The DMA is here – What’s next?
Following political agreement on the text in March, the DMA should enter into force in October 2022 and apply from Spring 2023 (see the latest public version here).
While much (digital) ink has already been spilt since the Commission proposed the DMA in December 2020, the practical reality is soon set to emerge. How the Commission, would-be gatekeepers, other market participants and national regulators implement and participate in the roll out of the DMA will shape what it means in practice for digital markets. It will ultimately also determine the DMA’s success as the most significant addition to the Commission’s regulatory toolbox since the first iteration of the Merger Regulation in the 1990s.
We have identified five key issues to watch out for as the DMA is implemented:
- Gatekeepers: who and what will make the cut? Despite the DMA’s quantitative thresholds, there remains inevitable ambiguity over those firms sitting on the boundary line. Such cases are likely to spark considerable debate as soon as the DMA comes into force in Spring 2023, with would-be gatekeepers weighing up whether to challenge any presumptive designation.
- When does black and white equal grey? Determining what gatekeepers must do to comply with the DMA. While unlikely to come to the fore until late 2023 at the earliest, the DMA’s procedural mechanics for how gatekeepers must implement its more complex rules will need to balance different regulatory objectives and competing commercial interests. The effectiveness of such mechanics is likely to go a long way to determining the effectiveness of the DMA as a whole.
- Who does what, when: regulatory comity under the DMA. A blurred, demarcating line between the DMA and conventional competition law means that effective cooperation within the Commission, as well as between the Commission and the NCAs, is likely to be critical for ensuring coherent and efficient application of competition policy to digital markets across the EU. The potential for private enforcement of the DMA will also force national courts and the Commission to cooperate to ensure the consistent application of the DMA’s more complex provisions.
- Trend setter or out on a limb: the global reach of the DMA. The DMA may set global standards for digital market regulation if gatekeepers adjust to the DMA’s rules on a global basis, or it may mark a significant step towards regulatory fragmentation if they opt for implementing bespoke business models in the EEA. The differing commercial implications for gatekeepers, as well as the uncertainty over similar legislative efforts in China, the U.S. and the UK mean, however, that gatekeepers may well take different approaches, at least initially, with the end state unlikely to emerge in the near term.
- DMA-ification of competition policy. The final question is whether the DMA will evolve as a competition instrument or is it more likely to be a time-limited answer to a specific set of perceived regulatory problems. As expansion of the DMA into new markets is subject to legislative approval, its success is likely to drive both whether the DMA evolves and whether it becomes a template for regulatory intervention in other sectors.
1. Gatekeepers: who and what will make the cut?
The designation of “gatekeepers” under the DMA is likely to provide the first test for the new regulatory machinery of the DMA. Gatekeepers are firms that provide at least one “core platform service” which acts as an important market gateway and enjoys (or will enjoy in the near future) an “entrenched and durable position” in the EU. In practice, the DMA is intended to regulate everything from social media networks and search engines through to cloud computing, as the perceived strategic access routes to consumers in the digital economy.
The Commission is responsible for designating firms as gatekeepers for one or more of their core platform services under a two-tiered process. Firms satisfying quantitative thresholds based on a combination of EU sales, market cap, EU footprint and number of EU users are presumed to be gatekeepers but may “exceptionally” rebut the presumption. The Commission may also designate firms falling short of the quantitative thresholds, but which nevertheless satisfy the overarching conceptual test for “gatekeepers”. The Commission must conduct a market investigation to demonstrate that this is the case.
Designation of gatekeepers is likely to provide the first point of regulatory friction once the DMA comes into practical effect in Spring 2023. Some firms may well contest whether their services meet the DMA’s quantitative thresholds. Since firms whose services meet the quantitative thresholds are subject to a positive obligation to notify, this is likely to pose an early test for the Commission. It is also possible that those satisfying the quantitative thresholds may nevertheless seek to contest their designation. However, given that such firms must “manifestly” call into question the designation of their services to trigger a review, the high bar may see it fall into abeyance.
Further down the track is the question of the degree to which the Commission will seek to designate firms that do not meet the quantitative thresholds. In particular, the DMA contemplates such designation where it is “foreseeable” that the services offered will enjoy an entrenched and durable position in the “near future”. Whether the Commission pursues such cases will be a strong marker for the vigour of enforcement, as well as the Commission’s appetite to adopt an expansive approach to the DMA’s jurisdiction. Ultimately, this is more likely to play out in the medium term as the Commission will likely (and understandably) initially focus on the more obvious platforms for regulation.
2. When does black and white equal grey? Determining what gatekeepers must do to comply with the DMA
Once the Commission has designated the first gatekeepers in 2023, attention is likely to shift to the practical implications of the DMA’s rules. While intended to be sufficiently clear so that gatekeepers can “self-execute” their obligations, much of the DMA’s rulebook leaves scope for interpretation. This is particularly true of the “Article 6” rules. Interoperability for online messaging services is subject, for example, to the proviso that it does not endanger the “integrity, security and privacy“ of the relevant gatekeeper’s messaging service. A task likely to involve a finely balanced trade off in a world of end-to-end encryption.
To manage such trade-offs, the DMA includes procedural mechanics to facilitate regulatory dialogue and resolve disputes between the Commission, gatekeepers and other market participants – notably the (business) users of gatekeepers’ services. In particular, the Commission and gatekeepers may trigger formal investigations to determine “the measures” needed to comply with the DMA’s more complex rules. Interested third parties may also pro-actively complain where a gatekeeper is, in their view, not complying with its obligations. And the Commission must consult with interested third parties when determining any measures to ensure compliance with the DMA.
The far-reaching commercial implications of at least some of the DMA’s rules means that these processes are likely to become a crucible for refining its practical implications. Firms have already criticised the effects of some of the DMA’s rules on user privacy and security, as well as on valuable intellectual property. The Commission’s challenge is to ensure that its review processes balance the effective implementation of the rules while protecting competition, including preserving incentives to innovate, and other objectives such as data protection. A challenge which is likely to determine whether the DMA is successful or not.
3. Who does what and when? The regulatory comity under the DMA
The Commission and the NCAs also face the practical administrative challenge of ensuring that they do not tread on each other’s toes. While a task force between DG COMP and DG CONNECT seems set to designate gatekeepers and enforce the DMA’s rules, this belies a more complex interaction between the different regulators and national courts. The DMA cedes some responsibility to other institutions for enforcement. Pursuant to Article 31b(7) DMA NCAs are entitled to assess whether gatekeepers are complying with their DMA obligations when enforcing their competition powers against such firms (but are not empowered to reach a conclusion of non-compliance).
First, the Commission and the NCAs will need to establish the rules of the road between enforcement of the DMA and existing competition law powers. As a competition policy instrument, the DMA’s subject matter inherently overlaps with existing competition law powers, in particular Article 102 TFEU, and thus raises the prospect of parallel enforcement by both the Commission itself and the NCAs under the two instruments. The DMA contains some protections: Member States are prohibited from introducing regulations containing further obligations on designated gatekeepers for the purpose of preserving “contestable and fair markets”. This does not, however, apply to competition laws: parallel enforcement under Germany’s competition rules concerning platforms with “paramount significance” would, for example, be compatible with the DMA. So, leaving aside the complex question of whether such enforcement is even compatible with gatekeepers’ fundamental rights, there is at least the possibility of duplicative regulatory efforts, absent sufficient regulatory coordination (Parallel enforcement may well be incompatible with the principle of ne bis in idem. See in particular the Court of Justice’s recent judgment C-117/20 bPost).
Second, the Commission and the national courts will need to determine the relationship between regulatory enforcement and private enforcement of the DMA. The rules of the road are, in part, established: the DMA imports, in particular, the Masterfoods principle that national courts must, for practical purposes, stay proceedings where the Commission is investigating the same issue. However, in the event of significant private enforcement of the DMA’s obligations, the provisions for dialogue between national courts and the Commission will face a significant stress test, the likes of which we may not have seen in competition law litigation where the high burden of proving an infringement will have dissuaded many plaintiffs. The risk of regulatory divergence is clear as courts may be called to rule on the DMA’s rules before the Commission has had the opportunity to even consider the practical implications of the relevant obligation.
In short, sorting out who does what is likely to be a major topic facing the Commission once the DMA is up and running. In particular, while the DMA stresses the need for cooperation between the Commission and the NCAs, significant work will be needed to establish rules for case allocation and referral to avoid duplication of regulatory efforts as well as avoiding unduly burdening gatekeepers. More politically, expect to see much discussion as the NCAs seek to preserve their room for regulatory manoeuvre in the digital space while the Commission seeks to prevent the emergence of divergent approaches.
4. Trend setter or out on a limb: the global reach of the DMA
The fourth question is if the DMA will set a new global standard for competition policy in digital markets or whether it is the first step in a new phase of regulatory fragmentation.
The DMA’s rules have, on their face, limited extra-territorial effect: applying only to services offered to businesses and consumers in the EEA (albeit the DMA reserves the right for the Commission to impose structural remedies for recidivist gatekeepers). Gatekeepers are accordingly free to adjust their services in the EEA to comply with the strictures of the DMA but maintain their existing business models elsewhere. Whether this will transpire in practice depends on the gatekeepers, legislators and regulators elsewhere.
Some gatekeepers may simply decide to adjust their business models on a global basis to avoid the additional costs of maintaining different business models. If so, the DMA is likely to be touted as another example of the “Brussels effect” whereby EU market regulation de facto set global standards due to the size of the EU’s internal market. Furthermore, the prospect of similar regulation being introduced elsewhere may also incentivise gatekeepers to use the DMA as a regulatory baseline to avoid iterative changes as similar rules are rolled out worldwide.
However, since the costs of switching business models are likely to vary between gatekeepers, the incentives to bifurcate business models between geographies is unlikely to be uniform and thus may result in a patchwork outcome as gatekeepers adopt different stances. GDPR may have set global standards but, as a counter-example, Google has just implemented the remedy for Google – Android in the EEA. The prospects of similar regulation being introduced elsewhere are also receding in the near term: the UK has for example recently postponed even legislating on new powers for its Digital Markets Unit until 2023 at the earliest. As such, firms may be wary of fundamental changes to their business models in what remains an uncertain regulatory climate.
5. The DMA-ification of competition policy
The final topic stretching into the longer term is whether the DMA will become a living regulatory instrument, adjusting to the evolution of digital markets, or represent a standalone attempt to address the perceived issues that have arisen in digital markets in recent years.
To this end, the DMA contains some, albeit limited, flexibility. The Commission may supplement the rules applying to core platform services following a market investigation through delegated legislation (and may also disapply them).
Crucially, however, the expansion of the DMA to cover new digital services (i.e. new “core platform services”) remains subject to the approval of the EU legislator. In this regard, the DMA is more consistent with EU sectoral regulation – which is typically strictly delimited in terms of scope – than with EU’s existing competition law powers. More practically, it means that the expansion of the DMA to match the evolution of digital markets is contingent on legislative approval (a fairly high bar).
Whether the DMA becomes a permanent tool for market regulation, or diminishes in importance in the years to come as other markets rise up the regulatory agenda, is thus likely to ride on its relative success in the coming years and on the political will to confer greater responsibility on the Commission.
That said, success could also see the DMA applied as a template in other sectors as the regulatory logic underpinning the DMA – the need to intervene more rapidly and decisively in markets exhibiting certain characteristics – has potentially broader application. The Commission is publicly consulting on introducing mandatory data sharing of in-vehicle generated data: A proposal that bears more than a passing resemblance to the data sharing and portability proposals included in the DMA. Regardless of whether the DMA itself evolves to address new “problems”, the DMA template may become the new regulatory norm, rather than the exception.