Digital Markets Act is adopted

Introduction

On 14 September 2022 the Regulation 2022/1925 on contestable and fair markets in the digital sector (better known as the Digital Markets Act or DMA) was adopted. The DMA was proposed by the European Commission on 15 December 2020 (see in this respect our website, here and here) and has known various amendments following its review by the Council and European Parliament.

The Digital Markets Act is a regulatory response to the perceived inability of competition law (and in particular the prohibition to abuse a dominant position in the sense of Article 102 TFEU) to tackle specific types of behaviour of big, digital companies such as in particular Google, Amazon, Facebook, Apple and Microsoft.

Who will be impacted by the Digital Markets Act?

The Digital Markets Act will apply to a category of providers of so-called core platform services that are considered to be too important to be left unregulated. These are so-called gatekeepers.

The Digital Markets Act lists the following as core platform services:

• online intermediation services (eg Amazon);
• online search engines (eg Google);
• online social networking services (eg Facebook);
• video-sharing platform services (eg Youtube);
• number-independent interpersonal communications services (eg Whatsapp);
• operating systems (eg Windows, iOS);
• web browsers (eg Chrome);
• virtual assistants (eg Siri, Alexa);
• cloud computing services (eg iCloud); and
• online advertising services provided by an undertaking that provides any of the abovementioned services.

A provider of core platform services will be designated as a gatekeeper if it meets the following qualitative criteria:

• it has a significant impact on the EU market;
• the core platform service it provides is an important gateway for business users to reach end users; and
• it enjoys an entrenched and durable position or it is foreseeable that it will enjoy such a position in the near future.

For each of these qualitative criteria, the Digital Markets Act provides certain quantitative thresholds that, if met, create a presumption that the qualitative criteria are met:

• a significant impact is assumed if (a) the provider controls core platform services provided in at least three EU Member States and (b) it has (i) generated turnover €7.5bn or more in the EU in the last three financial years or (ii) a market capitalisation / equivalent fair market value of €75bn or more in the last financial year;
• an important gateway is assumed if the provider’s core platform services has in the last financial year on average at least 45m monthly active end users in the EU and at least 10.000 yearly active business users established in the EU; and
• finally, an entrenched and durable position is assumed if the provider’s core platform services has met the quantitative thresholds for it to qualify as an important gateway for at least the last three financial years.

These quantitative thresholds give rise to an obligation to notify to the European Commission. The European Commission may then designate the provider concerned as a gatekeeper on a publicly available list (which will also mention the core platform services concerned). However, the provider may accompany its notification with arguments as to why the abovementioned qualitative criteria are not met. Conversely, the European Commission may designate providers of core platform services as gatekeepers if it finds, following a market investigation, that they meet the qualitative criteria despite not meeting the quantitative criteria.

The DMA also foresees in an anti-circumvention clause, prohibiting undertakings from segmenting, dividing, fragmenting or splitting its core platform services to circumvent the abovementioned quantitative thresholds.

The list of gatekeepers will be reviewed regularly and at least every 3 years to verify its correctness and completeness. The status of gatekeeper may be changed at any time in view of changing facts or in case a decision was made on the basis of incomplete, incorrect or misleading information.

How will the Digital Markets Act impact these gatekeepers?

Once a provider is designated as a gatekeeper, the DMA subjects it to various prohibitions and obligations which are varied, often based on competition authorities’ decisional practice or investigations in application of the prohibition to abuse a dominant position and not all relevant for all core platform services. These include among others prohibitions on most-favoured nation clauses, on tying, on interoperability restrictions, on use of competitors’ data or on self-preferencing and obligations on providing information on user data and on performance data or on access at FRAND conditions.

Where appropriate, some prohibitions and obligations may be further fine-tuned for certain gatekeepers. In addition, the European Commission is entitled to amend within certain limits the listed prohibitions and obligations through delegated acts (i.e. without requiring the consent of the Council and Parliament) following a market investigation.

A particularly noticeable obligation on gatekeepers is the obligation to inform the European Commission of any intended concentration involving another party that is also providing core platform services or any other services in the digital sector or that enable the collection of data. This is merely an information requirement, so there is in principle no need for an approval by the European Commission. However, it may provide the European Commission with information to which it otherwise would not have access and may lead to a formal notification process. It is worth recalling in this context that the European Commission has the competence to call-in non-notifiable concentrations for review.

A gatekeeper may request the European Commission to temporarily waive any of these prohibitions and obligations in case these would endanger the gatekeeper’s economic viability in the EU, due to exceptional circumstances beyond its control. In addition, a particular exemption is foreseen for reasons of public health and public security.

Gatekeepers will need to report within six months after their designation as a gatekeeper – and at least annually after that – on the measures taken to implement the prohibitions and obligations imposed by the DMA. A non-confidential summary of these reports will be published by the European Commission. In addition, within six months after its designation, a gatekeeper will need to submit to the European Commission an independently audited description of any techniques for profiling of consumers which will need to be updated at least annually.

The DMA also foresees in the possibility for the European Commission to submit a gatekeeper to a monitoring obligation which may include the appointment of independent external experts and auditors as well as officials from national competition authorities.

Finally, gatekeepers will have the obligation to introduce a so-called compliance function.

How will the Digital Markets Act be enforced?

The European Commission is the sole authority to enforce the DMA for which it possesses the same investigatory tools it has in the context of competition law infringements (requests for information, dawn-raids and interviews, interim decisions, commitment decisions, non-compliance decisions with possible fines and periodic penalty payments). The legal maxima for the fines are:

(i) 1% of worldwide consolidated turnover for procedural infringements (including failure to notify the European Commission of the abovementioned quantitative thresholds being met and failure to set up a compliance function);
(ii) 10% of worldwide consolidated turnover for substantive infringements; and
(iii) 20% of worldwide consolidated turnover for substantive infringements where the European Commission finds that the gatekeeper has committed the same or similar infringement in relation to the same core platform services in the eight preceding years.

In addition, the European Commission may find that a gatekeeper has systematically not complied with the DMA and has maintained, strengthened or extended its gatekeeper position, following a market investigation. In such case, the European Commission may impose behavioural or structural remedies which are considered proportionate and necessary to ensure effective compliance with the DMA.

National authorities will work in close cooperation and coordinate their enforcement actions with the European Commission and the European Commission may consult the national authorities. National competition authorities may moreover launch an investigation based on the applicable national laws – which may include investigations into infringements of the DMA – but are required to properly inform the European Commission throughout the procedure. If the European Commission decides to open proceedings into the alleged infringement concerned, the national competition authorities concerned will be relieved from the possibility to (continue to) conduct an investigation.

National authorities may also be asked to be involved in the European Commission’s market investigations. They may moreover request the European Commission to initiate a market investigation:

• three or more requests from national authorities are needed in case of market investigations aimed at qualifying a provider of core platform services as gatekeeper despite not meeting the quantitative thresholds;
• three or more requests from national authorities are needed in case of market investigations aimed at expanding/amending the list of prohibitions and obligations; and
• one or more requests from national authorities are needed in case of market investigations aimed at finding systematic infringements of the DMA.

Conclusion

The DMA has been long-awaited and it can be expected that the European Commission – and some national competition authorities – will not hesitate to start using this new tool when it starts to apply to the targeted undertakings (for the most part, as of 2 May 2023).

Should you need assistance, have any further questions regarding this client alert, please do not hesitate to contact any of the individuals listed or your usual contact at Simmons & Simmons.