.
Mauricette Schaufeli was previously asked by Het Financieel Dagblad about her vision on the Digital Markets Act and the Digital Services Act. You can find the article here (behind payment wall).