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Navigating the nexus of Policy, Digital Technologies, and Futures (S1/E5)

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Navigating the nexus of Policy, Digital Technologies, and Futures (S1/E5)

S1/E5: The Digital Markets Act and the new notion of Gatekeepers

In this episode and the next, we’ll talk about a set of very recent twin EU legislations: The Digital Markets Act and the Digital Services Act, which also have a large impact on the Software Industry, more specifically on the so-called Big-Tech and their relationships with consumers and competitors.

The Digital Markets Act (DMA) came into force on 1 November 2022, aiming to regulate digital markets and platforms in the European Union (EU) to ensure fair competition and protect consumers. The DMA focuses on the regulation of so-called "gatekeeper" platforms, which are understood as companies that have a significant impact on the online marketplace and are considered to have "strategic market status" in the provision of core platform services. Its overall aim is that software developers and companies are able to compete on a level playing field and that consumers have access to a wide range of software and services.

The gatekeeper platforms will be subject to new rules and obligations under the DMA, including obligations to be transparent and to allow fair competition. Gatekeepers are roughly defined as follows.

They:

  • have a strong economic position, significant impact on the internal market and are active in multiple EU countries;
  • have a strong intermediation position, meaning that they link a large user base to a large number of businesses;
  • have (or are about to have) an entrenched and durable position in the market.

As one would expect, the legislation contains objective indicators for a company to assess whether it has a gatekeeper status or not. They are described below and are to be taken as cumulative.

  • A size that impacts the internal market: this is presumed to be the case if the company achieves an annual turnover in the European Economic Area equal to or above €7.5 billion in each of the last three financial years, or where its average market capitalisation or equivalent fair market value amounted to at least €75 billion in the last financial year, and it provides a core platform service in at least three Member States;
  • The control of an important gateway for business users towards final consumers: this is presumed to be the case if the company operates a core platform service with more than 45 million monthly active end users, established or located in the EU, and more than 10,000 yearly active business users, established in the EU, in the last financial year;
  • An entrenched and durable position: this is presumed to be the case if the company met the other two criteria in each of the last three financial years.

The designation by the European Commission of the current gatekeepers under the DMA should be complete by mid-August 2023. Examples of core platform services covered by the legislation include search engines, social networks, video sharing, and cloud computing, among others.

It’s easy to see that the software industry will be affected by the DMA in a number of ways. One of the most significant impacts is likely to be on the ability of software developers and companies to access and use the data and services provided by gatekeeper platforms. The DMA includes provisions that require gatekeeper platforms to provide developers and companies with access to certain types of data and services, and to ensure that such access is provided on fair, reasonable, and non-discriminatory terms.

The DMA also includes provisions that require gatekeeper platforms to ensure that they do not engage in anti-competitive practices. This includes provisions that prohibit gatekeeper platforms from engaging in self-preferencing or from discriminating against certain types of software or services. They are also required to be transparent about their algorithms and rankings. These will help to ensure that software developers and companies can reach and engage with consumers in a fair and transparent way.

In more concrete terms, the following are some specific measures proposed in the DMA.

While gatekeepers shall:

  • allow third parties to inter-operate with the gatekeeper’s own services in certain specific situations;
  • allow their business users to access the data that they generate in their use of the gatekeeper’s platform;
  • provide companies advertising on their platform with the tools and information necessary for advertisers and publishers to carry out their own independent verification of their advertisements hosted by the gatekeeper;
  • allow their business users to promote their offer and conclude contracts with their customers outside the gatekeeper’s platform.

They shall not:

  • treat services and products offered by the gatekeeper itself more favourably in ranking than similar services or products offered by third parties on the gatekeeper's platform;
  • prevent consumers from linking up to businesses outside their platforms;
  • prevent users from un-installing any pre-installed software or app if they wish so;
  • track end users outside of the gatekeepers' core platform service for the purpose of targeted advertising, without effective consent having been granted.

In order to persuade companies to be compliant, the DMA comes with fines of up to 10% of the company’s total worldwide annual turnover, or up to 20% in the event of repeated infringements. In addition, periodic penalty payments of up to 5% of the average daily turnover are also possible.

Given all this, I think that the EU Digital Markets Act is likely to have a significant impact on the Software Industry, mainly because it will help ensuring that software developers and companies can access and use the data and services provided by gatekeeper platforms on fair, reasonable, and non-discriminatory terms, opening avenues for innovative services and applications. Furthermore, the DMA will try and establish a level playing field, where software developers and companies can compete, giving consumers access to a wider range of software and services.

Therefore, it's important for software companies to be prepared for the changes that the DMA brings, and to understand the new rules and obligations that will be imposed on gatekeeper platforms. Innovation ecosystems should also be aware of the opportunities that the DMA may create for them, such as new market opportunities and access to new data and services. With the right approach, the Software Industry can take advantage of the DMA to foster innovation and growth and to better serve the needs of consumers.

I hope this episode served to give you a glimpse of what the DMA is. In the next episode I will try and explain its twin, the Digital Services Act.

 

Keep an eye at this space!

 

 

[This blog series is inspired by research work that is or was partially supported by the European research projects CyberSec4Europe (H2020 GA 830929), LeADS (H2020 GA 956562), and DUCA (Horizon Europe GA 101086308), and the CNRS International Research Network EU-CHECK.]

 

Afonso Ferreira

CNRS - France

Digital Skippers Europe (DS-Europe)