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Digital Markets Act: a new and fair business framework for large platforms

The European Commission has published the draft proposal for a new competition law framework for large online platforms, called the Digital Markets Act (the “DMA”). The reason the Commission proposed the DMA is that a small number of large online platforms capture the biggest share of overall value generated in Europe’s digital economy, and these platforms have emerged by benefitting from sector characteristics such as strong network effects, often embedded in their own platform ecosystems. These platforms represent the key structuring elements in today’s digital economy, intermediating the majority of transactions between end users and business users. A few large platforms increasingly act as gateways or gatekeepers between business users and end users, and enjoy a long-term, entrenched position, often as a result of the creation of conglomerate ecosystems around their core platform services, which reinforces existing entry barriers.

The DMA deals with those large online platforms acting as gatekeepers in digital markets. The DMA aims to ensure that:

  • these platforms behave fairly online;
  • innovators and technology start-ups will have new opportunities to compete and innovate in the online platform environment without having to comply with unfair terms and conditions that limit their development;
  • consumers will have more and better services to choose from, more opportunities to switch their provider if they so wish, direct access to services, and fairer prices.

Who are the gatekeepers?


Gatekeepers are core platform services which meet the qualitative and quantitative criteria set out in the DMA. Core platform services include online intermediation services, search engines, social networking services, video-sharing platform services, number-independent interpersonal communication services, operating systems, cloud computing services, advertising services including any advertising networks, advertising exchanges and any other advertising intermediation services, provided by a provider of any of the core platform services listed above.

A core platform service qualifies as a gatekeeper, if:

  1. it has a significant impact on the internal market, which is presumed if it achieves an annual EEA turnover equal to or above EUR 6.5 billion in the three preceding financial years, or where the average market capitalisation or the equivalent fair market value of the undertaking to which it belongs amounted to at least EUR 65 billion in the preceding financial year, and it provides a core platform service in at least three Member States;
  2. it operates a core platform service which serves as an important gateway for business users to reach end users, which is presumed if it has more than 45 million monthly active end users established or located in the Union and more than 10,000 yearly active business users established in the EU in the preceding financial year;
  3. it enjoys a long-term, entrenched position in its operations or it is foreseeable that it will enjoy such position in the near future, which is presumed if the thresholds in point b) were met in each of the three preceding financial years.

 

What are the gatekeepers’ main obligations? Do’s and Don’ts

 

DO'S

DON'TS


Notifications: 
- if a provider of core platform services meets all of the gatekeeper thresholds, it must notify the Commission of this fact within three months;
- if the gatekeeper plans an M&A transaction with another core platform service provider or with any other digital service provider, it must notify the Commission.

Ensuring freedom for users: 
- Freedom of pricing for business users: allowing business users to apply different prices and conditions for the same products or services through third-party online intermediation services.
- Freedom of business outside the platform: allowing business users to promote their product range and conclude contracts with their customers outside the gatekeeper’s platform. 
- Freedom to uninstall: allowing end users to uninstall any pre-installed software applications on its core platform service. 
- Freedom to install software and application stores: allowing the installation and use of third-party software and application stores which use or interoperate with the gatekeeper’s operating systems, and allowing these software and application stores to be accessed by means other than the gatekeeper’s core platform services.

Data portability: providing rights and tools for business users and end users for data portability in line with the GDPR.

Transparency provisions:
- in online advertisements: providing information for advertisers and publishers on the prices they must pay and the remuneration to be paid to them for the gatekeeper’s advertising services, and providing them with information on measuring tools and information necessary for them to carry out their own independent verification of the advertisements hosted by the gatekeeper’s platform;
- in search engines: ensuring access to other online search engine providers on fair, reasonable and non-discriminatory terms to ranking, query, click and view data in searches by end users;
- in profiling: submitting descriptions of how profiles about consumers are audited in a technologically independent way, which the gatekeeper applies in its core platform services.

Access to data: ensuring access for business users to the data that they generate in using the gatekeeper’s platform.

Equal access to application stores: fair and non-discriminatory general conditions of access for business users to its software application store.

Access to software features: allowing business users and ancillary service providers access to and interoperability with the same operating system, hardware and software features available or used by the gatekeeper of any ancillary services.


No combination of personal data without GDPR consent: no more combining personal data sourced from the core platform services with personal data from any other services offered by the gatekeeper or with personal data from third-party services, and from signing end users into other services of the gatekeeper in order to combine personal data, without a GDPR consent.

No more preventing or restricting business users from raising issues with any relevant public authority relating to any gatekeeper practice.

No mandatory use of the gatekeeper’s identification service: no more requiring business users to use, offer or interoperate with an identification service of the gatekeeper in the context of services offered by the business users using the core platform services of that gatekeeper.

No mandatory subscription for other services: no more requiring users to subscribe to or register with any other core platform services as a condition to access, sign up or register to any of the core platform services.

Information barrier: no more using, in competition with business users, any data not publicly available, which is generated or provided by the business users of the given core platform services.

No discrimination in rankings: no more treating the gatekeeper’s products and services more favourably in ranking compared to third parties’ similar services or products, and fair and non-discriminatory conditions must be applied to such rankings.

No technical restrictions for end users: no more technically restricting end users from switching between different software applications and services using the gatekeeper’s operating system.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 


 

 

What kind of tools and powers do the Commission and other bodies have?


The DMA grants powers and different procedural rights to the European Commission and establishes the Digital Markets Advisory Committee for issuing opinions in issues related to the DMA.

The DMA gives the Commission the following powers:

  1. to designate core platform services that meet the DMA criteria as gatekeepers;
  2. to review ad-hoc the status of gatekeepers on request or on its own;
  3. to review at two-year intervals the status of gatekeepers;
  4. to specify measures to be taken by gatekeeper to comply with the DMA;
  5. to suspend certain gatekeeper obligations under the DMA at a gatekeeper’s request, if the gatekeeper demonstrates that compliance with that specific obligation would endanger its economic viability;
  6. to exempt a gatekeeper from certain obligations under the DMA on the grounds of public morality, public health or public security;
  7. to initiate market investigations:
    1. to examine whether a provider of core platform services should be designated as a gatekeeper;
    2. into systematic non-compliance by a gatekeeper;
    3. to examine whether certain services in the digital sector should be added to the list of core platform services and identify practices that might limit the contestability of core platform services or might be unfair.

The DMA grants investigative, enforcement and monitoring powers to the Commission during its proceedings, based on which the Commission is entitled to:

  1. request information from any undertakings and from the governments and authorities of EU member states;
  2. access data bases and algorithms;
  3. interview any private person or legal entity to collect information relating to the subject-matter of an investigation;
  4. conduct on-site inspections at the premises of any undertakings, including together with auditors and experts;
  5. order interim measures against a gatekeeper on the basis of a prima facie finding of an infringement of obligations under the DMA;
  6. monitor the effective implementation and compliance with the obligations under the DMA.

 

What will the sanctions for non-compliance be?


If the Commission adopts a non-compliance decision in which it finds that a gatekeeper does not comply with one or more obligations under the DMA, the Commission may fine a gatekeeper.

The maximum amount of a fine is 10% of the total worldwide annual turnover of the gatekeeper in the case of a material breach of the obligations under the DMA, and a maximum 1% in the case of a less serious breach of obligations under the DMA.

The Commission is also entitled to order periodic penalty payments of up to 5% of the average daily turnover in certain cases defined in the DMA.

In the case of systematic breaches of the DMA obligations by gatekeepers, additional remedies may be imposed after a market investigation. Such remedies will need to be proportionate to the offence committed. If necessary and as a last resort, non-financial remedies can be imposed. These can include behavioural and structural remedies, e.g. the divestiture of (parts of) a business.
 

What are the next steps?


The European Parliament and Member States will discuss the Commission’s proposal according to the ordinary legislative procedure, which will take at least 18 months. Once adopted, the Act will directly apply across the EU and the core platform service providers will have six months to prepare for the new legal regime.

We will continuously monitor the status of the legislative process and keep you updated on any changes to the draft text of the DMA.

Authors

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Dóra Petrányi
Dóra Petrányi
Partner
CEE Managing Director, Head of TMT, Competition, IP, Life Sciences & Healthcare
Budapest
Katalin Horváth
Katalin Horváth
Senior Counsel
Budapest
Márton Domokos
Márton Domokos
Co-ordinator of the CEE Data Protection Practice, CMNO
Budapest
Szabolcs Szendrő
Szabolcs Szendrő
Senior Counsel
Budapest