June 18
2021
Anjum Shabbir
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31st May 2021
Competition & State Aid Data, Tech & IP

Editorial Comment: “The proposed Digital Markets Act: the centralised model and its (possible) discontents”

On 15 December 2020, the European Commission released its proposal for a Regulation of the European Parliament and of the Council on contestable and fair markets in the digital sector (Digital Markets Act or DMA). The proposal for the DMA was adopted in a package together with a proposal for a Digital Services Act (DSA). This Editorial Comment addresses the DMA, leaving the analysis of the DSA for future commentary. This major policy initiative pursues the goal of ensuring a fair and competitive digital economy, which is one of the three key objectives announced by the Commission in February 2020 in its Communication on ‘Shaping Europe’s digital future’. The proposal for the DMA establishes, in essence, a number of obligations on cross-border providers of core platform services (so-called gatekeepers), that serve as important gateways for business users to reach end users. Most of these obligations consist of ex ante forbidding practices that would have been otherwise found to infringe Articles 101 or 102 TFEU, or which are currently under investigation by the Commission. Under the DMA, compliance by gatekeepers will be required within six months from their designation.

Under Article 2 of the proposal ‘Gatekeeper’ means  a  provider  of  core  platform  services  designated  pursuant  to Article 3. The definition of a ‘gatekeeper’ in Article 3 of the DMA contains certain elements that could potentially be assimilated with existing anti-competitive behaviour. A gatekeeper is designated if it meets three conditions. First, it ‘has a significant impact on the internal market’. It remains unclear whether the relevant ‘impact’ could be assimilated to the current anti-competitive ‘effects’ of conduct of a firm. Arguably, the ‘impact’ test should not be understood as an ‘effects’ test, given that the notion of the gatekeeper seems to be an objective one and given that other linguistic versions – for example the French one, which uses the term ‘poids important’, do not seem to point to the direction of ‘effect’. Second, the gatekeeper should operate a ‘core platform service’ that is ‘an important gateway for business users to reach end users’. The notion of an ‘important gateway’ could potentially be understood as coming close to a ‘barrier to entry’ in the relevant market, although it is not defined in the proposal and could lead to uncertainty. Finally, the gatekeeper must ‘enjoy an entrenched and durable position’. While this condition could be similar to the dominant position on the relevant market, the use of the notion ‘entrenched’ seems to bring to the forefront the network effects on the market, due to the presence of such a market player, although, as mentioned before, the role of ‘effects’ in the proposal seems to be limited in light of the objective notion of ‘gatekeeper’. In other words, because the gatekeeper operates on the market where the network effects can lead to a foreclosure of the market, the Commission deems it necessary to act before such foreclosure even arises.

The Commission’s proposal follows the publication of a number of reports that underlined the shortcomings of competition law in the digital economy sector. These reports stressed that current antitrust norms are unable to address the effects on competition brought about by the conduct of some key players which, according to the Commission, effectively act as gatekeepers to markets, customers and information. Investigations only take place ex post and are narrowly related to the specific facts of a case. They also take a long time, due to the need to satisfy the substantive and procedural standards under EU competition law, subject to judicial review by the EU courts. In addition, the remedies adopted are often considered inappropriate and/or insufficient to mitigate the distortive effects on competition. In this context, the Commission’s proposal, and in particular the introduction of ex ante regulation to complement the existing competition rules, has been well received by most commentators. While ex ante regulation might be considered as departing from the current ex post approach, prior to the reform of competition law by virtue of Regulation 1/2003, an ex ante intervention of the Commission was the rule rather than the exception. It is true that, under that system, the Commission had to give clearance for each individual agreement that could infringe competition rules. The DMA is different in the sense that it prohibits certain conduct of gatekeepers rather than to envisage issuing individual comfort letters. However, the common ground of both approaches is their preventive nature.

The DMA represents a significant policy change with lasting institutional implications. Implementation, supervision and enforcement will be carried out by ‘the Commission as the competent regulatory body’. This centralised approach deviates from that followed in other fields of EU economic regulation, such as electronic communications, data protection or consumer law, where enforcement is left to the national authorities [fn 1]. The proposal underlines that the pan-European reach of the targeted gatekeeper requires a centralised enforcement, taking into account that a decentralised enforcement model could lead to the risk of regulatory fragmentation that the proposal is meant to address.

Closely connected to the enforcement model chosen is the issue of the legal basis pursuant to which the proposal has been adopted. The legal basis for the DMA is Article 114 TFEU (internal market) given that the legislation aims to harmonise national rules addressing the conduct of certain companies (the gatekeepers) vis-à-vis their business users.

Similar to what is the case for the ex ante approach, the centralised model is inspired by the EU Merger Regulation and the Single Supervisory Mechanism for banking supervision [fn 2]. In this regard, in the case of the Single Supervisory Mechanism for banking supervision, Article 127(6) TFEU provides for a specific legal basis to confer specific tasks upon the European Central Bank concerning policies relating to the prudential supervision of credit institutions and other financial institutions with the exception of insurance undertakings [fn 3]. By contrast, the Merger Regulation is based on Article 103 TFEU, which envisages the adoption of regulations or directives to give effect to the principles set out in Articles 101 and 102 TFEU, as well as, and in fact principally [fn 4], Article 352 TFEU (ex Article 308 EC), under which the EU may give itself the additional powers of action necessary for the attainment of its objectives. Article 352 TFEU requires unanimity within the Council on a proposal from the Commission, and after obtaining the consent of the European Parliament. The pending procedures in the case of Banco Popular’s resolution, now currently before the General Court, will give the EU Courts the opportunity to rule on a centralised mechanism under Article 114 TFEU, as is the case of the Single Resolution Board (Del Valle Ruiz and Others v Commission and CRU, T-510/17; Algebris (UK) and Anchorage Capital Group v Commission, T-570/17). These cases will resolve whether the Court of Justice is willing to follow the trend of an enlarged and more flexible Meroni doctrine, allowing under certain conditions and criteria the exercise of discretion by bodies to which powers have been delegated, as it did in the short-selling case back in 2014, or a more restrictive view on the always sensitive issue of EU competence at a time at which national constitutional courts seem eager to increase their scrutiny over EU action.

While the centralised model is generally considered appropriate in light of the global character of the companies targeted by the regulation and their similar conduct in all Member States, some observers have questioned the choice of legal basis and especially the use of Article 352 TFEU [fn 5]. It is uncertain whether Member States will accept such a limited role for their national regulatory authorities during the legislative process. In any event, the centralised approach chosen may not entirely avoid the risk of fragmentation, because the DMA will not prevent the simultaneous application of EU and national competition rules and involvement of the Commission and by national authorities [fn 6]. This concurrent application could also raise doubts as to the compliance in some instances of the ne bis in idem principle.

The DMA and the DSA are central to the EU’s European Digital Strategy. The outcome of the legislative process will be watched, and judged, outside of the EU. These initiatives are related to the EU’s digital sovereignty, which is a ‘pivotal part of the greater goal of strategic autonomy’. It is therefore crucial that the legislative outcome provides legal certainty [fn 7].

 

The Editorial Board of EU Law Live

 

[fn 1] See in this regard, Monti G., Attention Intermediaries: ‘Regulatory Options and their Institutional Implications’, TILEC Discussion Paper, 2020-18, p. 23.

[fn 2] Monti G., ‘The Digital Markets Act – Institutional Design and Suggestions for Improvement’, TILEC Discussion Paper, 2021-004, p. 4.

[fn 3] See to this extent Council Regulation (EU) No 1024/2013 of 15 October 2013 conferring specific tasks on the European Central Bank concerning policies relating to the prudential supervision of credit institutions, OJ L 287, 29.10.2013, p. 63–89.

[fn 4] As the regulation’s preamble states: ‘Articles 81 and 82, while applicable, according to the case-law of the Court of Justice, to certain concentrations, are not sufficient to control all operations which may prove to be incompatible with the system of undistorted competition envisaged in the Treaty. This Regulation should therefore be based not only on Article 83 but, principally, on Article 308 of the Treaty, under which the Community may give itself the additional powers of action necessary for the attainment of its objectives, and also powers of action with regard to concentrations on the markets for agricultural products listed in Annex I to the Treaty’. Council Regulation (EC) No 139/2004 of 20 January 2004 on the control of concentrations between undertakings (the EC Merger Regulation), OJ L 24, 29.1.2004, p. 1–22, recital (7).

[fn 5] See to this extent, Lamadrid de Pablo, A., & Bayón Fernández, N., ‘Why The Proposed DMA Might be Illegal Under Article 114 TFEU, And How To Fix It’. Accessible at: https://antitrustlair.files.wordpress.com/2021/04/why-the-proposed-dma-might-be-illegal-under-article-114-tfeu-and-how-to-fix-it-3.pdf .

[fn 6] See in this regard Article 1.6 of the proposal: ‘This  Regulation  is  without  prejudice  to  the  application  of  Articles  101  and  102 TFEU.  It  is  also  without  prejudice  to  the  application  of:  national  rules  prohibiting anticompetitive  agreements,  decisions  by  associations  of  undertakings,  concerted practices  and  abuses  of  dominant  positions;  national  competition  rules  prohibiting other  forms  of  unilateral  conduct  insofar  as  they  are  applied  to  undertakings  other than  gatekeepers  or  amount  to  imposing  additional  obligations  on  gatekeepers’.

[fn 7] https://www.consilium.europa.eu/es/press/press-releases/2021/02/03/speech-by-president-charles-michel-at-the-digitaleurope-masters-of-digital-online-event/

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