Gatekeepers and digital markets set for further EU regulation

Out-Law Analysis | 18 Jun 2020 | 4:06 pm | 5 min. read

Recent consultations opened by the European Commission suggest that technology companies can expect major reforms to the way digital markets are regulated in the EU in the future.

The proposed new Digital Services Act package is wide-ranging, with the EU considering recalibrating the role online intermediaries should play in law when providing digital services. This includes around their liability for the sale of illegal goods, as well as responsibilities around online hate speech, terrorist content and a raft of other online harms perpetuated by others.

Two of the measures will lead to a reassessment of how the competition law rules apply to the digital services market: a proposal for a new regulation to apply to online platforms that act as gatekeepers in markets, and the proposed introduction of a new market investigation tool to allow regulators to act more quickly to address cases of harm in digital markets. 

Proposed 'before the event' regulation of digital platforms

The Commission is consulting on a proposed 'before the event' (ex ante) instrument to address market power concerns for 'gatekeeper' platforms on the market. The EU commissioner for the internal market, Thierry Breton, said that the role online platforms have in the life of citizens and in the context of the EU economy and democracy requires platforms to take on "greater responsibility", but said "this can only happen against the backdrop a modern rulebook for digital services".

Proposals include the introduction of a framework to set out permitted and 'blacklisted' practices – a form of 'dos and don'ts' for market participants. The Commission is keen for this instrument to 'set the rules of the game' in the digital market, and ensure that large platforms behave fairly and can be challenged quickly and effectively by new entrants and other market participants, ensuring consumers have choice within a market.

The Commission is particularly keen to have the ability to intervene before a 'gatekeeper' forecloses competitors from entering a market or has the ability to raise the costs of other market participants.

Markets which are particularly of focus will be those with strong network effects, with a high degree of data dependency, and where there is 'zero pricing' for services. The areas which seem most likely to be covered by a 'before the event' regulation are aspects such as how platforms provide 'self-preference' services, while enhanced requirements on data portability, interoperability and access could also be imposed.

This type of instrument bears resemblance to UK plans to establish a cross-regulator 'digital markets taskforce' and to designate certain businesses as having a 'strategic market status' and require them to follow a code of conduct. This would involve committing to measures enabling enhanced data portability and access. The UK is currently carrying out a market study to inform how this framework will operate, with publication due in July 2020.

The EU proposals would likely lead to greater practical intervention by regulators in the way platforms operate, outlawing in advance certain activities which, at the moment, can only be addressed –  if at all – by initiating an 'abuse of dominance' case under the existing competition law framework. Those cases are typically hard-fought and take years to resolve. The proposals should provoke some interesting discussions in consultation with stakeholders regarding the definition of what constitutes a "gatekeeper" and the potential impact of the restrictions and obligations imposed by the proposals on incentives to innovate.

The proposals reflect the increasing concerns of regulators that fast moving digital markets cannot be effectively regulated 'after the event' under the existing competition law framework. This can also be seen in the context of mergers in the digital sector, where regulators are considering more dynamic alternative counterfactuals and theories of harm.

According to a new report by legal news service MLex, the plans are set to receive initial support at least from MEPs, though the legislative process will not begin until the Commission formally tables a draft regulation.

Proposed market investigation tool in digital markets

A further measure which is subject to consultation is a new competition 'tool' that would enable the Commission to conduct investigations into digital markets which are raising concerns. Such a 'tool' will be designed to address structural problems in markets which currently have a single powerful player, but where conduct would currently fall outside of the scope of the EU competition law rules. This might include where a position of dominance and/or abuse has not yet been established, for example.

The Commission is particularly concerned about markets at the risk of 'tipping', i.e. where characteristics of a market and market conduct lead to competition concerns: examples of this would be markets with significant players that fall short of actual dominance, or markets with oligopolistic characteristics.

The proposed measures would give the EU competition regulator significantly increased powers to carry out wide-ranging reviews of markets of concern, without needing to establish breaches of law. The Commission has been clear that it will not fine market participants under these powers and would make no finding that competition law has been infringed. It proposes to have the ability to impose remedies in a market, and also asks for views on procedural matters and sanctions for non-compliance including powers to interview management, to 'raid' premises and to issue mandatory information requests.

These proposed powers resemble the 'market investigation' powers which the UK competition regulator has had for many years. The UK regulator has used these powers in the past to require divestments or behavioural undertakings in markets where it judged competition was not working well, but where a breach of competition law was not evident.

It is perhaps not surprising that the EU has identified a 'market investigation' tool as one of the solutions to its self declared 'enforcement gap' in dealing with digital markets. The core question for consultation must be the degree to which the regulator would be able to impose remedies to address its concerns in such markets; what types of remedies and in what circumstances. Such remedies could be structural or behavioural, for example, mandating access to data for third parties or prohibiting "self-referencing" tools. A market investigation tool could enable the regulator to impose such remedies not only on "gatekeepers" but on smaller players and in oligopolistic markets.

The EU suggests that such a regime will be able to act 'nimbly' in identifying and remedying problematic conduct in digital markets. However, the UK experience is that market investigations can be slow moving and burdensome for regulators and businesses.

Next steps

The EU's consultations on these changes are open until September 2020, with legislative proposals informed by the consultation responses due by the end of 2020. Technology companies and other businesses active in the digital services market should engage with the consultations to have their voices heard and help the Commission shape reforms which satisfy its desire for more effective regulatory solutions but in a way which recognise the significant positive contribution online intermediaries make to digital life and business.

Angelique Bret and Paul Williams are competition law experts at Pinsent Masons, the law firm behind Out-Law.