This blogpost is part of a series of short commentaries on the European Commission’s proposals for a Digital Markets Act and a Digital Services Act, released on 15 December 2020. Stay tuned for more.
Competition law enforcement takes too long
The Commission has heavily fined large technology companies for breach of competition rules in recent years. However, it is common ground that the protection of competition in the digital sector is at risk. There are gaps in the existing rules, but one of the main difficulties is the fast-changing pace of digital markets which is at odds with the time it takes to complete case-by-case full-fledged investigations.
Cases that take years to decide risk being all for naught if the practices harm competition in an irreparable manner while the investigation is ongoing. However, streamlining investigations in the digital sector is not easy. Cases tend to raise new and complex issues and the authorities always need to gather solid evidence to prove that the rules have been breached and follow due process.
Preventing irreparable harm through interim measures?
The imposition of interim measures can be used to intervene early in competition cases, but this has rarely been done. The Commission has nevertheless recently emphasised that it will make better use of this possibility in the digital sector. Interim measures allow the Commission to intervene before the end of the investigation (i) based on a ‘prima facie/at first sight’ conclusion that the rules have been breached and (ii) where there is a risk of serious and irreparable damage to competition.
In 2019, after almost 20 years without using its power, the Commission imposed interim measures on the world leader in the supply of chipsets for TV set-top boxes and modems (Broadcom). Even though the case was simple (on exclusive or quasi-exclusive purchasing obligations) and the interim measures imposed straightforward (cease applying certain contractual provisions), the decision still followed a 1-year investigation. In the rapidly changing digital sector this timeframe is clearly not satisfactory. The question whether the conditions to apply interim measures should be relaxed to speed-up intervention is a much-debated ongoing topic.
Initiative for a new competition tool
One of the reasons underlying the Commission’s first drafts for new rules (from June 2020) was the desire to protect competition in a timely fashion. These drafts did not target digital markets alone. Yet, the digitalisation of society and economy, the role played by a few large online platforms, together with the prevalent characteristics of digital markets, were central to the proposals. The drafts identified that structural problems for competition arise from a combination of how these markets work, their oligopolistic nature, and the behaviour of the companies.
A new tool was therefore envisaged: following a thorough investigation into the market behavioural or structural remedies could be imposed, without the need to establish that the companies were guilty of wrongdoing or the application of sanctions. This new tool would for sure allow new forms of intervention. However, its unspecified scope together with the complex analysis that it would involve still made it unclear whether the goal of prompting intervening in digital markets would be achieved.
Requirements for gatekeepers under the DMA
These first drafts (June 2020) also addressed specific concerns with online platform ecosystems. An ex ante regulatory instrument for large online platforms benefiting from significant network effects and acting as gatekeepers was proposed. The final proposed DMA (of December 2020) ultimately integrates key elements of the new competition tool into a narrower legal framework for digital platforms. Still present is the idea of a new enforcement mechanism – market investigations – which leads to firms being designated as gatekeepers.
Gatekeepers have obligations intended to tackle unfair business practices and weak contestability in the digital sector. The Commission may exempt them from their obligations but only for public interest reasons. Also based on market investigations, gatekeepers’ obligations will be regularly updated and systematic non-compliance may bring about the imposition of behavioural or structural remedies. In addition to laying down a list of clear requirements for gatekeepers, the DMA sets out time limits for market investigations, enables interim action based on provisional analysis and allows the Commission to accept promises from the gatekeeping companies to modify their behaviour.
What to expect
The DMA’s new set of rules draws inspiration from the EU’s Services Directive. This directive also includes a list of prohibited actions (by Member States) with the view of removing complex case-by-case examination and ensuring the systematic and swift removal of practices adversely affecting the proper functioning of the internal market. The Court of Justice of the EU has acknowledged that this short-cut is legitimate (Rina Services case). The Court’s position eases possible concerns in that the DMA would illegitimately strip gatekeepers of the possibility to advance arguments to justify their behaviour that they could otherwise invoke under existing competition rules.
Of course, a set of clear obligations enables action against gatekeepers to be taken quicker than the alternative: application of broader competition rules and tools that, in recent decades, have been heavily relying on complex time-consuming effects-based analysis and economic evidence, overshadowed by the fear of wrongly upsetting the invisible hand at work in the markets. Clear obligations also make a ‘prima facie’ case of non-compliance easier to establish and therefore facilitate early intervention by means of interim measures.
However, in the rapidly changing digital world flexibility is key. Any set of rules should be capable of constantly and quickly evolving to tackle new realities and behaviours. The success of the DMA will therefore very much depend on the ability of the Commission to use robustly the new system of market investigations. As it currently stands, the DMA limits interim action to possible non-compliance decisions, but its goal would be greatly boosted if it would follow a reform that has been proposed in the UK and allow for the possibility to impose interim measures during the course of market investigations.