How DMA Rules Will Challenge Online Gatekeepers Outside Europe | Popgen Tech

In November 2022, the European Union’s Digital Markets Act (DMA) entered into force. This groundbreaking and controversial regulation aims to make European digital platform markets fairer and more competitive by limiting the power of the ‘GAMAM’ group of Big Tech companies – Google, Amazon, Meta, Apple and Microsoft. While it is still too early to know exactly how they will react, it is unlikely that either 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 worldwide are dominated by one or two of the same five companies. The reports agree that the high degree of market concentration is the result of an unusual combination of market characteristics: strong network effects, high returns to the use of data, economies of scale and scope, and the relative ease of exploiting consumer biases online. Combined, these factors tend to tip markets in favor of one or two players. Once that happens, these same factors also lead to 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 intended to provide a more effective tool for policing Big Tech by prohibiting certain types of business conduct per se and mandating others. The rules apply to large online platforms that act as so-called ‘gatekeepers’ in key digital markets. Gatekeepers will be appointed by the European Commission. Although it is still unclear who will make the final list, it is expected that the Commission will seek to appoint the Big Five.

Gatekeepers will have to comply with 22 strict rules of conduct listed in Articles 5-7 of the DMA. For example, they would have to allow consumers to install third-party apps or app stores on their operating system, so Apple, if designated, would have to allow sideloading of apps on iPhones outside of its App Store. Gatekeepers will be prohibited from using data generated by competing businesses on their platforms (for example, Amazon may no longer use the data generated by independent retailers selling via Amazon to inform Amazon’s own retail business). Gatekeepers would also be prohibited from ranking their own products or services more favorably 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 the user’s consent (this should significantly disrupt Meta’s current data collection policy).

More importantly, if users refuse to give their consent, gatekeepers will have to wait an entire year to ask for it again. Gatekeepers will also need number-independent messenger services such as Meta’s WhatsApp or Messenger to work with competing services. In addition, they will be subject to significant reporting obligations on the implementation of 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 incur a significant cost. The European Commission can fine gatekeepers up to 10 percent of their total global turnover for one-off violations. For repeated violations, the fine can increase by 20 percent. In the case of systematic non-compliance (more than three infringement decisions over an eight-year period), the Commission can impose behavioral and structural remedies, including divestment, and prohibit gatekeepers from entering into mergers and acquisitions. One can also expect consumers or business users harmed by conduct that violates the DMA to bring private actions for damages against the violator.

The DMA can create significant opportunities for smaller technology companies. This 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 – or any other member of the GAMAM group – seems unlikely to abandon European markets entirely. 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 UK plans to introduce its own platform regulation measures that will impose similar restrictions, supplemented by tailored merger rules that will 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 that emulates the DMA’s core principles. some adjustment therefore appears to be inevitable.

GAMAM will still have time to decide on the best strategy. The DMA’s rules will only come into force on 2 May 2023. While the Commission hopes to appoint 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 rules of conduct from March 2024 at the earliest. Chances are, GAMAM will fight their designation and try to kick the can down the road even further.

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

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