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Archive for December 17th, 2020

10 Comments on the Commission’s DMA Proposal

with 2 comments

Digital Services/Markets Act: Commission proposes rules on gatekeepers for  a more competitive market environment - European Digital SME Alliance

The DMA proposal is a bold and ambitious attempt to rewrite the rules applicable to (some) digital platforms. While competition law has proved dynamic and capable of constant evolution to address these and other challenges, this proposal would bring about a revolution. There are very different views on whether this may be a good or a bad thing (certainly no expert-consensus either way). All views are legitimate. Here are mine, surely influenced by my work.

1) EU legislators are not afraid of taking up an extraordinarily difficult task, and of breaking new ground, in addressing some of the anxiety about these markets; that is not necessarily a bad thing. EU legislators have the right to try, but also the responsibility to get it right. With great regulatory powers also comes great responsibility.

2) The DMA proposal will first need to overcome legal and political hurdles, but its practical implementation would pose even greater challenges. Managing such a far reaching tool, and managing expectations, could prove a daunting task.

3) The proposal makes a commendable effort to make rules more efficient. The combined promise of far-reaching remedies and relaxed intervention standards (i.e the perception that the sky is the limit) may, however, expose the Commission to continuous and unprecedented pressure and lobbying on the part of stakeholders. We are already witnessing this phenomenon regarding remedies in some specific cases. The proposal would turn this into the new normal. Imagine a world of evergreening investigations and remedy disputes. It is important to realize that the limitations imposed by the law are also meant to protect Institutions from possible pressures.

4) The criteria to identify what companies would qualify as “gatekeepers” will no doubt attract much of the attention given that the proposal would appear to cover companies other than just the five or six that you may have had in mind. The Commission explains that companies meeting the proposed objective thresholds may be able to rebut the “gatekeeper” presumption, even if it is unclear exactly how they might be able to do that. Conversely, the Commission proposed to have the power to identify as gatekeepers companies that do not meet all of these thresholds following a market investigation and “on the basis of a qualitative assessment”. Given their potentially very broad implications, the legislators might need to think very carefully about the relevant criteria to govern these exercises.

5) The DMA proposal incorporates some ideas worth considering that could make users better off while not compromising trade-offs (e.g. an example of low hanging fruit concerns the prohibition for users to complain to agencies). With some exceptions (e.g. MFNs), the list of absolute prohibitions in Art. 5 is an improvement by reference to the leaked previous drafts. The recognition that compliance with other prohibitions (those in Art. 6) would require regulatory dialogue would also seem positive, in that it reflects the complexity inherent to some of these practices (e.g. self preferencing) and could leave room for a more nuanced approach.

The problem, in my view, lies not so much on the very existence of absolute or relative blacklists (even if various competition authorities have cautioned against them), but on the various provisions overlapping with competition law. As observed by competition authorities like the CNMC, this overlap is premised on the assumption (fueled by the parallel publication of various reports) that competition law’s reach may be insufficient. This premise is questionable, but it perhaps reveals what may be the object, or at the very least the effect, of the proposal. The Impact Assessment transparently acknowledges the overlap, but notes that ”competition law is not always an ideal solution due to challenges in applying the market definition concept in multi-sided markets, lengthy timeframes, high legal thresholds to prove abuse, and the backward-looking nature of intervention” (emphasis added). The current proposal would certainly do away with those difficulties and thresholds. It would create a new competition regime under the guise of regulation and free from legal constraints (Ceci n’est pas competition law). At the time the expert reports came out my comment was that one could not aspire to change competition law (shifting the burden of proof or lowering standards to intervene) without the participation of the EU Courts. Admittedly, that was naive, because this proposal is a smart way of obtaining the very same result, only in relation to a limited category of companies.

6) Under the proposed DMA, the Commission would be able to challenge the very same practices that it is now challenging in ongoing cases, only faster, avoiding the limits set by the EU Courts, not having to define markets, show likely potential effects (competition law is not backward-looking!), deal with ambiguities, or indeed bear the burden of proof. Simple rules for a complex world, I guess. At the same time, the Commission would be able to impose the same sanctions and the same remedies as under competition law. In these circumstances, one may wonder whether the Commission or complainants will have any incentives to choose to challenge alleged anticompetitive behavior of “gatekeepers” via Articles 101 and 102 TFEU. National competition authorities, on the contrary, would not get to benefit from these shortcuts. The law and the Courts would also be largely displaced to the benefit of more discretion (giving rise, in passing, to a new mixed breed of lawyers/lobbyists and economists/lobbyists). Once again, there are different views or whether this may be a good thing or not.

7) It is fair and legitimate for the proposal to be informed by the experience acquired in recent cases. For the very same reasons, it would also be convenient not to dismiss the experience acquired in earlier cases (and in future Judgments). It is often wise to first try to understand what one intends to dismiss. And it is important to understand that the limits set by the EU Courts are not capricious, but the result of a steady and incremental evolution, of slowly distilled common sense over decades of experience, fact-finding, balancing of trade-offs and learning from mistakes. Those limits, moreover, do not appear to have been an obstacle given the Commission’s almost immaculate track-record of success in Court.

8) As anticipated, the proposal is based on Art. 114 TFEU (harmonization of national rules to avoid regulatory fragmentation). This legal basis has the advantage of avoiding the unanimity requirement in the Council, but it also implies certain limits to EU action, and it may make the DMA vulnerable to a possible legal challenge (for more on that, see here). As I told Politico, to be on the safe side, Member States and the Parliament would need to ensure that the final version of the DMA does not go beyond its declared goal of preventing regulatory fragmentation across the internal market.

9) The proposal refers to a new set of “harmonized rules”, but it would appear to leave Member States’ margin of legislative manoeuver intact. The Impact Assessment, in fact, observes that some Member States may adopt additional parallel rules (“[a]lthough some national administrations such as those in France and Germany, have taken steps to implement national measures, these may be seen as supportive of and potentially complementary to EU solutions”).

10) This is only the start of a long legislative process which should hopefully contribute to a sensible, balanced and effective solution. As arduous as the legislative process may be, an eventual DMA would face greater challenges. One may disagree with some of these proposals, as I do, but one should also applaud the Commission for launching a necessary debate on how to regulate the digital world.

[Disclaimer: my clients include various companies that could potentially be subject to these new rules. The comments above should coincide with the views I share with my clients, but certainly do not reflect their own views or those of my firm]

Written by Alfonso Lamadrid

17 December 2020 at 4:30 pm

Posted in Uncategorized