European Commission Publishes New Wide-ranging Rules To Regulate Digital Markets

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[co-author: George Kestrel]

On 15 December 2020, the European Commission published its much-heralded legislative proposals to regulate digital markets.

Although Brexit in theory now allows the UK to implement divergent competition and regulatory proposals the EU proposals mirror to a large extent the UK Government’s recently announced high level plans to regulate major platform providers with the establishment of a platform regulator.

Platform Regulator

The Digital Services Act (DSA) and the Digital Markets Act (DMA) together comprise a new set of rules for all forms of digital services in the EU. The DSA focuses on regulating illegal content from digital services which connect consumers to goods, services or content, while the DMA is intended to address the negative consequences of platforms which act as digital gatekeepers to the Single Market.

The overall intention of the proposals is to protect consumers and their online rights, if implemented, the proposals will be directly applicable across the European Union and will increase the fairness and openness of digital markets.

Digital Services Act

The DSA is intended to be the official successor to the E-Commerce Directive which is now over 20 years old. The Commission considered that the reforms proposed are required. While online platforms have created many benefits for consumers and businesses, they have also been utilised to spread illegal material, goods and services and therefore regulation needs to be tightened up.

The new framework is intended to rebalance the rights and responsibilities of users, platforms, and public authorities. The new framework is based on European values – including the respect for human rights, freedom, democracy, equality and the rule of law. The new EU-wide obligations for digital services include:-

  • Rules for the removal of illegal goods, services or content online;
  • Transparency measures on online advertising and other areas;
  • New rules on traceability of business users in online marketplaces, to assist in tracking down sellers of illegal goods and services; and
  • A cooperation process among public authorities to ensure effective enforcement across the single market

It is important to note that the regulations will differ based on the size and services provided by each organisation. For example, large platforms which reach more than 10% of the European Union’s population (currently 45 million users) will be required to grant regulators and researchers access to their internal data. These large platforms will be classified as systemic and will subject to a new oversight structure. The Commission will also be granted powers to supervise and sanction large platforms directly.

Digital Markets Act

The DMA is intended to address unfair practices by gatekeepers which do not fall within the scope of the existing EU competition control rules or cannot effectively be tackled by them.

The DMA differs from the DSA as it will only apply to large companies which are classified as “gatekeepers”, it is designed to complement current competition rules with the intention of ensuring that “gatekeepers” to the Single Market engage in fair and contestable market practices. This system has many parallels to the UK new platform regulator and its proposed power

A gatekeeper under the DMA is defined as a company which:

  • Is of a size that impacts the single market (for example through their revenue);
  • Controls at least once core platform service (this includes social networking services and search engines, among others); and
  • Has an entrenched and durable position (length of time in the market)

If a company meets the above requirements (which will be defined by quantitative thresholds) then it must notify the Commission of its status as a gatekeeper, this status will remain unless the company can demonstrate otherwise.

A gatekeeper may have an unfair advantage because of their position in the market. Consequently, the proposals under the DMA are wide-ranging and grant extensive powers to the Commission, including the power to:

  • Conduct market investigations to identify gatekeepers which do not fall within the quantitative thresholds;
  • Add new services to be covered; and
  • Identify systemic non-compliance with obligation with the power to impose behavioural or structural remedies

The DMA also provides for monitoring, investigation and enforcement powers and the power to impose fines for non-compliance up to 10% of the company’s total worldwide annual turnover.

At this early stage, it would be prudent for companies which consider that they may fall within the gatekeeper designation to consider the proposals and monitor ongoing developments.

Comparison with UK proposals

Brexit has enabled the UK and the EU to diverge on competition and regulatory policy. However the UK and EU have taken broadly similar approaches in regulating big tech platforms.

Comparisons can be drawn with the Digital Markets Unit (DMU) which the Competition and Markets Authority (CMA) has recommended be established as a Platform Regulator. The proposed DMU would have the power to enforce a code of conduct to govern platforms funded by digital advertising that are designated as having strategic market status. This is analogous to the “gatekeeper” designation under the DMA.

The DMU would also have powers to tackle the existence of market power and increase competition, including powers to provide access to data and increase consumer choice. This is broadly similar to the Commission’s proposals which aim to provide users “…with a wide choice of safe products and services online. And that businesses operating in Europe can freely and fairly compete online…” (Margrethe Vestager, 2020).

A key difference is that the proposals from the Commission are at a more advanced stage and it is still to be determined how the DMU will act within the regulatory regime.

Overall, the Commission’s proposals are wide-ranging and represent an important step forward in the Commission’s ambition to make this Europe’s Digital Decade. The DMA if implemented is also intended to be updated in the future to deal with fresh anticompetitive practices and to constantly evolve in scope. It will be critical to see how the proposals are developed and refined during the legislative procedure.

 

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