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Europe’s Digital Markets Act: New Regulation Of Gatekeepers In The Digital Platform Economy – Antitrust, EU Competition

The Council of the European Union recently published an updated
and now effectively final draft version of Europe’s forthcoming
landmark regulation for the digital economy, the Digital Markets
Act (“DMA”). The DMA will require large digital platform
companies to adhere to a long list of obligations and prohibitions,
forcing many of them to significantly change the way they interact
with consumers, business partners and competitors. Responding to
criticism that ex post enforcement of competition law has not led
to sufficiently fair and contestable digital markets, the EU is now
turning to heavy-handed ex ante regulation of so-called
“gatekeepers.”

The new draft consolidates all amendments to the European
Commission’s (Commission) initial draft that were negotiated
between the Council and the European Parliament and is therefore
likely to be final. Under the timeline foreseen in the DMA, the
summer of 2023 will be spent “designating” the gatekeeper
companies and their covered digital services while gatekeepers will
need to comply with the DMA’s substantive prohibitions and
obligations as of spring 2024.

The DMA has the potential to fundamentally change the digital
economy in Europe and beyond. The DMA challenges gatekeepers’
established business and monetization practices, poses significant
legal compliance challenges and requires far-reaching changes to
their technical infrastructure. For gatekeepers’ business
partners and smaller competitors, the DMA is expected to bring new
business opportunities. End customers will benefit from better
control over their data and greater choice. That said, the DMA
comes with high complexity, the team that will enforce the DMA at
the European Commission (“Commission”) has not yet been
set up, and more detailed guidelines remain to be published. There
are still many open questions affecting the practical
implementation of the DMA.

APPLICATION OF THE DMA TO CORE PLATFORM SERVICES OF DIGITAL
GATEKEEPERS: THE DESIGNATION PROCESS

The DMA applies to so-called “gatekeepers” that
operate at least one “core platform service”
(“CPS”).

Core Platform Services

Article 2(2)1 defines 10 different types of CPS:
online intermediation services, online search engines, online
social networking services, videosharing platform services,
number-independent interpersonal communications services, operating
systems, web browsers, virtual assistants, cloud computing
services, and online advertising services that are linked to
another CPS. Connected televisions, which the European Parliament
wanted to add, are not included in the final list.

Qualitative Gatekeeper Criteria

A company providing a CPS (a “CPS provider”) will be
considered a gatekeeper if the Commission finds by means of a
formal designation decision that it meets the DMA’s gatekeeper
criteria. Article 3(1) defines a gatekeeper as a company that:

  • Has a significant impact on the internal market;

  • Provides a CPS which is an important gateway for business users
    to reach end users; and

  • Enjoys, or is expected to enjoy in the near future,2
    an entrenched and durable position in its operations.

Article 3(8) enables the Commission to designate a company as a
gatekeeper directly on the basis of these qualitative criteria,
although this would first require a lengthy market investigation
that takes account of factors like barriers to entry, user lockin
and other aspects. The Commission is unlikely to designate
gatekeepers on the basis of only these qualitative criteria anytime
soon.

Quantitative Gatekeeper Presumption Criteria

Instead, the first round of gatekeepers will be designated on
the basis of quantitative presumption criteria that look at the
size of the CPS provider and number of its active users. Under
Article 3(2), a company is presumed to satisfy the qualitative
gatekeeper criteria of Article 3(1) under the following
circumstances: (i) the company provides the same CPS in at least
three EU Member States and, at a group-wide level, achieved an
annual turnover of at least €7.5 billion within the EU in each
of the last three financial years, or a market valuation or
equivalent fair market value of at least €75 billion in the
last financial year, and (ii) the CPS in question had, in each of
the company’s last three financial years, at least 45 million
monthly active end users established or located in the EU, and at
least 10,000 yearly active business users established in the
EU.3

CPS providers have to assess if they meet these quantitative
presumption criteria and, if that is the case, self-report to the
Commission under Article 3(3). This notification will normally be
followed by a Commission decision designating the gatekeeper and
each of its relevant CPS meeting the criteria as being subject to
the DMA. Article 3(5) allows CPS providers to put forward rebuttal
arguments to convince the Commission that despite meeting the
presumption criteria they do not meet the qualitative gatekeeper
designation criteria for an individual CPS.

However, the hurdles for a successful rebuttal are high and the
Commission only needs to consider such arguments in more detail if
they “manifestly put into question” the presumption.
Several procedural rules of the DMA and a threat of significant
fines seek to encourage the CPS provider’s transparency and
good faith cooperation with the Commission in the designation
process.

Likely Outcome of Designation Process

It is expected that Alphabet, Amazon, Apple, Meta, and Microsoft
meet the quantitative presumption criteria with regard to several
of their services. It remains to be seen which other companies will
be designated as gatekeepers. An estimate of 15-20 companies has
been suggested in the press, but this count may change and is in
any event likely to increase over the years as more and more
companies meet the quantitative presumption criteria. Gatekeeper
designations will be made public and are specific to individual CPS
so that a company may fall under the DMA for some of its CPS but
not for others.

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Footnotes

1. Throughout this article, and unless otherwise noted,
all references are to the July 11, 2022 draft version of the
DMA

2. Under Article 17(4), the Commission can designate
companies that do not yet enjoy an entrenched gatekeeper position
but are likely to do so in the near future as emerging gatekeepers,
and impose on them a sub-set of the prohibitions and obligations
that apply to gatekeepers. These situations are most likely to
arise on markets that are close to a tipping point.

3. An annex to the DMA sets out specific rules how to
count end users and business users, but questions can be expected
to arise.

Originally Published by Intellectual Property &
Technology Law Journal

The content of this article is intended to provide a general
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