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Digital Markets Act: EU agrees on new rules for ‘gatekeepers’

Out-Law News | 11 Apr 2022 | 8:44 am | 4 min. read

The European Council, parliament and Commission have negotiated a compromise on the Digital Markets Act (DMA), designed to ensure fairer competition by imposing new requirements on tech businesses with substantial market power.

The DMA is intended to prohibit ‘gatekeepers’ - businesses operating platforms that are considered to be a gateway for smaller businesses to reach the end consumer - from giving preferential treatment to their own products and promotions compared to those of their competitors. The new rules would also give end users of devices the opportunity to delete pre-installed apps and download alternative products offered by competitors.

 

During the legislative process, new obligations and prohibitions were included in the draft DMA. The text agreed upon by the Commission, parliament and European Council is currently being translated and is not yet publicly available. However, representatives of the three institutions have already summarised the results of the debate for the public.

The new obligations include an interoperability requirement that will apply to gatekeepers' messaging services – meaning that users would be able to send instant messages from one service provider to another.

The DMA will also prohibit gatekeepers from using personal data collected from users of one service for other services. In addition, gatekeepers would no longer be allowed to predefine to app developers which services they must use in order for their apps to be included in the app store. Gatekeepers would also have to grant app developers "fair access" to smartphone functions.

The law also contains restrictions on targeted advertising: According to the new rules, gatekeepers would have to obtain users' consent before combining third-party data with their own data for the purpose of targeted advertising.

The thresholds for being classified as a gatekeeper have also been increased. A business will be considered a gatekeeper if it reaches an annual turnover of at least €7.5 billion in the EU during the last three years or if its business reaches a market capitalisation of at least €75 bn. It must also have 45 million monthly end users and at least 10,000 business users in the EU, and control one or more "core platform services" in at least three EU member states. Marketplaces, app stores, search engines, social networks, cloud services, advertising services, voice assistants and web browsers are considered to be core platform services.

The EU commissioner for the internal market, Thierry Breton, said the Commission "will quickly work on designating gatekeepers based on objective criteria. Within 6 months of being designated, they will have to comply with their new obligations."

If the envisaged new rules enter into force, gatekeepers will face sanctions for violating them, including potential fines of up to 10% of their global annual turnover. For repeat offences, the penalty could increase to 20% of annual turnover. If a gatekeeper violates the new rules three times or even more, the Commission could impose a temporary ban on mergers for the business or impose divestment requirements.

The EU Commission is to be responsible for the enforcement of the DMA and intends to increase its staff resources to cope with the added workload. Its staff resources will be increased with at minimum 80 new employees, Andreas Schwab, a representative from parliament’s Internal Market and Consumer Protection Committee, said. At the same time, the DMA has been revised to allow for national authorities to be more heavily involved in enforcement, especially in investigations.

"Although an agreement was reached on the DMA, it will be a challenging time for all stakeholders once the gatekeeper rules enter into force," Dr. Laura Stammwitz, a Frankfurt-based competition law expert at Pinsent Masons, said. "It remains to be seen how the DMA will be interpreted and enforced by the EU Commission, how disputes will be dealt with by EU courts, and how this will be aligned with the current competition law rules enforced by national competition authorities."

The German Federal Cartel Office was recently given new tools to deal with the abuse of dominance by large digital players as a result of the 10th amendment of the national antitrust rules in 2021. "The existing competition law rules could already be used to tackle some of the activities which may be prohibited by the DMA and therefore there could be a potential overlap," Stammwitz said.

Representatives of the parliament, the Council and the Commission have made clear that in addition to the sanctions the EU Commission will be able to impose, businesses affected by violations of the DMA will be given the opportunity to take legal action against the gatekeepers. Class actions based on DMA infringement will also be possible.

London-based competition law expert Angelique Bret of Pinsent Masons said: “Large technology firms categorised as ‘gatekeepers’ under the DMA will invariably also be active in the UK." Therefore they will also be subject to any requirements of the Digital Markets Unit (DMU) - established last year - and the new UK legal framework within which the DMU will operate. "There will therefore be a significant additional compliance burden on these businesses.”

“The DMU may be provided with more flexibility to secure satisfactory outcomes, working with the businesses concerned. For example, in relation to the recent Google Sandbox privacy arrangements, the terms of this were agreed between Google, the UK Competition and Markets Authority and the UK’s data protection enforcement body, the ICO,” she said.

Bret added: “In fast moving digital markets, there is a risk that prescriptive regulations will quickly become obsolete or irrelevant, and the authorities may need to fall back on the existing competition, consumer and privacy laws.”

The Commission published its proposal for the DMA in December 2020, together with a proposal for the Digital Services Act (DSA). The DSA is still being negotiated by the parliament and the EU member states.

Despite the agreement reached on the Digital Markets Act, the new law still has to be officially adopted by the European parliament and by the Council of Ministers. It is expected that the DMA will be published in the EU’s official journal around October 2022. It will enter into force twenty days following this publication. Most provisions will be applicable six months after its entry into force, expected to be around April 2023. 

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