Digital Markets Act restrains digital platforms

Supplement to current competition rules

The European Commission (EC) believes that the existing competition rules are insufficient to prevent digital platforms from abusing their market power in the European Union and thus restricting competition. The EC has therefore published a draft regulation in December 2020 - the Digital Markets Act (DMA) - in which it introduces a new regulatory mechanism to ensure fair competition in the markets in which the digital platforms and their recipients operate.

This new regulatory mechanism supplements the current European and national competition rules, which remain in full force. PwC experts Emma Besselink, Skip van Duren and Ilse van Wendel de Joode discuss the key elements of the DMA and explain how they will affect digital platforms active in the European Union.

Concerns about competition, consumer protection and privacy

Digital platforms have come to play an increasingly crucial role in our economy over the past 15 years. Thanks to their digital and modular structure, they can adapt quickly to market and customer needs. In practically all sectors, digital platforms such as Amazon, Facebook, Google, Booking.com and AirBnB connect recipients with companies that offer services and products via the platforms.

It is true that digital platforms have a positive effect on the geographical unification of certain markets and add value to the economy, but news about the platforms is not always favourable. In addition to the issues of consumer protection and privacy (DSA), labour relations and the need for regulations to increase fiscal transparency in the digital economy (DAC-7), the size and market power of some large digital platforms also raise concerns from a competition perspective.

Digital gatekeepers on the European market

The DMA addresses the negative effects of certain practices of digital platforms acting as digital gatekeepers on the European market. These are digital platforms that, due to their size, have considerable power in the market, are an important gateway for users and recipients to reach their customers and have, or will have in the future, an entrenched and durable position in this respect.

Because the gatekeepers form a bridge between businesses and consumers, they can attach far-reaching conditions to the services they provide. The concern is that such conditions will further strengthen the position of gatekeepers or affect the position of competing digital platforms and of the businesses that offer services or products on digital platforms.

If a gatekeeper engages in unfair business practices, it can prevent that valuable and innovative services of its business users and competitors reach consumers, or delay such a development. Examples include the unfair use of data of companies operating on these platforms or situations where users are tied to a particular service and have limited options to switch to another service. Such practices, which have as object or effect that competition is restricted, are detrimental to the economy. The DMA provides the EC with an additional instrument, supplementing the existing competition rules, to keep gatekeepers and in particular 'big tech' in line.

Scope of the DMA: core platform services

The DMA applies to 'core platform services' provided or offered by gatekeepers to users and recipients. Core platform services include:

online intermediary services (including market places, app stores and online intermediary services in other sectors such as mobility, transport or energy)
online search engines
social networks
platform services for video sharing
number-independent interpersonal electronic communication services
operating systems
cloud services
advertising services
web browsers
virtual assistants
connected TV

If a gatekeeper provides or offers such services, they fall under the regulation of the DMA. A gatekeeper is defined as a company

with significant impact on the internal market. For example, an annual EU turnover of at least EUR 7.5 billion in the last three financial years. Or an average market capitalisation or equivalent fair market value of at least EUR 75 billion in the last financial year, while the company offers core platform services in at least three EU Member States.
operates a core platform service that functions as a major gateway for business users to reach consumers. This is the case if, in the last financial year, the company offered a core platform service with more than 45 million monthly active consumers residing or located in the European Union (EU) and more than ten thousand annual active business users established in the EU.
has a firmly entrenched and durable position for its activities or is expected to develop such a position in the near future. This is the case if the above two thresholds have been met in each of the last three financial years.

It is important to note that companies need not be established in the EU to be designated as gatekeepers. Decisive is whether the company has a digital platform with a large enough reach within the EU.

Also companies that do not meet the above qualitative thresholds can be designated as gatekeepers, provided that the EC must then first carry out an extensive market investigation. Upon request or - at least every two years - on its own initiative, the EC can investigate and decide on whether a (designated) gatekeeper is still a gatekeeper.

Regulation of gatekeepers under the DMA

To regulate the market power of gatekeepers, the DMA introduces several obligations for gatekeepers to prevent exclusion of competitors and exploitation of business users and consumers. These obligations enter into force automatically once a company must be considered a gatekeeper. We distinguish three categories of important obligations:

obligations to ensure competition between platforms offering competing core platform services.
obligations to ensure competition between platforms and their business users.
rules on the relationship between platforms and advertisers.

1. Ensuring competition between platforms offering competing core platform services

This category of obligations serves to prevent the situation that a gatekeeper can exclude competing platforms as a result of its market power, or transfers its market power in a particular market to another market. The gatekeeper must allow business users to offer the same products or services to consumers via other platforms at prices or on terms that differ from those offered by the gatekeeper.

The gatekeeper must also allow business users to have access to core platform services of competitors and may not impose technical limitations on the ability of business users to switch to such an alternative core platform service.

Furthermore, the gatekeeper may not make access to its core platform service for business users dependent on the use of any other core platform service it provides.

Nor may a gatekeeper require its business users to make use of the gatekeeper's identification services within the framework of the services the business users offer via the gatekeeper's core platform service.

By way of illustration: as a gatekeeper, Amazon may not prohibit business users of its digital platform from offering the same products via a competing digital platform of, for example, Bol.com. Nor may Amazon require its business users to offer the same products at higher prices and/or on less favourable terms via other digital platforms, such as Bol.com.

2. Ensuring competition between platforms and their business users

This category of obligations serves to prevent that gatekeepers use their market power to ensure that business users cannot compete with the gatekeepers themselves. A gatekeeper must allow business users to sell their products also outside the platform and on their own terms, and to approach and contract consumers acquired via the core platform service also outside the platform, even if the final delivery of the relevant product or service can only take place via the platform.

Furthermore, if a gatekeeper enters into competition with its business users, it must refrain from using data that is not publicly available and is generated by activities of those business users or of consumers of those business users or of its core platform services, or that is provided by those business users of its core platform services or by consumers of those business users.

By way of illustration: as a gatekeeper, Amazon must provide information at the request of advertisers on how the price of advertising services is determined and on the fees it pays in turn to the publishers engaged for that purpose.

3. Rules on the relationship between platforms and advertisers

A gatekeeper must be transparent about the price of the advertising services it provides to advertisers and publishers. The assumption underlying this regulation is that lower advertising prices will ultimately benefit the recipients of products and services.

For example, as a gatekeeper, Amazon may not prohibit the business users of its digital platform from selling the same products via their own sales channels. If Sony sells sound systems via Amazon's digital platform, it should be allowed to make the same offer on its own website.

Allowed	Not allowed
Enable third parties to cooperate with the own services of the gatekeeper in specific situations.	Rank own services and products higher or treat own services and products more favourably on the platform than comparable products or services of third parties.
Give business users access to the data they generate themselves on the gatekeeper's platform.	Prohibit consumers from contacting companies outside the platform.
Provide advertisers and publishers that use their platform with the tools and data they need to make their own analysis of ads on the gatekeeper's platform.	Prevent users from removing automatically installed software or apps.
Enable business users to promote their offerings on the platform and conclude contracts with customers outside the platform.	Track consumers outside of the gatekeeper's core platform service for the purpose of targeted advertising without their explicit permission.

Enforcement and penalty powers of European Commission

The EC may, on its own initiative or in response to a submitted complaint, investigate compliance with and a possible breach of the regulation imposed on gatekeepers. It has far-reaching investigative powers for this purpose, which are based on the powers it has under primary EU competition law. If the EC considers a breach of the DMA regulation proven, it can take the following enforcement action:

impose a penalty of up to ten per cent of the company's worldwide turnover in the preceding financial year.
in case of a repeated offence, the penalty may be increased to as much as twenty per cent of the worldwide turnover. the EC may in addition impose a takeover ban on the company for a certain period.
a new and far-reaching instrument in the DMA is the possibility for the EC to impose additional obligations if it has proven in a preliminary investigation that obligations applicable to gatekeepers are systematically not complied with. In such a case, it may initially impose a conduct-correcting measure. If this does not have the desired effect, the EC may resort to structural measures, such as a legal, functional or structural separation of certain business units or, in the most extreme case, mandatory divestiture of business units.

Points of attention for (possible) gatekeepers

Given the large role that online platforms play in our economy, the scope and application of the DMA will be extensive. On the one hand, large digital platforms with a gatekeeper function will be regulated, while on the other hand, companies whose competitiveness is restricted by gatekeepers will have more possibilities to defend their interests. To prepare for the entry into force of the DMA, you can take the following steps:

check whether you are to be considered a gatekeeper.

If this is the case, you should:
comply with the obligations the DMA imposes on gatekeepers;
check to what extent your business practices are in line with these obligations;
to the extent your business practices are not in line with these obligations, adapt them as quickly as possible;
check whether you, as a business user, competing digital platform or advertiser, compete with gatekeepers or maintain commercial relations with them in any other way, and if so, whether your ability to compete with gatekeepers or other business users is restricted in violation of the rules set by the DMA.

The European Council has presented the legislative proposal on 15 December 2020, and the European Parliament and the European Council have politically agreed to its content on 24 March 2022. On 5 July, the European Parliament adopted the DSA as agreed upon in collaboration with the European Council. The next procedural step is for the European Council to approve this legislative text. Once this process is completed, the DMA will enter into force twenty days after publication in the Official Journal of the EU and the rules will enter into force six months later. This will probably be at the beginning of 2024.