Kingsley Hayes comments on the Digital Markets Act in Commercial Dispute Resolution

Partner and Head of Data and Privacy Litigation Kingsley Hayes and Dean Armstrong KC of Maitland Chambers comment on the EU’s Digital Markets Act and the future of Big Tech in Europe in Commercial Dispute Resolution.

Kingsley and Dean’s comments were published in Commercial Dispute Resolution, 11 September 2023, and can be found here.

What is the view of the Digital Markets Act among lawyers in the UK?

The purpose of the Digital Markets Act (“DMA” or “Regulation”) is to seek to stop unfair practices by so called “gatekeepers” operating in and out of online platforms. The three main indicators of who qualifies as a ‘gatekeeper” are:

• A size that impacts the internal EU market based upon turnover in the EEA, and the importance of the service;
• Significant influence over final consumers; and
• An established position based upon turnover or consumer access over the previous 3 financial years.

These criteria are presumptive, but that presumption can be rebutted. It is also open to the European Commission (the “Commission”) to investigate specific situations to establish whether a particular entity is caught.

The primary aim of the Regulation is to make digital markets safer, fairer, and, in economic terms, contestable; it is a regulatory tool that intends to complement EU competition rules.

To achieve its objective, the DMA established a criterion that allows “gatekeepers” to be identified. Once a gatekeeper has been identified, they will have to comply with the “do’s” and “don’ts” imposed by the DMA, otherwise they will be subject to consequences, both financial and organisational. For example, in ensuring an open online environment which is fair to all users.

Digital markets are dominated by big tech companies. We, at KP Law, believe the DMA aims to restore much needed equilibrium. This is a positive for innovators and consumers alike. For instance, technology start-ups will have opportunities to compete in the digital platform environment.

Saliently, and stemming from this, consumers will be afforded more and, potentially even better, services to choose from; they will have more opportunities to explore offerings from other digital service providers and potentially even fairer prices, too. Further, the DMA also offers consumers enhanced privacy protections. For example, gatekeepers are not permitted to track end users outside of their core platform service for the purpose of targeted advertising, unless effective consent has been obtained. This gives consumers more control over their data.

The Digital Markets Act should be met with enthusiasm in terms of its stated aims. The practice and implementation of it may require patience and resolve.

There is no homogeneity in enthusiasm, of course. Some critics contend the DMA will stunt innovation, as certain companies will not be willing to take risks because of the fines system that they would be subjected to if they failed to comply with parts of the regulatory regime.

Is there a danger that, as big tech faces more restrictions which impact their business models, some companies may pull out of the EU altogether?

The argument that regulation serves to drive large entities away from jurisdictions is oft quoted and sometimes threatened. It is fair to say that economic reality usually trumps these dangers. The size of the EEA market is so vast and lucrative, that large entities can, in reality, ill afford to turn their backs on the opportunities it brings. Large entities have, over recent times, been faced with a plethora of regulatory obligations but have not, for the most part, been driven away, Indeed some have embraced the challenges with relish.

Is this it, or is the Commission likely to (1) add more gatekeepers, or (2) tighten restrictions?

On 6 September 2023, the Commission designated the first six gatekeepers: (1) Alphabet; (2) Amazon; (3) Apple; (4) ByteDance; (5) Meta; and (6) Microsoft. A total of 22 core platform services that these gatekeepers provide have been designated. These companies will now have six months to ensure full compliance with the Digital Markets Act. There is a proactive engagement with big players in the industry to ensure that compliance can be effectively achieved.

In an area where the larger players are well known this spirit of cooperation will mitigate the effect on future surprises. However, if another entity meets the quantitative thresholds, then they will be added as a gatekeeper too. If the Commission designates that company as a gatekeeper, they will then need to ensure full compliance with the DMA.

We do not anticipate that the Commission will tighten restrictions in the first few years of the regulation coming into force. The Commission will need time to consider the DMA’s impacts before it decides to change anything.

Is there a legal argument that it is unfair to impose restrictions on some companies but not others?

There are two important contextual matters to be borne in mind when dealing with this issue. The first is that the designation of a “gatekeeper” is not an arbitrary act. It is based upon criteria with a right of challenge by the entity itself. This is significant in tempering concerns over unfair designation and there is a proposed in-built process to ensure fairness. Second, the Commission by its active engagement is showing a desire to seek to understand and temper unwanted consequences whilst dealing with what it sees as practices leading to unfairness.

Those entities mentioned above enjoy large resources gained from enjoyment of positions of power and strength over consumers. They are also afforded the opportunity to seek to shape the ways that the Regulation is implemented due to the consultation process. The aim of the Regulation is laudable. It is a matter of collaboration to ensure that is enforced with due proportionality and balance of fairness and regard to commercial objectives.