New Era // Digital Markets Act:

What is it and what will happen for Big Tech?

The draft of a new Digital Markets Act has been proposed to European Parliament and Council on 15.12.2020. Although it is not yet published in the Official Journal of European Parliament, Parliament and Council negotiators agreed new EU rules to limit the market power of big online platforms on 24.03.2022 after a session that has lasted 8 hours. After the legal text is finalized at technical level and checked by lawyer-linguists, it will need to be approved by both Parliament and Council. Once this process is completed, it will come into force 20 days after its publication in the EU Official Journal and the rules will apply six months after. However, it is already understood that we are facing new legislation that will directly affect the activities of the BTO’s in the IT sector.

It seems that the platforms defined as “Gatekeepers” will require a special and intense piece of legal counselling in order to properly understand the scope of the DMA and fully comply with it. Therefore, it will be both hard to be understood by the reader and will probably remain a futile effort to attempt to analyses such a complex issue comprehensively in a single article. Instead, we will try to summarize the very essence of the DMA by explaining the concerns with which the European Parliament carries out such legislation, and we will try to explain some of the changes that will be experienced in the lives of corporate or end-users by this law.

What Does European Parliament Try to Accomplish with the DMA?

In the introductory section of the draft submitted to the European Parliament titled “Explanatory Memorandum”, the substantial development of online platforms in recent years has been explained. According to the statistics of 2019, Digital Economy’s share in the Gross Domestic Product (GDP) in European Countries is estimated at 4.5% to 15,5% with a growing trend. In this huge economy, one of the key roles is played in where the corporate user and the end consumer meet, “the Gates”, as the DMA puts it, and the platforms (Facebook, Youtube, Instagram, etc.) that hold those gates. The European Parliament defined the platforms that meet certain conditions in terms of the number of users and economic capacity as “Gatekeepers” and prepared the proposal in discussion with the intention to limit their activities to the point that does not harm the parties of the commercial relationship that takes place on those gates. As a matter of fact, the parliament openly expresses its opinion in the memo that these powerful platforms make corporate users dependent on them and sometimes expose them to malicious actions through their solid position and huge influence in digital markets. Furthermore, it is also mentioned that these unfair practices and lack of competition have consequences to the detriment of European population by ultimately reducing service quality, raising prices and reducing options. That’s why the Parliament tries to prevent the unfair activities of the Gatekeepers by imposing certain obligations and sanctions in addition to the unfair competition practices in effect.

Who is Called a “Gatekeeper”?

The DMA specifies the fields in which the platforms, which will be discussed whether to be defined as Gatekeeper or not within the scope of the law, should operate. According to the European Parliament, platforms that provide (i) online intermediation services (incl. for example marketplaces, app stores and online intermediation services in other sectors like mobility, transport or energy) (ii) online search engines, (iii) social networking (iv) video-sharing platform services, (v) number independent interpersonal electronic communication services, (vi) operating systems, (vii) cloud services and (viii) advertising services, including advertising networks, advertising exchanges and any other advertising intermediation services, where these advertising services are being related to one or more of the other core platform services can be defined as Gatekeeper.

According to DMA, a platform operating in these areas must also meet many other conditions in various categories in order to be defined as “Gatekeeper”. In the definition of a Gatekeeper made by the DMA, three elements are sorted: (1) it must have a significant influence in the domestic market (influence factor), (2) it must operates a core platform service which serves as an important gateway for business users to reach end-users (gateway factor), and (3) it must enjoy an entrenched and durable position in its operations or it is foreseeable that it will enjoy such a position in the near future (permanence factor).

So, how will it be understood whether these elements are provided or not? According to the European Parliament, for a platform to qualify as a Gatekeeper, it must operate in at least three member states, have an annual turnover of 6.5 million Euros in the last three years, or have a total market value of 65 billion Euros. In addition to these financial conditions, it is determined that the platform will be called “Gatekeeper” if the platform reaches 45 million monthly active end consumers or more than 10 thousand corporate users operating in the European Union in the last financial year.
The European Parliament requires platforms that meet the conditions mentioned above to notify the European Parliament of their situation within 3 months. Even if the platforms do not notify the commission despite meeting the relevant conditions, they still can be classified as a “Gatekeeper” by the commission after through an ex officio investigation. In any case, it will be periodically examined in every 2 years whether the platform still meets the conditions after once they are defined as Gatekeepers.

Some Obligations Introduced to Protect End and Corporate Users from Gatekeepers:

Certain obligations brought to Gatekeepers are regulated in the 5th and 6th Articles of the DMA. For those Gatekeepers who do not comply and fulfill related obligations, The European Parliament has also imposed a number of sanctions, such as penalty fines up to 10% of its annual turnover.
As an example to it; Gatekeeper shall refrain from combining personal data sourced from these core platform services with personal data from any other services offered by the gatekeeper or with personal data from third-party services, and from signing in end-users to other services of the gatekeeper in order to combine personal data. For example, an holding that owns different social media platforms cannot transfer information about the user’s shopping interests between these channels in order to bring a related advertisement or promotion on the other platform as well. In another paragraph of the article, it is also banned that corporate or end-users cannot be forced to sign in or log in to another platform in order to benefit from a core platform service.

Another remarkable regulation is that the gatekeeper shall allow business users to promote offers to end-users acquired via the core platform service, and to conclude contracts with these end-users regardless of whether for that purpose they use the core platform services of the gatekeeper or not, and allow end-users to access and use, through the core platform services of the gatekeeper, content, subscriptions, features or other items by using the software application of a business user, where these items have been acquired by the end-users from the relevant business user without using the core platform services of the gatekeeper.

Platforms described as Gatekeeper have been imposed a number of obligations other than those listed above. E.g; Gatekeepers cannot prevent or restrict business users from raising issues with any relevant public authority relating to any practice of gatekeepers or, a gatekeeper cannot use the confidential information of the end-user obtained via activities of the business user in order to compete with the business user on his own behalf or, the corporate or end-user’s switching to another software while using any software cannot be prevented by technical measures.

Conclusion:

As in every period of history, technological developments make it much easier to carry out economic activities today. Currently, delivering a good or service to the final consumer requires much fewer logistics, technical and economic resources than previous. Therefore, the market becomes more competitive, the costs decrease and attempts to disrupt natural consumer behavior and choices are more challenging to implement. Goods or service providers are quickly rewarded or punished by consumers in accordance with the quality or price of the service they provide or their approach to the consumer. Therefore, a fairer trade is made possible as a result. Concordantly to the developing opportunities, new unfair practices that the usual scope of protection of competition law has difficulty in responding to is also flourishing and developing. In this respect, the European Parliament has taken a significant step in the field of law to protect the European community from these new unfair practices. We will keep following the developments excitedly on whether this step will be embraced by the member states or the big-time operators, similar legislations will come into power in our country, and mostly, how the law will keep marching with the time.

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Authors: Bilge Derinbay, Hande Ülker Pehlivan, Metin Sezgin

Contact: bilge.derinbay@nsn-law.com