Competition: four questions on the new EU regulation to regulate the Gafa

AMD. The three-letter Digital Market Act has been giving tech giants a cold sweat for more than a year. Behind this banal acronym hides a European project that is ambitious to say the least: regulating the digital heavyweights who sometimes take advantage of their dominant position to undermine competition. After months of work, the three European bodies have just given it the last green light on March 24.

“Never underestimate the European Parliament. The agreement we have reached opens a new era”, rejoices Andreas Schwab, the rapporteur for the Committee on the Internal Market and Consumer Protection, during a conference in press given on April 25. According to him, this text will give citizens more freedom and control, and companies that use Gafa services, new opportunities and better access to their data. “We have taken a historic step (…) By strengthening competition, we will have more innovation”, adds Cédric O, Secretary of State in charge of digital in France. This is what DMA will change.

  • What does the Digital Market Act tackle?

The companies that the DMA intends to regulate are what Europeans call gatekeepers, that is to say platforms that constitute an almost unavoidable gateway between companies and their customers. For mobile game publishers, for example, it is difficult to envisage the future without being present on the Google Play Store or the Apple App Store. Ditto for many e-merchants whose visibility and turnover depend on their presence on Amazon.

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The problem is that players of this size can easily, if they wish, distort competition. An emblematic example? Google was fined 2.4 billion euros in 2017 for favoring its Google Shopping price comparator on its search engine to the detriment of competing comparators. Being less highlighted on the ultra popular Google Search, they could no longer compete on equal terms with the price comparison of the American firm.

The European Commissioner for Competition, Margrethe Vestager, has also recalled the proliferation of accusations against digital giants in recent years: “We have not had one, nor two, but three Google cases, there are also investigations regarding Amazon, Apple and Facebook.” The sign according to her that systemic problems arise and that they require a more global regulation. “It was done a long time ago in the banking, energy or telecom sectors. Now we are doing it in the digital sector.”

The DMA will result in several new rules to be respected. In particular, smartphone manufacturers will no longer have the right to force application developers to use their payment system. They will also need to allow users to install apps directly or through alternative app stores. A provision that Tim Cook, Apple’s CEO, has always criticized. According to him, the analysis that Apple performs before authorizing, or not, an application on the App Store is an essential safety net against possible malware. The change brought by the DMA will however certainly make the joy of the developers of application.

Another major change: the largest messaging services will have to guarantee some interoperability with the smaller platforms, if they request it. “If you use Signal, you can therefore send messages to WhatsApp subscribers for example”, illustrates Cédric O in a Twitter thread summarizing the points of the agreement. Access controllers will also no longer be able to prohibit sellers from promoting the more advantageous offers that they sometimes offer on other channels. Parliament also carved in stone the ban on forcing users to use a specific browser, virtual assistant or search engine. Their freedom of choice must remain total.

  • Which companies are “gatekeepers” and what do they risk in the event of a breach?

The text on which the Europeans agreed on March 24 brings into this category large companies providing “essential platform services” (social networks, search engine, etc.) to an audience of at least 45 million end users per month in the EU and 10,000 professional users per year. They will fall into this category if their market capitalization reaches at least 75 billion euros or if their annual turnover exceeds 7.5 billion euros.

Criteria that of course include companies like Facebook, Google, Apple or Amazon. If they do not comply with the rules set by the DMA, the Commission may impose fines of up to 10% of the worldwide turnover of the previous financial year and up to 20% in the event of a repeat violation.

  • What does the DMA change compared to the current regulation?

Punishing anti-competitive practices, the objective is nothing new. All European countries have their authority responsible for the issue, and in recent years, tech giants have already been sanctioned by them. The problem ? “These cases take a very long time to be concluded. The commission’s investigation can last for years, then there is a judgment in a court of law. And the company still has the possibility of appealing afterwards”, explains Gail Orton, director of European affairs at the international business law firm Clifford Chance, specializing in European and French competition law at the law firm Clifford Chance.

The Digital Market Act reverses the game: what is prohibited is defined from the start and much more precisely. It will also be possible to investigate a company much more quickly in the event of suspicion The Europeans finally wanted at all costs to prevent sanctioned companies from simply paying the fine without changing their way of doing things. “This is why in the event of persistent non-compliance, the DMA makes it possible to impose structural changes,” explains Katrin Schallenberg, partner at Clifford Chance, specializing in European and French competition law. In this type of scenario, the Commission could for example prohibit the controller from acquiring other companies for a given period, or even impose divestitures.

  • When will the European Digital Market Act apply?

Ideally, in autumn 2022. After adoption by the European Parliament and Council, the DMA will indeed have to be studied and translated by EU lawyer linguists. The text will officially enter into force 20 days after its publication in the Official Journal of the EU and the rules will start applying six months later. Once the DMA is in effect, it will be interesting to watch how the fines are calculated. The figure of 10% of global turnover may certainly impress, but it is a maximum threshold. “So far, the fines imposed have never reached the maximum authorized thresholds,” says lawyer Katrin Schallenberg.

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If there are still details to be clarified, the orientation given by the European Union is nevertheless clear and strong. Many observers of these bodies thought that there would be dissension on this project. Backed by two European heavyweights, Internal Market Commissioner Thierry Breton and Competition Commissioner Margrethe Vestager, the agreement was however concluded in 18 months which, in the European sphere, is surprisingly fast. The text changed little over the course of the negotiations, a sign that the Commission, the Council and the European Parliament were remarkably aligned on the subject and considered it a priority.



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Competition: four questions on the new EU regulation to regulate the Gafa