Largest online platforms prepare for sweeping digital regulation after landmark agreement

The largest tech companies are now preparing for far-reaching ex-ante regulation that can be compared to the historic introduction of legislation governing essential sectors such as finance and telecoms. This incoming Act will provide regulators with powerful new tools that go beyond the established EU competition framework whereby companies are punished retrospectively for problematic conduct. Designed to complement competition law, the DMA will regulate future behaviour in the online marketplace. It follows concerns expressed by Commission Executive Vice-President Vestager, among others, that fast-moving digital economy markets can “tip,” resulting in consumer harm before any breaches in anti-trust law can be remedied.

Scope

Online platforms potentially in the scope of the DMA will have a market capitalisation of at least €75 billion or an annual turnover of €7.5 billion and have at least 45 million monthly end users in the EU and 10,000 annual business users. As such, the new rules could potentially cover some of the largest U.S. multinationals and may also apply to at least one Chinese and one European platform. French Digital Secretary Cedric O has been quoted in the press as saying that the DMA will target between 15 and 20 firms.

Furthermore, these very large platforms may be designated as “gatekeepers” by the European Commission if they offer one or more “core platform services” in at least three Member States. “Core platform services” include online marketplaces and app stores, search engines, social networking, cloud services, advertising services, voice assistants and web browsers. During the inter-institutional negotiations, the European Parliament managed to add web browsers and virtual assistants to the scope of core platforms services.

Ground Rules

The DMA lays down ground rules for “gatekeepers”, including a blacklist of prohibited practices and heavy potential sanctions for non-compliance. SMEs are exempt from being identified as gatekeepers, apart from in exceptional cases. The DMA also includes the category of “emerging gatekeeper”, which will already enable the Commission to impose certain obligations.

Additional obligations were introduced for the largest online platforms regarding the bundling of products and permitting interoperability between different systems. Major messaging services, for example, will have to open up and interoperate with smaller messaging platforms if they so request. This is designed to increase consumer choice with respect to core platform services and provide more opportunities for smaller enterprises.

Combining personal data for targeted advertising will only be allowed if explicit consent is given to the gatekeeper. However, the Council did not accept the Parliament’s proposal to introduce restrictions on targeted ads for minors.

“Gatekeepers” should do the following:

• ensure that users have the right to unsubscribe from core platform services under similar conditions to subscription;
• for the most important software (e.g., web browsers), not require this software by default upon installation of the operating system;
• ensure the interoperability of their instant messaging services’ basic functionalities;
• allow app developers fair access to the supplementary functionalities of smartphones (e.g., Near-Field Communication (NFC) chip);
• give sellers access to their marketing or advertising performance data on the platform;
• inform the European Commission of their acquisitions and mergers.

“Gatekeepers” should not do the following:

• rank their own products or services higher than those of others (self-preferencing)’
• reuse private data collected during a service for the purposes of another service;
• establish unfair conditions for business users;
• pre-install certain software applications ;
• require app developers to use certain services (e.g., payment systems or identity providers) in order to be listed in app stores.

Sanctions

Under the new Act, the Commission will have powers to carry out market investigations concerning “gatekeepers” and sanction non-compliant behaviour. Companies that do not comply with the new rules can face fines of up to 10% of their total worldwide turnover in the preceding financial year and 20% in case of repeated infringements. Speaking in the European Parliament last week, the German Christian-democratic MEP, Andreas Schwab, who led the negotiations on behalf of the Parliament, indicated that for platforms subject to three non-compliance decisions in eight years, there could be the option of break-ups or a ban on acquiring other companies for a certain time.

As the lead enforcer of the new rules, the Commission will now have to begin staffing the relevant services that will be involved in the designation procedures, as well as preparing for the enforcement of the obligations. An advisory committee and a high-level group will be set up to support and facilitate the work of the Commission. Notably, if a platform has strong arguments against its designation as a “gatekeeper”, it can challenge the designation by means of a specific procedure that enables the Commission to check the validity of its case.

Next steps

While a political agreement has been reached, there are still details to be worked out at a technical level. A consolidated text of the Act is expected to be available by 7 April and will be sent to political groups for consultation with a deadline of around 20 April. The aim is to have a final consolidated version sent for translation on 25 April.

Both the Council and the European Parliament will then have to formally approve the final text. The Parliament is expected to present the DMA for official endorsement during a plenary session either in July or September. Once officially adopted by the two co-legislators, the DMA will come into force 20 days after its publication in the EU Official Journal. According to Executive Vice President Vestager, this is most likely to take place in October 2022. The new rules will apply six months after this date.

• European Parliament press release available here
• Council press release available here
• Commission press release available here

For further information contact Francine Cunningham

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