The (antitrust) revolution is digitised: the EU’s Digital Markets Act passes major hurdle

The EU’s Digital Markets Act (DMA) is agreed. The European Commission ground-breaking proposal to impose a suite of hard and fast ex ante rules on designated digital “gatekeepers” reached political settlement at the tail end of last week.

The DMA is a major building block for European competition enforcement comparable to the introduction of the EU merger regulation in 1989. As Commissioner Vestager commented immediately after the political agreement was reached:

“This regulation, together with strong competition law enforcement, will bring fairer conditions to consumers and businesses for many digital services across the EU.”

While the DMA is expected to come into force at the tail end of the year, its practical effects will start to ripple through digital services in the coming months as designated gatekeepers start adjusting their business models: mobile operating systems will need to allow the installation of third-party app stores; e-commerce platforms will need to provide sellers with data generated by their own activities; and messaging services must be prepared to provide interoperability with other such services.

What was the final bargain between European legislators?

The core building blocks of the DMA remain those of the Commission’s original proposal: concrete obligations for the designated gatekeepers in the provision of core platform services enforceable by the Commission.

The negotiations have instead focused on refining its key elements:

  • Wide(r) Net: While the scope of the DMA has been narrowed at the margins – the market cap for designated gatekeepers has increased from EUR65bn to EUR75bn – the political compromise saw a broader DMA than the European Parliament had sought; but one which has sufficient scope to encompass European as well as U.S. tech platforms and thus deflect some of the U.S. criticism of unfair discrimination.
  • Broader Scope of Core Platform Services: The European Parliament won its battle to include web browsers and virtual assistants in the DMA thanks to a strong push by the European Parliament: the Commission’s Final Report on its consumer IoT sector inquiry in January doing the European Parliament’s cause no harm in relation to virtual assistants.
  • Compromise on the Rules: The main discussion since the DMA’s publication has been how far to extend its rules with the European Parliament pushing an expansionist approach and the Council adopting a more cautious position. In the end, compromise was the name of the game: interoperability provisions were, for example, imposed on instant messaging but social media was ultimately excluded from its scope.

A number of items were also left on the cutting board both earlier in the legislative process and at the twilight of negotiations. Despite a strong push by some Member States, more ambitious merger control provisions for gatekeepers were dropped early in the process. Proposals for a far-reaching market investigation power did not even make it into the Commission’s proposal. And a push by some for a ban on targeted advertising was ultimately significantly watered down.

What happens next?

While political agreement may have been reached, there remains significant unknowns:

  • First up, while the European Commission is charged with its enforcement, we do not know whether DG COMP or another Directorate General such as DG Connect will be (co-)responsible. DG COMP would likely bring its enforcement experience as well as practices to the DMA: reinforcing the regulation as another tool in the EU’s already powerful antitrust armoury.  Whomever is asked to take up the mantle will need enough resources, with the right experience, to implement this ambitious regulation.
  • The European Commission’s procedural and substantive approach to assessment of potential gatekeepers, the scope of the rules, and enforcement of the regulation also remain in the air. However, the Regulation explicitly provides for the European Commission to issue guidelines on the operation of the Regulation which should shed significant light on how the regime will operate in practice.
  • Finally, we need to see how market participants themselves react and at what pace. Will gatekeepers and other market participants seek a consensual approach to the rules? Will market participants utilise the opportunities for private enforcement through national courts? Will the European Commission and EU Legislature use the tools in the DMA, such as the market investigation provisions, to expand its scope?

The answers to all of these questions should come out in the wash in the coming months and indeed years.

What’s the effect on the rest of the world?

Finally, much is made of the “Brussels Effect” and, in particular, the influence of General Data Protection Regulation in setting global standards for data protection.

While the effects of the DMA in the EU itself remain to be seen, it has the potential to have the same effects. However, this will also depend on the relative costs and benefits for gatekeepers of maintaining two business models and the prospect that other jurisdictions are likely to follow suit with similar rules.

The political agreement over the DMA is one (important) step in the introduction of a new regulatory instrument. But how it is used, its impact on the business models of gatekeepers and its potential to influence rules globally will now play out in earnest.