Last Monday, 16 May, the penultimate step in the legislative process was taken with regard to the Digital Markets Act ("DMA"), a long-awaited European regulation striving to regulate digital platforms. The European Parliament’s Internal Market Committee has almost unanimously endorsed the provisional agreement on the DMA reached with EU governments end of March 2022. The proposal is expected to be put to a final plenary vote in Parliament in July before being formally adopted by the European Council, which means the DMA is now really close to completion.
"An earthquake is coming for big tech", according to a recent headline in Het Financieele Dagblad, referring to the DMA. Since the European Commission's proposal for this regulation nearly a year and a half ago, every interested party seems to have voiced their opinion on the pitfalls, benefits and expectations of the DMA. Nevertheless, the Council and Parliament have recently – after intensive negotiations – reached agreement on the content of the regulation. Perhaps the balance can now be drawn: which platforms will be designated as gatekeepers, which rules will they have to comply to, and what consequences will be attached to any violations? And perhaps the most important question: what's going to happen next?
The main changes
The various European institutions made up their mind some time ago: the existing possibilities for regulating the market behaviour of the largest tech companies are no longer sufficient. The supervisory regime must be expanded and the European Union must be able to intervene preventatively, especially in the case of digital platforms that are so large that they act as a gatekeeper to the rest of the market. The Commission already had ambitious measures in mind (more on the original proposal in our earlier blog). However, during the discussion in the Parliament and the negotiations with the Council, the following important changes, among others, were made:
• Scope: While the proposal of the Commission already included online marketplaces, app stores, search engines, social networks, operating systems, cloud services and certain communication services and advertising services associated with them under the scope of the DMA as so-called core platform services, this now also applies to web browsers and virtual assistants. Examples include Amazon's Alexa, Apple's Safari, and Google's Chrome – important platform services that are indispensable if one wants to gain access to large digital markets.
• Thresholds: The Commission had already set three cumulative requirements which a platform must meet in order to be qualified as a gatekeeper. In one of those criteria, having a significant impact on the internal market, the corresponding threshold at which this is deemed to be the case has been raised. The minimum threshold is now an annual EEA-wide group turnover of at least EUR 7.5 billion, viewed over the three previous financial years, or an average (stock) market value in the most recent financial year of at least EUR 75 billion. Previously, these thresholds were EUR 6.5 billion and EUR 65 billion respectively. For this criterion, the platform service must also be offered in at least three EU Member States, but this was already included in the original proposal.
• Interoperability: The European institutions also agreed that the largest messaging services such as Whatsapp, Facebook Messenger and iMessage will now have to make their services available for interoperation with smaller messaging services – an obligation that was not yet included in the Commission's proposal.
• Sanctions: Finally, it was added that in case of a repeated violation of the DMA, the Commission can impose a fine of up to 20% of the total worldwide group turnover. The Commission's proposal did not make this distinction and all fines were capped at 10% (unless the violation concerned the provision of access or information, in which case the maximum is 1%). In case of systematic non-compliance with the DMA, the Commission may even impose a temporary merger ban.
The main concerns
These changes all reflect the interests that European legislator had to weigh: on the one hand being able to properly supervise companies that have the potential to curb competition through their gatekeeper role, and on the other hand the possible negative economic effects of such legislation. For example, there are concerns not only about safeguarding users' privacy and whether it will still be possible to sufficiently protect personal data, but also about the fact that large companies will be forced to disclose more information. This information may then be used to their disadvantage, which could depress the economic growth of those companies.
Critics also state that the DMA will have a dampening effect on innovation and not everyone is convinced that the regulation as currently drafted takes into account the fact that today's technology does not offer infinite possibilities. Especially the requirements imposed on messaging services pose a problem in this regard. For example, how should these platforms handle group conversations across different services, and is it even possible to integrate the forwarding of media? Added to this is the uncertainty that remains regarding the exact text of the DMA. Moreover, it is not yet known how compliance with the provisions will ultimately be monitored by the Commission and the national competition authorities.
While the regulation may not be perfect (yet), no matter which viewpoint you take, its precise effects will only become clear once the Commission starts working with this ambitious legislation in practice: appointing gatekeepers, subsequently monitoring and enforcing the legislation, instructing national competition authorities and – undoubtedly – conducting many legal proceedings.
But when can we expect this clarity? As mentioned, the proposal is expected to be put to a final plenary vote in Parliament in July before being formally adopted by the Council and published in the EU Official Journal. The DMA will enter into force twenty days after publication. The Commission estimates that this will take place in October 2022, after which the rules will apply six months later and the Commission will be able to designate the first platforms as gatekeepers. Platforms that meet the thresholds must notify the Commission within three months and provide information. Once designated as gatekeepers, platforms will have six months to ensure that they comply with the prohibitions and obligations. Taking this entire procedure into account, it is estimated that platforms that qualify as gatekeepers will have to be compliant with the rules of the DMA from early 2024 onwards. They do also still have the option to appeal against this qualification before the European court. So an earthquake is indeed coming, but it will be a while before we feel the actual shocks. For big tech, however, it is high time to ensure that their business operations are 'DMA proof'.
Thank you to Carmen te Riele for her contribution to this blog.