Chillin'Competition

[Chillin’Competition is publishing a series of posts featuring the views of various experts and stakeholders in relation to the European Commission’s proposal for a Digital Markets Act. We have received several contributions and will also be inviting some experts to ensure a plurality of informed views from a variety of perspectives. For our previous posts on the DMA see here (by Pablo), here (by me), here (by Cani Fernández, originally published in JECLAP), and here (by Tim Lamb, Facebook). Today we bring you some reflections by Agustín Reyna, Director of Legal and Economic Affairs at BEUC, The European Consumer Organisation)]

Following a non-football(istic) exchange via twitter (see here), Alfonso invited me to share some thoughts about why I think it is neither necessary nor desirable for the Digital Markets Act (DMA) to allow for an efficiency defence in the compliance process with the do’s and don’ts included in Articles 5 and 6 of the Commission’s proposal. However, before sharing our reasons, I think it is important to briefly reflect about three elements closely related to this discussion: the nature and objective of the DMA; its legal basis and, its interplay with competition law.

Nature and objectives of the DMA                                                                                                                                               

The DMA’s objective is to ensure contestable and fair markets in the digital sector by laying down a list of obligations and prohibitions that would apply to designated gatekeepers in relation to a list of core platform services (CPSs). While it is possible to argue  – especially amongst those who consider that EU competition law is much more than allocative efficiency (see our thoughts on this issue here) – that the DMA shares the similar objectives as competition law, the way of achieving these objectives is different. Competition law addresses, case-by-case, business conduct that disrupts competition in the internal market by applying the rules laid down in Articles 101 and 102 TEFU whereas the DMA seeks to pre-empt certain practices or impose specific obligations with a view to increasing market contestability, reducing entry barriers, stimulating innovation from rivals and companies who depend on the gatekeeper to reach consumers and, ultimately, to ensure consumers enjoy a healthy digital environment (we wrote more about this here and here). Whether a company designated as a gatekeeper could have breached Article 102 TFEU, or not, is simply irrelevant for the DMA because, by its very essence and nature, the DMA is not competition law.

The DMA is (pre-emptive) regulation under Article 114 TFEU

Article 114 TFEU has allowed the EU to intervene by means of approximation of laws in multiple sectors and areas of law from horizontal consumer protection law to energy, telecom and pharmaceutical legislation. As such, the choice of Article 114 TFEU as a legal basis does not depend on the sector that is regulated but on whether the measure is necessary to achieve the objective of “establishing or ensuring the functioning of the internal market” in the terms of Article 26 TFEU. Even if one could argue that the use of Article 114 TFEU can be at times arbitrary due to the broad scope of intervention of Article 26 TFEU, I think there is a clear case for 114 TFEU as the legal basis of the DMA for three good reasons. First, the companies to be designated as gatekeepers are providing cross-border services and as such are likely to impact the functioning of the internal market. Second, the proposal introduces proxies in the designation of gatekeepers that would exclude purely domestic scenarios (i.e. requiring presence in at least 3 Member States) therefore ensuring to capture cross-border practices. And third, all parties concerned namely the gatekeepers, business users and end-users would benefit from a set of common rules regulating the provision of services to consumers in different countries contributing to the well-functioning of the internal market by on one side facilitating cross-border operations and, on the other side, reducing risks of fragmentation. 

Interplay with EU competition law

The DMA does not replace competition law. It rather complements it by pre-empting certain practices by companies some of which might also be prohibited under Article 101 or 102 TFEU. Furthermore, as mentioned above, dominance in the competition law sense is not a requirement for the application of the DMA, which follows a different path to designate gatekeepers (based on the combination of pre-established quantitative and qualitative criteria). It is, however, known that many of the companies to be designated gatekeepers have been, or are currently, subject to competition law proceedings. While it could be considered that there is a risk of friction between the two regimes, one needs to be mindful of the fact that once the DMA comes into force, competition agencies would have to take into account the DMA as part of the legal context in each specific case, thus reducing the risk of inconsistent outcomes.  

Why should efficiency defence not be allowed under the DMA?

While assessing compliance with competition law an efficiency defence is relevant, I do not think the same should apply to the DMA for the following reasons:

• The DMA, unlike Article 102 TFEU, provides for well-defined obligations which would apply to well-defined gatekeepers in clearly identified services or markets (CPSs) to deal with clearly identified problems. Any possible trade-offs between efficiencies and the DMA objectives would have to be taken into account by the European legislation when designing the obligations of Articles 5 and 6.  This means that each obligation would have already internalised such efficiencies. Therefore, there is no reason why further flexibility should be introduced.
• Since the DMA is not competition law and has a different legal basis (Article 114 TFEU), there is no need to apply competition law principles in terms of either substance or procedure. Think for example of consumer protection rules, which have been harmonised at EU level on the basis of Article 114 TEFU. The enforcement of these rules does not give any scope to companies to argue why a certain unfair term or practice is beneficial (or efficient) for consumers.
• In the hypothetical scenario where there would be a competition case involving one of the designated gatekeepers on the basis of Articles 101 or 102 TFEU (or the national equivalent), the scope to bring efficiency defences would be framed by whether the concerned practices were covered or not by the DMA. This is something that would have to be taken into account in any case even before the opening of proceedings by the competition authority.
• More practically, not allowing efficiency defences will make the DMA swiftly applicable and therefore operational as soon as the parties are designated as gatekeepers – or shortly thereafter – subject to specifications if needed for those obligations included in Article 6. Permitting gatekeepers to claim efficiencies would imply delaying the application of the rules when, as said before, this is simply not needed because any possible efficiencies would have been considered by the legislator when defining the scope of each obligation.  

To conclude, I do not see the legal or procedural need to add a new layer of complexities in the DMA by allowing efficiency defences. The DMA is much more than competition law. It is (and should become once adopted by the legislator) regulation precisely defining the limits of what gatekeepers can or cannot do when operating their CPSs in the internal market, in the same old-fashioned way other pieces of EU law in other sectors have defined the boundaries of private initiatives to safeguard clearly defined public policy goals. Competition law will continue to apply in tandem with the DMA. However, taking into account that competition law cannot provide all the answers (e.g. regarding scope of intervention) in the most optimal timeframe (e.g. the Android case is a good example, the case started in March 2013, the decision was adopted in July 2018 and only last week the remedies were amended in a positive manner), there are good reasons for the legislator to step in.

The DMA has the potential to become a blueprint for regulating digital markets, but its success will depend on its swift and effective application and enforcement. The very same companies that would be regulated by the DMA have asked for many years for legal certainty about what they can or cannot do. And this is exactly what the DMA is aiming at.