Digital platforms – The gatekeepers under the EU’s new Digital Markets Act
In December last year the European Commission published its much anticipated draft Digital Markets Act. The DMA imposes a suite of regulatory obligations on digital platforms who meet the requirements of “gatekeeper” for one or more pre-defined services.
But who will be the gatekeepers and what will this concept mean in practical terms? The answer to these questions is important, not only for gatekeepers but also for those that compete and/or do business with gatekeepers on a regular basis.
The starting point: the definition of core platform services
A company can only be classified as a gatekeeper for an exhaustive list of “core platform services” set out in the DMA (Article 2(2)): online search engines, online intermediation services, online social networking services, video-sharing platforms, operating systems, interpersonal communication services, cloud computing and advertising.
The DMA regulates core platform services rather than the company involved. This means a platform can be designated as a gatekeeper for one or more core platform services. It also means that the obligations under the DMA would not apply to all of the platform’s activities, just to those which have been designated under the DMA.
Step two: the definition of a gatekeeper
A company will be considered a gatekeeper for one or more core platform services if it:
- operates a core platform service which serves as an important gateway for business users to reach end users;
- has a significant impact on the internal market; and
- enjoys an entrenched and durable position in its operations or it is foreseeable that it will enjoy such a position in the near future.
These conditions can be demonstrated by the EC in two ways: as a rebuttable presumption (Article 3(2)) whereby the burden of proof is on the company to rebut the presumption, or through a qualitative assessment (Article 3(6)), in which case the burden of proof is on the EC. Companies will be able to rebut the quantitative presumption presumably by applying the qualitative framework set out in Article 3(6) in reverse.
The rebuttable presumption applies if the following two quantitative tests are fulfilled:
- the company involved had 45 million monthly active end users of the core platform service in the EU (roughly 10% of the EU’s population) and more than 10,000 yearly active business users in the last three years; and
- it has an annual EEA turnover of at least EUR 6.5 billion in the last three years (or an average market capitalisation of at least EUR 65 billion) and provides a core platform service in at least three EU Member States.
The EC has the power to adjust these two thresholds to market and technological developments. It has insisted it has not designed the thresholds with a specific list of companies in mind. But, in practice, they capture only a handful of large digital platforms, in particular Google, Apple, Facebook and Amazon (GAFA) which the EC has considered as (potentially) problematic in recent antitrust enforcement.
For the qualitative assessment, the DMA provides a number of factors that the EC will take into account in its analysis. These include: the size, operations and position of the company, entry barriers derived from network effects and data driven advantages, scale and scope effects, and business user or end user lock-in.
Who determines what a core platform service is?
Changing the list of core platform services in the DMA requires a legislative act by the European Council and Parliament. The EC can make a proposal but does not itself have the power to change the list.
Interestingly, criticism from within the EC on the DMA has focussed on the lack of a clear justification for the selection of the core platform services covered by the DMA and whether the quantitative thresholds, in so far as these concern core platform services, are a robust and reliable trigger for all selected core platform services. This may therefore become the Achilles heel of the DMA if it proves difficult to adjust the list of core platform services going forward.
Once a gatekeeper always a gatekeeper?
No. The DMA provides for a review clause allowing the EC to amend or repeal gatekeeper status at any moment. The EC is required to review regularly (at least every two years) whether the designated gatekeepers continue to satisfy the criteria.
Do you have to be dominant to be gatekeeper?
No. Unlike Article 102, the DMA does not require a finding of dominance or an assessment of market power.
The quantitative criteria that trigger the gatekeeper presumption act like a jurisdictional threshold. If you meet them, you are presumed in. The qualitative criteria are, on paper, independent of the antitrust rules and any finding of dominance. But in reality they seem to have been set in a way that they only capture dominant core platforms within the meaning of Article 102. The link to the concept of dominance is also made evident by the fact that the definition of a gatekeeper is, for example, based on concepts such as “important gateway” and “entrenched durable position”. In addition, several of the underlying building blocks provided in Article 3(6) would also be relevant in a dominance analysis.
This is not surprising. It is at least an open question whether (and under what circumstances) a platform can be a gatekeeper if it is not dominant, e.g. if it cannot act independently of the market participants, including users on either side of the platform. In addition, the consequences of being identified as a gatekeeper is that gatekeepers “carry an extra responsibility to conduct themselves in a way that ensures an open online environment that is fair for businesses and consumers, and open to innovation by all”. This is not a far stretch from the adage established by the European Courts that a dominant company has a special responsibility to ensure that its conduct does not distort competition. This being said, the obligations imposed on gatekeepers by the DMA are far more stringent than any obligations which may arise under Article 102.
How are non-gatekeepers impacted?
The rules set out in the DMA will, if implemented in their current form, challenge the fundamental business models of some of the major digital platforms. As such, the rules may redefine the way in which businesses interact with such platforms on a regular basis.
Beyond the DMA, national regulators may apply similar gatekeeping concepts (and new accompanying rules) to a broader base of companies. Germany is, for example, expected to introduce a new concept of “undertakings with paramount significance for competition across markets” into its competition law in the beginning of this year. Although this seems to be mainly aimed at GAFA (similar to the DMA), the criteria capture a broader set of companies. There is however a question as to whether such national rules will remain compatible with the DMA, which seeks to fully harmonise the rules at EU level.
Finally, at a more conceptual level, the concerns related to gatekeepers which drive the DMA (in particular concerns around self-preferencing practices, anti-competitive foreclosure and access to essential data) will remain at the forefront of antitrust authorities’ enforcement priorities in the upcoming years for companies not designated as gatekeepers under the DMA. With these concerns can also arise in industries unrelated to digital markets.
An example can be found in the automotive sector, which is evolving more and more towards a “global ecosystem for mobility”. The EC is already aware of the potential risks for competition on automobile aftermarkets due to the increasing dependence of innovative third-party car-related service providers on car-generated data. Indeed, with the increased digitalisation and advanced connectivity of cars, additional aftermarkets for innovative, increasingly in-vehicle generated data-dependent services related to these trends are coming under the spotlight. Navigation services, infotainment services, maintenance and diagnostic services, “pay-when and how-you-drive” insurance services are only a few of the growing number of possibilities.