While 2019 was the year in which competition authorities sought to deepen their understanding of digital markets through academic reports, studies and debates, 2020 is continuing to be the “year of action” in which authorities are adding some meat to the bones of proposals to regulate the “digital economy”.
The European Commission has been no different, launching public consultations on not one but two proposals: (a) a New Competition Tool (NCT) aimed at addressing alleged “enforcement gaps” in competition enforcement, principally in digital markets; and (b) an ex-ante regulatory instrument (in the guise of a EU Digital Services Act (DSA)) to govern the conduct of so-called “large online platforms (LOPs) acting as gatekeepers” which, in the view of the Commission, benefit from significant network effects and can regulate access of other services to various digital markets (the Gatekeeper Tool).
As noted in this blog post relating to the NCT proposal, while these proposals have generated lively debate within the EU legal and public policy community, there has been relatively little coverage in the wider press despite the widespread impact the DSA and NCT will have if they become part of the Commission's armoury of enforcement tools.
This post focuses on the DSA proposal and our reaction to it.
Background to the consultation
Following close on the heels of the recommendations made in the reports published by the UK Furman Inquiry (see here) and the Commission’s own panel of digital experts (see here) in 2019 – both of which proposed an additional rulebook for certain “large” platforms allegedly capable of regulating market access through, for example, access to data and setting standards – the Commission’s proposal for a Gatekeeper Tool is intended to address the Commission’s concerns around fairness, accessibility and contestability in digital markets.
Through imposing new rules and standards, the Gatekeeper Tool would seek to ensure that LOPs ‘behave fairly and can be challenged by new entrants and existing competitors’. In addition, the Gatekeeper Tool would seek to impose a set of rules to address the risks faced by users of digital services and protect their rights.
An enforcement gap calling for new rules?
At the launch of the DSA consultation, the Commission set out a number of options for how such a Gatekeeper Tool might be implemented:
1. a revision of the horizontal framework set in the Platform-to-Business Regulation (EU) 2019/1150 (P2B Regulation), which recently entered into force (July 2020)
2. the adoption of a framework empowering regulators to collect information from gatekeepers;
3. the adoption of a new ex ante regulatory framework for large online platforms acting as gatekeepers. This option includes two sub-options:
(a) prohibition or restriction of certain unfair trading practices by large online platforms acting as gatekeepers (‘blacklisted’ practices);
(b) adoption of tailor-made remedies addressed to such gatekeepers on a case-by-case basis where necessary and justified.
Similar to the NCT, the underlying assumption to all of these proposals is that the Commission suffers from an enforcement gap in relation to digital markets. However, as the alleged “gap” appears to derive not from legislative deficiency, but from the tension of getting to the “right” outcome quickly, a more appropriate and effective “plug” for the gap would probably be linked to an improvement in the use of current tools in the Commission’s arsenal.
In this respect, secure and robust outcomes could be achieved by, for example, making faster and more targeted competition law enforcement actions; increasing recourse to the use of interim measures; as well as using existing consumer protection, economic dependency and unfair trade practices laws in the context of an enhanced cooperation between the Commission and national competition authorities. While some of these proposals may require further thinking or consultation, they would obviate the uncertainty raised by the creation of new tools – in particular where there is perceived to be some overlap with NCT proposal.
The new rules of the game
Should the Commission – following further investigation and review of responses to its consultation – not share this view, it will be important that it ensures that the scope of any proposal adopted is limited both: (a) to the areas where there at least consensus that enforcement gap(s) exist; and (b) to the LOPs meeting “gatekeeper” status after consideration of properly defined objective criteria. It goes without saying that, in addition, any such proposal will also have inter alia to ensure flexibility and full compliance with the principle of proportionality, guaranteeing adequate legal certainty.
In the area of competition, of all of the options presented by the Commission (set out above), the course best meeting these standards would perhaps be option (3)(a), i.e. identifying blacklisted practices to be considered forbidden only if put in place by defined LOPs. Such an option avoids the downsides related to a case-by-case approach (especially those related to lengthy individual proceedings and lack of legal certainty), while granting at the same time a robust enforcement action.
Notwithstanding this, it will be important that the Commission properly evidences and defines the LOPs to which such a “blacklist” will apply, as well as what practices are so detrimental (and without any conceivable justification - so-called ‘by object’ infringements in competition law) such as to be deserving of “blacklisted” treatment. These issues are inherently complex but are very important in avoiding posing any unnecessary limit to businesses’ growth.
In this regard, however, certain experiences of the telecommunication sector may be relevant. In particular, the Commission could take into account an approach similar to that adopted within the context of the EU regulatory framework for electronic communications, where market reviews are periodically undertaken and only those undertakings established as having “significant market power” (SMP) are subject to further asymmetric ex ante regulation and then only to the extent necessary to address such SMP.
In a similar vein, to ensure sufficient flexibility in responding to business practices, it may be appropriate to complement the “blacklist” with a fall-back provision that contains enforcement principles and related rationales that could be enforced by the relevant agency following an adversarial investigation process.
The Commission’s public consultation on the DSA closed on 8 September 2020. As a firm we have submitted a comprehensive response to the proposal addressing, amongst other things, the issues raised in this blog post. Our full submission to the Commission is available below.