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How DMA rules will challenge online gatekeepers beyond Europe

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The EU’s Digital Markets Act will disrupt the business model that has helped five big companies dominate global technology. In doing so it could create significant opportunities for smaller competitors.

In November 2022, the European Union’s Digital Markets Act (DMA) entered into force. This pioneering and controversial regulation aims to make European digital platform markets fairer and more competitive by curbing the power of the ‘GAMAM’ group of Big Tech businesses – Google, Amazon, Meta, Apple and Microsoft. While it is still too early to know exactly how they will respond, it is unlikely that any one of these tech giants will back down without a fight.

The DMA responds to the concerns highlighted in several international expert reports from 2019, including the Furman, Stigler and Vestager reports, which showed that core platform markets are globally dominated by one or two of the same five companies. The reports agree that the high degree of market concentration results from an unusual combination of market characteristics: strong network effects, high returns to the use of data, scale and scope economies, and the comparative ease of exploiting consumer biases online. Collectively, these factors make markets prone to tipping in favour of one or two players. Once this has occurred, these same factors also translate into significant barriers to entry, making it difficult for newcomers to topple the leader even if they have a better product.

The political consensus in Europe is that competition law has failed in these markets because enforcement is slow, expensive and case-specific. The DMA is meant to provide a more effective tool for policing Big Tech by outlawing certain types of business conduct per se and mandating others. Its rules apply to large online platforms that act as so-called ‘gatekeepers’ in key digital markets. Gatekeepers will be designated by the European Commission. While it is still unclear who will make the final list, it is expected that the Commission will attempt to designate the Big Five.

Gatekeepers will have to comply with 22 stringent conduct rules listed in Articles 5-7 of the DMA. For example, they will have to allow consumers to install third-party apps or app stores on their operating system, so Apple, if designated, would have to allow side-loading of apps onto iPhones outside of its App Store. Gatekeepers will be prohibited from using data generated by competing businesses on their platforms (Amazon may no longer use the data generated by independent retailers selling via Amazon to inform Amazon’s own retail business, for example). Gatekeepers will also be prohibited from ranking their own products or services more favourably than those of third parties in search results, which would affect Google and Amazon. They will no longer be allowed to track end-users outside of the gatekeeper’s core platform service for the purpose of targeted advertising without user consent (this should significantly upset Meta’s current data-collection policy).

Most importantly, if users refuse to give their consent, gatekeepers will have to wait an entire year to ask for it again. Gatekeepers will also have to make number-independent messenger services like Meta’s WhatsApp or Messenger interoperable with competing services. Additionally, they will be subject to significant reporting obligations on implementing measures, proposed acquisitions and profiling techniques. Non-confidential versions of these reports will be published on the Commission’s website for the public to review.

Non-compliance will come at a significant cost. The European Commission may fine gatekeepers up to 10 per cent of their total worldwide turnover for one-off infringements. For repeat offences, the fine may go up 20 per cent. In case of systematic non-compliance (more than three infringement decisions over an eight-year period), the Commission may impose behavioural and structural remedies, including divestiture, and ban gatekeepers from entering into mergers and acquisitions. One may also expect consumers or business users who were harmed by conduct violating the DMA to bring private actions for damages against the infringer.

The DMA could create significant opportunities for smaller tech companies. It will certainly disrupt GAMAM’s existing business model. It is too early to know how GAMAM will adapt to the new regulation, which formally only applies to services offered in the EU. Although Meta has repeatedly threatened to shut down Facebook and Instagram in Europe over EU data-protection laws, it seems unlikely that it – or any other member of the GAMAM group – would abandon European markets altogether. Google has stated that it is committed to working with the European Commission to implement the DMA.

The legal landscape is changing in other jurisdictions. The United Kingdom plans to introduce its own platform-regulation measures that would impose similar constraints, supplemented by bespoke merger rules that would make it easier for the UK Competition and Markets Authority to intervene against Big Tech acquisitions. Also, EU competition law often serves as inspiration in other jurisdictions. India, for example, is reportedly considering legislation emulating the DMA’s core principles. Some degree of adaptation therefore seems inevitable.

GAMAM will have some time yet to decide on the best strategy. The DMA’s rules will only start applying on 2 May 2023. While the Commission hopes to designate gatekeepers by September 2023, gatekeepers will then have another six months to comply with the conduct rules. In other words, even if all goes according to plan, Big Tech will be bound by the DMA’s conduct rules from March 2024 at the earliest. Chances are GAMAM will fight their designation and attempt to kick the can even further down the road.

The Commission, in the meantime, is also getting organised. It has recruited new staff, is drafting procedural rules and notification forms, and is running the first stakeholder workshops on compliance. Enforcing the DMA will generate significant costs both for regulators and gatekeepers. It is to be hoped that they will work together to find solutions that result in sensible outcomes for competition and consumers.

Anne C Witt is professor of law at EDHEC Business School’s Augmented Law Institute.

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