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Unraveling the proposal of Digital Market Act

Pietro Manzini 

On 15 December 2020, the Commission formally launched a legislative procedure by presenting a proposal for a regulation on fair and contestable markets in the digital sector, already known by the acronym DMA (‘Digital Market Act’). The most innovative elements of the DMA are twofold: the introduction of the legal figure of the gatekeeper and the elaboration of specific competitive obligations imposed on the latter. While the purpose and content of the notion of gatekeeper are relatively clear, the same cannot be said of the obligations imposed on them. In fact, Articles 5 and 6 contain a total of eighteen extremely heterogeneous and dissimilar types of requirements. This obscures the meaning and the competitive value of the DMA. The aim of the contribution is to unravel the skein of these obligations and to bring them as far as possible into the general categories of antitrust law. The analysis leads to the conclusion that a large part of the obligations provided for in the draft regulation is aimed at prohibiting practices which already fall within the scope of the antitrust rules, as demonstrated by the fact that such obligations have often been modelled on the cases investigated by the Commission under Articles 101 and 102. This does not detract from the fact that the systematic declension of antitrust principles in the digital sector carried out by the DMA has produced innovative provisions in their specificity. The detailed articulation of the competition obligations, the specification that in certain cases the intervention of public institutions is necessary to identify competitive conduct and the identification of the figure of the gatekeeper on the basis of sufficiently certain qualitative and quantitative parameters shift the center of gravity of the application of the principles of competition from ex post to ex ante, that is, from competition to regulation. This seems to be the qualifying and crucial element of the DMA proposal.

PAROLE CHIAVE: digitale - Digital Markets Act - antitrust

La proposta di legge sui mercati digitali: una prima mappatura

Il 15 dicembre 2020, la Commissione ha formalmente avviato una procedura legislativa presentando una proposta di regolamento sui mercati equi e contendibili nel settore digitale, già nota con l’acronimo DMA (“Digital Market Act”). Gli elementi più innovativi del DMA sono due: l’introduzione della figura del gatekeeper e l’elaborazione di specifici obblighi concorrenziali a carico di quest’ultimo. Mentre lo scopo e il contenuto della nozione di gatekeeper sono relativamente chiari, lo stesso non può dirsi in relazione agli obblighi imposti ad essi. Infatti, gli articoli 5 e 6 contengono un totale di diciotto tipi di obblighi estremamente eterogenei e dissimili tra loro. Ciò oscura il significato e il valore concorrenziale della DMA. L’obiettivo dell’articolo è quello di dipanare la matassa di questi obblighi e di ricondurli il più possibile nelle categorie generali del diritto antitrust. L’analisi porta alla conclusione che gran parte degli obblighi previsti dal progetto di regolamento mira a vietare pratiche che già rientrano nel campo di applicazione delle norme antitrust, come dimostrato dal fatto che tali obblighi sono stati spesso modellati sui casi indagati dalla Commissione ai sensi degli articoli 101 e 102. Ciò non toglie che la declinazione sistematica dei principi antitrust nel settore digitale operata dalla DMA abbia prodotto disposizioni innovative nella loro specificità. La dettagliata articolazione degli obblighi concorrenziali, la specificazione che in alcuni casi è necessario l’intervento delle istituzioni pubbliche per individuare le condotte concorrenziali e l’individuazione della figura del gatekeeper sulla base di parametri qualitativi e quantitativi sufficientemente certi spostano il baricentro dell’applicazione dei principi della concorrenza da ex post a ex ante, cioè dalla concorrenza alla regolazione. Questo sembra essere l’elemento qualificante e cruciale della proposta DMA.

Keywords: digital – Digital Markets Act – antitrust

Sommario:

1. Introduction. - 2. The specific features of large digital platforms and risks to competition. - 3. The gatekeeper and its obligations. - 4. Self-executing obligations under Article 5 of the DMA. - 5. The obligations under Article 6: prohibitions of discrimination. - 6. Other obligations under Article 6: prohibition of bundling, data portability, and equal access to data. - 7. Conclusions. - NOTE


1. Introduction.

In the last years the European Union has been trying to ensure the competitiveness of digital markets dominated by the so-called GAFAM (Google, Amazon, Facebook, Apple and Microsoft). Until now it has done so by resorting to the traditional instruments represented by Articles 101 and 102 TFEU. To limit only to the initiatives taken in 2020, it can be recalled that on 16 June the Commission opened an investigation against Apple regarding the terms of use of some of its apps [1]; on 10 November it sent a statement of objections to Amazon in relation to its business conduct in its dual capacity as marketplace and distributor [2]; on 17 December, the Commission authorized, but only under conditions, the acquisition of Fitbit by Google [3], against which it had already adopted three sanctions decisions between 2017 and 2019, imposing fines totalling EUR 8.25 billion [4]. However, the use of Articles 101 and 102 risks leading to unsatisfactory results for at least two reasons. First, in light of some peculiar features of digital markets, classical antitrust law requires some conceptual adjustments. To take the most obvious example, consider the circumstance that digital services are often offered to end users without monetary price, but in exchange – usually unknowingly – for data and information: in this way the age-old parameter used to determine the balance between supply and demand has disappeared. Secondly, antitrust law – which is characterized by synthetic and general prohibitions and a possible ex-post sanctioning measure – unveils a slow and uncertain capacity to intervene, given the systematic and wide-ranging nature of GAFAM’s business practices, as well as the speed with which they evolve and change. This is not about Achilles failing to catch up with the tortoise, but about a tortoise competing with Achilles. On 15 December 2020, in an attempt to address these (and other) shortcomings, the Commission formally launched a legislative procedure [5] by presenting a proposal for a regulation on fair and contestable markets in the digital sector, already known by the acronym DMA (‘Digital Market Act’) [6]. On a subjective level, the DMA is directed towards large platform service providers named ‘gatekeepers’ (Art. 3). It then includes two provisions (Articles 5 and 6) which identify a wide range of obligations aimed at avoiding practices [continua ..]

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2. The specific features of large digital platforms and risks to competition.

Large digital platforms, a category to which GAFAM belongs, are characterized by three specific features [7]. First of all, from the point of view of business structure, they have very significant fixed costs – think for instance of search engine or operating system development costs or those related to IT R&D activities – but their marginal and variable costs that are instead close to zero, since the increase in the offer of a particular service does not entail any real increase in production costs: for instance, apps, once designed, can be replicated and downloaded indefinitely at virtually no cost. Moreover, large digital platforms often benefit from economies of scale and economies of scope. The latter, in particular, are important, since with the same IT and production equipment platforms are able to operate in many different markets: producing a search service for purchases does not have significant additional costs compared to a general search service. Second, services provided through digital platforms are characterized by a very significant network effect, i.e. the number of users that use a service fosters, in itself, the increase of those users: for instance, if Amazon is the marketplace with the largest number of selling firms, this alone implies that more and more consumers will be induced to use Amazon for their on-line purchases and this, in turn, will induce other firms to join Amazon’s marketplace with the result of attracting an even higher number of potential buyers, and so on. This network effect is due to the fact that digital platforms usually operate in a multi-sided market, i.e. with at least two different categories of users who are, at the same time, the users of a service offered on one side and, so to speak, the ‘product’ sold to the users on the other side. In the example above, on one side of the marketplace, consumers can carry out their online shopping searches, and on the other side these searches are ‘sold’ to companies who use them to offer their products to consumers in a targeted manner. Correspondingly, companies are present in the marketplace because they can intercept a very high number of potential buyers and it is their presence that attracts them. It is also worth noting that the network effect does not necessarily occur due to the interaction between two or more sides of the marketplace, nor does it necessarily require that all categories of users operate on [continua ..]

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3. The gatekeeper and its obligations.

It was mentioned in the first Section that the DMA identifies, as the object of the obligations it provides for, a new figure, called gatekeeper (Art. 1). The reasons for the introduction of this figure, which flanks and partly overlaps with that of the undertaking in a dominant position, are obvious. For the reasons mentioned in the previous section, a small number of large digital service providers are endowed with considerable economic power. The application of the classic antitrust rules (in particular Article 102 TFEU), which in any case remains possible, risks not being fruitful for the protection of the competitiveness of the markets concerned. First of all, it is only possible and ex-post, and it is therefore unable to prevent the extension, even over a long period of time, of conduct harmful to the interests of consumers and competitors. Secondly, in the case of unilateral conduct, the application of antitrust rules implies, in succession, the definition of the relevant markets – an operation which in the digital world often presents even greater complexities than in the ‘brick and mortar’ world – as well as the establishment of a dominant position in the identified market – a position which, in the case of digital service providers, may not exist in traditional terms. In an attempt to resolve these difficulties, the DMA identifies gatekeepers on the basis of completely different parameters from those used by Article 102 to establish dominance in a market: the first relates to the type of services offered by the platform (qualitative parameter), the second concerns the dimensional elements of the platform (quantitative parameter). With regard to the services offered, Art. 2 of the DMA, provides that a gatekeeper is a provider of at least one ‘core platform service’, i.e. one of the following: (a) online intermediation services; (b) online search engines; (c) online social networking services; (d) video sharing platform services; (e) number-independent interpersonal communication services; (f) operating systems; (g) cloud computing services; (h) advertising services, including advertising networks, advertising exchanges and any other advertising intermediary services, provided by a provider of one of the basic platform services listed in (a) to (g). As regards the size profile, Article 3 of the DMA establishes that a provider is designated as a gatekeeper if it meets three cumulative [continua ..]

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4. Self-executing obligations under Article 5 of the DMA.

As mentioned, Article 5 contains two general categories of obligations: one concerning certain practices of exploitation of end-users and/or business users liable to be adopted by the gatekeeper and the other covering certain practices of the gatekeeper to exclude its competitors, which can be defined as tying. The first category of obligations consists of the provisions contained in subparagraphs (a), (b), (d) and (g) of the provision, and can be qualified respectively as (i) ‘prohibition of unauthorized combination of data’, (ii) prohibition of parity clauses, (iii) right of appeal and (iv) right of transparency on the price of advertisements. The second category of obligations comprises the provisions contained in subparagraphs (c), (e) and (f) of Art. 5, and can be qualified collectively as (v) prohibitions of tying practices). i) Prohibition of unauthorized combination of data (Art. 5(a)) The first obligation, consisting in the prohibition of unauthorized combination of data, is provided for in subparagraph (a) of the rule, which establishes that the gatekeeper must refrain from combining personal data obtained from the core platform services with personal data from any other service offered by the gatekeeper or with personal data from third party services, and must also avoid signing in end users to other services of the gatekeeper in order to combining personal data, unless the end user has been presented with the specific choice and provided consent pursuant to Regulation 2016/679. The provision finds its inspiration in the Facebook case, which is still pending in Germany, but on which the German Federal Court of justice has already provisionally ruled. According to the terms of exercise imposed on users, Facebook could combine, without asking for consent, data collected on the eponymous social service with data derived from other services it provides, such as Instagram and WhatsApp. The German Bundeskartellamt had banned such a combination, equating the breach of privacy regulations with an antitrust violation. The Federal Court upheld the ban, but changed its legal justification [12] . For the Court, the key issue is not the violation of privacy but the deprivation of any choice for end users between a highly personalized digital service through data combination, and a less personalized digital service based only on the data users share on a given social service. The lack of [continua ..]

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5. The obligations under Article 6: prohibitions of discrimination.

As mentioned, the obligations of gatekeepers provided for by Article 6, i.e. may be subject to further specifications. Although they are all aimed at eliminating the risk of exclusionary conduct on the part of the gatekeeper, a first group can be brought under the general category of the prohibition of non-discrimination. These prohibitions can be qualified as follows: (i) prohibition of data grabbing (Article 6(a)); (ii) prohibition of self-preferencing (Article 6(d)); and (iii) prohibition of discriminatory conditions of access to the app store (Article 6(k)). i) Prohibition of data grabbing (Artice 6(a)) In some circumstances, a gatekeeper may play the dual role as a provider of core platform services to business users, as well as a provider of services that compete with those offered by such business users. In these circumstances, a gatekeeper could use the data generated by the core services to gain an advantage in competing markets. In order to avoid such a distortion of competition, Article 6(a) provides that the gatekeeper must refrain from using, in competition with business users, non-publicly accessible data generated through the activities of those users of its core services or by the end users of those business users. The provision is intended to cover several situations. For example, it is possible for a gatekeeper to provide a marketplace or app store to business users, while at the same time offering services as an online retailer or application software provider in competition with those same business users. It applies (a fortiori) also to the case where the data are not generated by the use of the underlying service, but provided to it by the business user. In the case of cloud computing services, the obligation should also extend to data provided or generated by the gatekeeper’s business users in the context of their use of the cloud computing service, or through the gatekeeper [23] ‘s app store. The practice, which can be defined as ‘data grabbing’, already has a precedent under Article 102. In the Statement of Objections sent to Amazon in 2020 [24], the Commission states that the company plays a dual role: on the one hand, it represents a marketplace where third-party sellers can offer their products directly to consumers, and on the other hand, it itself offers products on [continua ..]

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6. Other obligations under Article 6: prohibition of bundling, data portability, and equal access to data.

Article 6 of the DMA contains other provisions that can be grouped according to their competitive nature. These are the provisions containing the prohibition of bundling, the right to data portability and finally those prohibiting unfair restrictions on access to data and information. i) Prohibition of bundling (Article 6(b), (c), (e) and (f)) A first group of provisions in Article 6 contains obligations aimed at avoiding bundling practices, i.e., as mentioned above, sales organized in such a way that the services offered can only be used jointly, or even separately, but under more onerous conditions. In the provision under consideration, this is done by recognizing the rights of freedom of choice of both end users and business users. In fact, the norm requires the gatekeeper: i) to allow end users to uninstall any software application pre-installed on their core service (letter b [32]; ii) to allow the installation and effective use of software applications or software application stores of third parties that use the gatekeeper’s operating systems or that are interoperable with them, iii) to allow access to such software applications or software application stores by means other than the core platform services of such gatekeeper [33] (letter c); iv) to refrain from using any software applications or software application stores of third parties that use the gatekeeper’s operating systems or that are interoperable with them. (iv) refrain from technically restricting the ability of end users to switch to and subscribe to different software applications and services to which they have access using the gatekeeper’s operating system; this also applies to end users’ choice of internet access provider (letter e)). In addition, Article 6(f) requires gatekeepers to allow business users and ancillary service providers access to and interoperability with the same operating systems and hardware and software systems that are available to or used by the gatekeeper for the provision of its ancillary services. It follows from recital 52 that the provision is intended to apply where gatekeepers have the dual role of operating system developers and device manufacturers. In such circumstances, a gatekeeper could limit access to some of the device’s functionalities (e.g. short-range communication and related software), which may be necessary for the provision of an ancillary service either by the [continua ..]

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7. Conclusions.

As mentioned above, when analysed from the perspective of its effectiveness on the competitiveness of digital markets, the DMA can be confusing. Since it is still a proposal for a regulation, some modifications seem to be advisable. The circumstance that some obligations imposed on gatekeepers are self-executing and others may require a dialogue with the Commission for their compliance does not justify the division made. It would be possible, for example, to classify the obligations according to the type of practices they are intended to regulate and to identify in an ad hoc rule which of these obligations are susceptible to specification by the Commission. This would make it possible to correct certain debatable classificatory solutions. For example, many of the obligations contained in both Article 5 and Article 6 concern the prohibition of tying practices (Article 5(c), (e) and (f); Article 6(b), (c), (e) and (f)), which share the same anti-competitive nature, even though they may take the form of tying or bundling. One might therefore consider placing them in the same rule, probably through more comprehensive and simplified provisions. The same could be said for the obligations relating to discriminatory practices (Article 6(a), (d), (k)): there does not seem to be a substantial distinction between the grabbing of competitors’ data in order to favour one’s own services (sub-paragraph (a)), the preferential positioning of one’s own services in the results pages of a search (sub-paragraph (d)), or the imposition of discriminatory conditions for competitors’ access to the app store (sub-paragraph (k)). The above analysis also leads to the conclusion that the Commission has employed a conceptually conventional approach in the DMA. As we have seen, a large part of the obligations provided for in the draft regulation is aimed at prohibiting practices which already fall within the scope of the antitrust rules, as, moreover, demonstrated by the fact that such obligations have often been modelled on the cases investigated or being investigated by the Commission under Articles 101 and 102. This does not detract from the fact that the systematic declension of antitrust principles in the digital sector carried out by the DMA has produced innovative provisions in their specificity. I refer, for instance, to the obligation imposed on gatekeepers to refrain from combining personal data obtained from different services of [continua ..]

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NOTE

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