Curbing the ‘gatekeepers’: the EU’s new DMA

March 2023  |  FEATURE | SECTOR ANALYSIS

Financier Worldwide Magazine

March 2023 Issue


Digital services, and large online platforms in particular, are playing an increasingly important role in Europe’s economy by enabling businesses to reach their users across the length and breadth of the European Union (EU).

However, concerns over whether these platforms – which operate as ‘digital gatekeepers’ between businesses and citizens – are behaving in a fair way online has led to the introduction of the EU’s Digital Markets Act (DMA), part of the European regulatory programme known as ‘A Europe Fit for the Digital Age’ and designed to regulate the digital space across Europe.

In force since 1 November 2022, the DMA has been hailed as a landmark regulation for Europe’s digital economy, which, alongside the Digital Services Act (DSA), which defines responsibilities and accountability for online platform content (in force since 15 November 2022), form the centrepieces of the EU’ s digital strategy.

“The DMA addresses perceived unfair business practices by large online platforms that have been designated ‘gatekeepers’ between business users and end-users,” says Michael J. Frese, an associate at Skadden, Arps, Slate, Meagher & Flom. “It is one of the most significant pieces of legislation the EU has adopted in the field of competition law to date.

“The Act represents a shift away from the European Commission’s (EC’s) more economic approach, notably its 2009 guidance paper on enforcement priorities for abuse of dominance cases,” he continues. “The DMA also introduces sector-specific competition rules based on presumptions of market power and competitive harm.”

Scope and objectives

The DMA is applicable only to companies that will be designated as ‘gatekeepers’ according to objective criteria set out in the regulation, i.e., those that have an entrenched position in respect of “core platform services”. Essentially, these are companies that play a particularly important role in the internal market because of their size and their importance as gateways for business users to reach their customers.

The DMA is applicable only to companies that will be designated as ‘gatekeepers’ according to objective criteria set out in the regulation, i.e., those that have an entrenched position in respect of “core platform services”.

Collectively, the stated overarching objectives of the DMA and DSA are: (i) to establish a level playing field to foster innovation, growth and competitiveness, both in the European Single Market and globally; and (ii) to create a digital space in which the fundamental rights of all users of digital services are protected.

To this end, the DMA will essentially regulate large digital companies by, among other things, preventing those companies from engaging in self-preferencing or unfair discrimination (particularly with respect to payment systems), advertising in a targeted manner without consent or impeding interoperability.

“The key objective of the DMA is to ensure that digital markets are contestable,” asserts Mr Frese. “Gatekeepers are subject to detailed obligations and prohibitions. The DMA deals with interoperability, unbundling, access to and use of data, self-preferencing and multihoming.

“Moreover, the rules are applicable to companies that meet a quantitative threshold or a qualitative test,” he continues. “For example, companies that have €7.5bn in EU revenue or €75bn market capitalisation and over 45 million monthly active users will normally be covered.”

Compliance issues

The DMA will be applicable as of 2 May 2023 and the DSA from 17 February 2024. Following designation, ‘gatekeepers’ will have six months and four months to comply with the DMA and DSA, respectively.

“Although the DMA will make markets more contestable, it may also restrict certain business models in terms of integrated service offerings,” suggests Mr Frese. “The DMA could either result in local variations to business models or set a global standard for companies wishing to maintain a uniform global business model.

“It will also materially increase internal compliance functions due to various reporting requirements,” he continues. “For example, companies will need to notify all their core platform services that meet the gatekeeper thresholds. And once designated as a gatekeeper, companies need to notify the EC of their compliance framework but also any proposed transactions.”

Enforcement

To ensure compliance with the DMA, the EC could impose fines of up to 10 percent of gatekeepers’ worldwide turnover in the preceding financial year, increasing up to 20 percent in the case of repeat infringements.

According to the EC, in case of systematic infringements of the DMA obligations by ‘gatekeepers’, additional remedies may be imposed following a market investigation. Such remedies will need to be proportionate to the offence committed. If necessary and as a last resort option, non-financial remedies can be imposed. These can include behavioural and structural remedies, such as divestiture of parts of a business.

Summary

As a major piece of new European legislation, going forward we can expect both robust enforcement by the EC as well as significant scrutiny of the detailed DMA requirements by impacted companies – the influential ‘gatekeepers’ the new legislation seeks to curb.

© Financier Worldwide


BY

Fraser Tennant


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