The European Commission presented two revolutionary legislative proposals at the end of 2020: the Digital Markets Act (“DMA”) and the Digital Services Act (“DSA”). The proposals of the Commission are in line with the ambition expressed by European Commissioner Vestager to impose restraints on Big Tech. By means of the newly proposed rules, the Commission aims to ensure that digital service providers compete fairly and that consumers have access to a wide range of safe online products and services.
However, the Council of the European Union and the European Parliament have yet to approve the proposals. It is expected to take several years before the DMA and the DSA enter into force. In this blog we anticipate the Commission’s main new powers and the possible impact of the DMA and the DSA on digital services in Europe. We will also briefly address the responses and developments in the Netherlands regarding Big Tech.
Digital Markets Act
The DMA specifically aims to limit the market power and other powers of “gatekeepers”: the main providers of core services that might employ unfair trade practices, such as search engines and social media platforms. A company may be classified as a gatekeeper on the basis of objective criteria in the DMA. A company is a gatekeeper if it:
- has a strong economic position and a significant impact on the internal market (annual turnover of at least €6.5 billion or a market value of at least €65 billion);
- links more than 45 million monthly users to more than 10,000 companies per year and consequently has a strong intermediation position; and
- has (or is about to have) an entrenched and durable position in the market. That is the case if it meets the preceding criteria for a consecutive period of three years.
The DMA will establish strict dos and don’ts for companies that are classified as gatekeepers. For instance, gatekeepers must proactively promote the “fairness” of their services by taking measures that allow third-party software to function properly and interoperate with the gatekeeper’s services. A gatekeeper furthermore may not prevent users of its products from uninstalling any preinstalled software or apps.
Failure to comply with the DMA may cost gatekeepers dearly. The current proposal allows the Commission to impose fines of up to 10% of the worldwide turnover on breach by a gatekeeper. If a gatekeeper repeatedly breaches the rules, the Commission may even impose structural measures, including the obligatory disposal of divisions of the company.
Digital Services Act
The DSA establishes new rules aimed at stimulating innovation and the growth of small to medium-sized online service providers. The DSA also aims to create more transparent digital services and to improve the protection of basic consumer rights. For that purpose the DSA distinguishes various types of digital service providers (such as Internet providers, web hosting services, online marketplaces and social media platforms) that operate in Europe.
The principle underlying the DSA is: the greater the digital service provider, the more obligations apply to it. More obligations apply to hosting services than to intermediary services. Unlike intermediary services, hosting services are subject to reporting obligations to inform users. More obligations apply to large platforms than to smaller platforms. The DSA obligates only very large platforms, for instance, to share data with authorities and to draw up codes of conduct. A list of all the obligations per category of service provider can be found in chapter III of the DSA proposal.
The Netherlands – ACM
In keeping with an earlier appeal made by the Netherlands and France to impose restrictions on Big Tech, the DMA and the DSA have been favourably received in the Netherlands. According to State Secretary Mona Keijzer, the legislative proposals contribute to the proper functioning of digital markets, but it must be avoided that new market players or benefits of platforms are impeded by unnecessary regulations. In the run-up to this year’s elections, Dutch political parties are speaking out in favour of the regulation of Big Tech. D66 and the VVD, for instance, have proposed giving the ACM more powers to break up large digital companies. The ChristenUnie wishes to make it possible for managing directors of listed companies to be held liable if the data protection of their customers is not in order. According to the PvdA, Internet platforms should be classified as employers, to improve the legal position of meal deliverers, for instance. The Koninklijke Vereniging voor Staathuishoudkunde recently published its 2020 Preliminary Report on competition policy, which addresses the digital economy and Big Tech in detail.
The ACM did not stand idly by in 2020 in terms of investigation and enforcement regarding digital markets. Online misleading practices and access to digital platforms and ecosystems are still high on the ACM’s agenda. In December, for instance, ACM started an experiment together with Muziekweb in the field of the functioning of algorithms in practice. The ACM wishes to use that knowledge to inform market parties of what they may expect when the ACM checks their algorithms. The ACM is currently also investigating whether Apple’s App Store policy constitutes abuse of a dominant position. That investigation follows the ACM’s recent report on the position of Big Tech on the Dutch payments market. In response to the growing online platform economy, the ACM has also published various rules of thumb for online platforms. Those rules of thumb supplement the Guideline on the Protection of Online Consumers published by the ACM in early 2020.
Armed with the proposed DMA and DSA, the Commission will be able to exercise greater control over the digital markets in Europe. The regime proposed by the Commission will help it to prevent digital markets from tipping to one dominant company and to address abuses more quickly. But the DMA and the DSA have yet to be individually addressed by the Council of the European Union and the European Parliament, which may lead to drastic amendments. It remains to be seen whether they have sufficient confidence in the Commission to grant it the powers proposed by the DMA and the DSA.
Although the legislative process may take several years, Big Tech is clearly under close scrutiny also in the interim. Big Tech can already count on thorough investigations and significant fines from the competition authorities (such as the fines that the Commission imposed on Google Shopping and Google Android, and the fine imposed on Apple by the French competition authority) under the current competition regime, in particular the prohibition of abuse of a dominant position (Article 102 of the TFEU and Article 24 of the Dutch Competition Act). As a result of the further digitalisation and the increased market power of digital companies, competition law will remain in a state of flux and will become increasingly important.