EU’s Digital Markets Act and implications for Big Tech

By Ashima Obhan and Samridhi Poddar, Obhan & Associates
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According to a press statement issued on 25 March, the European Council and the European Parliament have struck a provisional political agreement on the Digital Markets Act (DMA act). The act classifies platforms in the European Union (EU) as gatekeepers if they generate at least EUR7.5 billion (USD8.2 billion) in revenue or have a market value of at least EUR75 billion, and have at least 45 million monthly end users.

EU’s Digital Markets Act and implications for Big Tech Ashima Obhan
Ashima Obhan
Senior Partner
Obhan & Associates

The act will prohibit specific actions by major platforms acting as gatekeepers. It will empower the European Commission to conduct market investigations and penalise non-compliant behaviour. The commission introduced a digital services package in December 2020, including the Digital Services Act and the DMA. The legislation will affect players such as Amazon, Meta, the parent company of Facebook, and Alphabet, the parent company of Google.

Apart from having 45 million monthly end users, platforms must have 10,000 business users in the EU to qualify as gatekeepers. In addition, a platform must manage one or more essential platform services in at least three member states. According to the news release, marketplaces and app stores, search engines, social networks, cloud services, advertising services, voice assistants and web browsers are within the definition of primary platform services.

Except in extraordinary circumstances, small and medium-sized firms will be excluded from being labelled as gatekeepers. The act provides for an emerging gatekeeper category that allows the commission to impose specific duties on businesses that have established a competitive position but are not yet profitable.

Gatekeepers under the DMA must ensure that the fundamental capabilities of instant messaging systems are interoperable; provide equal access to the auxiliary functions of smartphones for app developers; provide vendors with access to the platform’s marketing and advertising performance statistics, and notify the commission of any mergers or acquisitions.

EU’s Digital Markets Act and implications for Big Tech Samridhi Poddar
Samridhi Poddar
Associate
Obhan & Associates

The DMA further stipulates that gatekeepers will not be permitted to prioritise their own goods or services above those of others; use personal information gathered in one service in another service; create unfavourable conditions for commercial users; preinstall a limited number of software apps, and require app developers to use certain services such as payment systems or identity providers for their apps to be included in app stores.

If a gatekeeper breaches the legislation’s restrictions, it risks a fine of up to 10% of its global revenue. A second offence may result in a punishment of up to 20% of the company’s global revenue. If a gatekeeper consistently breaches the DMA, for example at least three times in eight years, the commission may initiate a market inquiry and, if appropriate, impose behavioural or structural remedies. A platform will be free to disagree with the assumption that it is a gatekeeper. To do so, it may contest the designation by way of a mechanism that allows the commission to examine the truth of such claims.

This legislation may well have an impact on India in general and the position of the Competition Commission of India (CCI) in particular. A dynamic economy requires the CCI to ready itself for a rapidly changing regulatory environment. Given that India’s digital economy is still in its nascent stage, the antitrust regulator must balance regulation and intervention on the one hand, while ensuring that it does not stifle innovation on the other. While the CCI seeks to stay in step with its international counterparts, the global debate over the efficacy of existing competition and antitrust laws in addressing the ever-evolving concerns over digital marketplaces is gaining momentum day by day.

By enacting the DMA, Europe is establishing itself as the most assertive regulator of big tech. European standards are often followed and mirrored globally, including by the CCI. The new legislation sets the bar even higher by subjecting businesses to an era of pervasive regulation, similar to that governing privacy and data protection. It will be intriguing to see whether the CCI adopts the US or the European approach or develops its own framework in dealing with future digital economy challenges.

Ashima Obhan is a senior partner and Samridhi Poddar is an associate at Obhan & Associates.

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