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Archive for December 22nd, 2022

Procedural Fairness and the DMA: Some Comments on the Draft Implementing Regulation

with 2 comments

The European Commission recently released a 10-page, 12 article, draft Implementing Regulation on “detailed arrangements” for the conduct of proceedings under the Digital Markets Act (“DMA”). The Commission is inviting comments until 6 January. Here are some of mine:

1. On the importance of procedural fairness under the DMA. Under the DMA administrative action and discretion will not be as constrained by substantive rules as it is in other settings, including under competition law. In my view, the increased margin for administrative discretion requires the reinforcement of traditional procedural safeguards, not their relaxation. Procedural safeguards are not there to protect gatekeepers (or third parties), but to uphold the rule of law, and to protect the Commission too. Strong procedural safeguards would legitimize the DMA’s enforcement and ensure legally sound outcomes. When it comes to due process requirements, the EU should not be satisfied with minimum standards of protection.

2. The overarching tension between “expediency” and procedural safeguards. The draft reveals a constant tension, visible practically in every provision, between “the possibility for individuals to exercise their rights of defence and the expediency of the proceedings” (Article 10(1)). In my view, however, it is evident that these two interests do not rank at the same level. Rights of defence trump “expediency” considerations. According to the Oxford dictionary, by the way, “expediency” refers to “an action [that] is useful or necessary for a particular purpose, although it may not be fair or right”.

The CJEU has made very clear that:

the aim of promptness – which the Commission, at the stage of the administrative procedure (…) must seek to achieve – must not adversely affect the efforts made by each institution to establish fully the facts at issue, to provide the parties with every opportunity to produce evidence and submit their observations, and to reach a decision only after close consideration of the existence of infringements and of the penalties (see, with respect to the reasonable period referred to in Article 5(3) of the ECHR, Wemhoff, paragraph 17, and, with respect to Article 6(1) of the ECHR, Neumeister, paragraph 21)” (emphasis added).

A strong procedural framework would, moreover, not compromise the DMA’s objectives. Particularly in an ex ante system, one could expect enforcement to be exceptional, and necessarily limited in scope. Would it not make sense to adopt every precaution to ensure the “fairness” of those proceedings?

3. Omissions in the draft. The draft is silent on many respects (including, for example, with respect to the role of third parties, specification decisions under Article 6, certain aspects market investigations, coordination with national competition authorities, etc). I presume that some of that will eventually feature in a DMA ManProc. Some of those omissions may be understandably justified by the fact that Article 46 DMA empowers the Commission to adopt implementing acts covering only certain matters. While it is good to see that the Commission is strict about legal basis (ehem…), some further reflection on how to deal with existing shortcomings in the design and transparency of the DMA’s procedural rules would be most welcome. The Implementing Regulation could provide the Commission with an opportunity to correct or mitigate issues left out, or created, by the legislative procedure.

4. The “succinct” right to be heard. The draft envisages that addressees of preliminary findings should have the right to provide their views “succinctly”, “in writing” and “within a time-limit that should be set by the Commission with a view to reconciling the efficiency and effectiveness of the procedure, on the one hand, and the possibility to exercise the right to be heard, on the other” (recital 3).  But parties do not have a right to defend themselves “succinctly”; parties accused of an infringement have the right to defend themselves, whether succinctly or not.

5. Oral Hearings. In antitrust proceedings undertakings have a “right to an oral hearing” (Article 12 of Regulation 773/2003). This is not capricious; it is an essential procedural safeguard. The draft Implementing Regulation, however, does not envisage oral hearings, and it is not clear why (the answer, I suppose, is that adhering to procedural safeguards takes time). In my view, this is problematic. To be sure, there is established case law making clear that the right to a fair hearing does not necessarily imply a right to be heard orally, but it may in some settings. In CONSOB, for example, the ECtHR found that an administrative enforcement system (on securities regulation) not allowing for the holding of an oral hearing (even when the facts were contested and companies faced a risk of severe penalties) did not fully satisfy the minimum requirements of fairness and objective impartiality deriving from Article 6 ECHR.

In the recent Android judgment (admittedly, not my favorite ruling), the GC also held that “[h]aving regard to the importance, in the context of a punitive procedure in which an abuse of a dominant position is to be penalised, of holding an oral hearing, that procedure is necessarily vitiated by the failure to hold such a hearing, irrespective of whether (…) that that failure might have influenced the course of the proceedings and the content of the contested decision (…)”.

6. Access to the file. According to the draft Implementing Regulation, while addressees of preliminary findings “should always obtain from the Commission the non-confidential versions of all documents mentioned in the preliminary findings, the Commission should be able to decide on a case-by-case basis on the appropriate procedure for access to further documents in the file” (recital 3). This idea is developed in Article 8 of the draft Implementing Regulation. A few comments:

— Like in competition proceedings, undertakings would only have access to the file following the notification of preliminary findings. I suppose this means that designation decisions (which would not be preceded by preliminary findings) will only rely on the evidence transmitted by the would-be-gatekeeper. This is because designation decisions could arguably not be based on evidence previously unknown to the undertaking (e.g. information submitted by third parties) without breaching Articles 6 ECHR/ 41CFR.

— Pursuant to Article 8 (2) and (3) of the draft, access to documents is not automatic, and is in principle limited to “the documents mentioned in the preliminary findings as well as a list of all documents in the Commission’s file”; it would then be for the undertaking to duly substantiate why it would need access to specific documents in that list. The problem here is that this system might not enable undertakings to identify potentially exculpatory or otherwise helpful documents. Access to a document cannot, in my view, be dependent on whether the Commission chooses to refer to it in its preliminary findings or not, nor on the title that the Commission may choose for it. Established case law makes clear that ““it cannot be for the Commission alone to decide which documents are of use for the defence” (e.g. Solvay, para. 81; see also Qualcomm, paras. 199, 202-216).

7. Deadlines and extensions. Pursuant to Article 10(1), the Commission will set time limits having due regard to all relevant elements of fact and law and interests concerned, “in particular the possibility for individuals to exercise their rights of defence and the expediency of the proceedings”. Article 10(2), in turn, provides that, faced with extension requests, the Commission (who within the Commission if not a Hearing Officer?) shall assess “whether the requested extension is liable to endanger compliance with the applicable procedural time limits laid down in [the DMA]”. My comment 2, above, is transposable here.

8. Confidentiality. Article 7, on the identification and protection of confidential information, and Article 8, on access to the file, mainly codify current practice under competition law, including on how to resolve disputes as to confidentiality. It all looks good to me, except for the absence of any role for Hearing Officers (see below). Importantly, under Article 7(5), any comments on consultations by third parties (e.g. on remedies, non-compliance or systematic non-compliance decisions) will not be considered confidential. This might arguably save more time and administrative resources than many other of the proposals featured in the draft.

9. Hearing Officer. According to the Commission, the post of the Hearing Officer was introduced to “enhance impartiality and objectivity in competition proceedings before the Commission”. By the same token, the fact that the draft Implementing Regulation envisages no role for Hearing Officers implies that DMA proceedings would be less impartial and less objective than competition ones.

The argument that granting Hearing Officers a role would compromise speed is, in my view, spurious. First, the Commission recognizes that Hearing Officers are there “to contribute to the objectivity, transparency and efficiency” of proceedings”. Second, Hearing Officers’ role in merger proceedings does not appear to have been an obstacle to comply with tight deadlines. Third, their role under the DMA is particularly necessary precisely because time pressures may create the temptation for enforcers to be more “efficient” when it comes to respecting procedural safeguards.

10. Format and length of documents:

–Article 3(4) provides that the information submitted to the Commission “shall be presented in a clear, well-structured and intelligible manner”. Amen! This requirement should arguably feature in the Treaties and be tattooed in the forearms of every lawyer (and maybe, perhaps one day, extended to public documents too…).

–Annex II of the draft sets format and page limits (essentially 50 pages to discuss each core platform service “according to any plausible alternative delineation” in notifications, 25 pages for rebuttals, 30 pages for reasoned requests for suspensions and exemptions, and 50 pages for replies to preliminary findings. Not that I particularly care about page limits (shorter is often better and more effective), but will preliminary findings, for example, be subject to similar page limits? If not, would this create equality of arms issues?

–Also, since these limitations would appear to be inspired by the page limits applied by the EU Courts: do you know of any application or appeal that has ever been declared inadmissible by the EU Courts due to lack of compliance with page limitations? Well, there is a reason why you don’t, and it also has to do with fundamental rights.

–Article 4 of the draft Implementing Regulation states that the Commission will only allow derogations to page limits upon reasoned request and to the extent that the undertaking “substantiates that it is objectively impossible to deal with particularly complex legal or factual issues within the relevant page limits”. Read again: “objectively impossible”. To be granted an extension, one would need to prove a negative. “Objective impossibility” may appear to be somewhat of a high bar in this context; in fact, it is arguably objectively impossible for undertakings to meet.

11. Rebutting the gatekeeper presumption (a welcome backtracking?).  Pursuant to the DMA, undertakings who meet the quantitative thresholds in Article 3(2) will be presumed to meet the qualitative thresholds warranting a gatekeeper designation that are set out in Article 3(1). Oddly, the DMA provides that a gatekeeper presumption can only be rebutted by reference to the quantitative thresholds (DMA recital 23 and Article 3(5)). In my previous post on DMA procedure, I already expressed doubts about the legality of that limitation. The draft Implementing Regulation appears to be mindful of this problem:

Article 3(3) of the draft provides that the notifying parties wishing to rebut the gatekeeper presumption “shall (…) clearly identify to which of the three cumulative requirements set out in Article 3(1) its arguments relate (…)”. (?!) It would appear that, unlike the DMA itself, the Implementing Regulation would enable parties to develop their arguments by reference to the qualitative requirements ultimately justifying designations, instead of on the quantitative proxies. This is logical and welcome, and seemingly the opposite of what the DMA provided.

12. The “yes, but the DMA is not competition law” argument. You may perhaps be inclined to dismiss some of the comments above on the grounds that I’m looking at all this through a competition lawyer’s lenses when, in reality, the DMA is a different animal. But the very same reasons that justify the existence of certain procedural safeguards in competition law proceedings are equally, if not more, relevant under the DMA. Procedural guarantees and rights of defence do not depend on whether a given legal regime constitutes competition law or not; they depend on other factors, including the severity of the sanctions at stake, the institutional set-up and the jurisdiction’s commitment to the rule of law.

This is all for now. I hope these are constructive, as I acknowledge that it is a challenge for the Commission to set up a completely new procedural framework from scratch, in a rush, and based on the DMA’s text. Other comments may follow if time allows (but, to be honest, I hope to be doing other things during the Christmas period).

Happy holidays to all!

[P.S. I work for companies likely to be designated as gatekeepers, including for some directly targeted by the DMA. The views expressed in this post are strictly my own and have not been requested, nor paid for, by any client. At the time of publication, I have not discussed this post with any of my clients].

Written by Alfonso Lamadrid

22 December 2022 at 9:46 am

Posted in Uncategorized