The EU’s Digital Markets Act (DMA) will come into effect March 7, forcing a handful of digital platforms to change their market conduct in some unprecedented ways. The law effectively judges them guilty (with a very limited, formalistic trial), and brands them “gatekeepers” based purely on size. It then sentences them to far-reaching, one-size-fits-all antitrust-style remedies in pursuit of the stated objectives of “fairness” and “contestability.” We’ll soon begin to see what that looks like in practice, and whether innocent conduct will be caught in the crossfire.
Under competition law, even dominant companies are presumed innocent; bigness alone is not a crime. Almost any kind of business conduct can potentially be justified if it can be proven to lower price, increase output, or improve quality for consumers. Yet the DMA’s per se approach removes these important safeguards ensuring that pro-competitive, value-creating, and welfare-enhancing behaviors can continue. While other technology companies—even those with proven market power—can still justify such conduct on pro-competitive grounds, designated gatekeepers cannot (except on narrow grounds of security).
The DMA creates a two-tiered legal regime in which some digital companies—that is, those not subject to the DMA—are “more equal” than others. If applied too strictly, a host of pro-competitive conduct will be prohibited. Companies that benefit from the existing digital ecosystems efficiencies and network effects will lose out, as will consumers. But why is that the law, and can these negative outcomes be avoided?
Inequality Before the Law
Proponents of the DMA say that it’s not about targeting large U.S. technology companies, but you wouldn’t know that from looking at the list of designated core platform services (five out of the six designated companies are from the United States, and none is from the EU). The conduct of concern is largely the same as that already covered by competition law, and the obligations to be imposed are modeled on competition enforcement, with some based on ongoing investigations (or those still subject to judicial review). There is, however, no effects-based analysis or case-by-case assessment for application of the DMA. The Commission’s projections on what this will mean economically are shaky at best.
The Commission itself admits that, for some of the DMA’s interventions, “there is no decision or judgment confirming its effects on the market” (at para. 155), and those intimately familiar with the law’s details note that the DMA “also covers practices that have not been yet the subject of antitrust investigations in the EU or any of its Member States.” Unlike competition law, however, these novel obligations do not apply to all dominant companies—only those labeled as “gatekeepers.”
These rules are already forcing the designated platform owners to redesign their products and services, reducing their quality and exposing them to vulnerabilities. While the conduct has not been found illegal in Court, the defendants (and their users) will be punished and cannot appeal either on grounds of lacking a theory of harm or on efficiencies, because the latter are not cognizable. They will be forced to relinquish their technology, infrastructure, and—in some cases—trade secrets and intellectual property to their rivals “with the overall aim of ensuring the contestability of gatekeepers’ digital services”.
European policymakers like to present the DMA as, in effect, an embodiment of the adage from Spider-Man’s Uncle Ben that “with great power comes great responsibility.” But all companies have a responsibility to follow the law and, under antitrust law, all companies are prohibited from restricting competition.
Importantly, the DMA goes a step further. If taken literally, it treats these companies like state-owned public utilities, directed by the regulator to pursue a particular form of European industrial policy. Instead of competition law’s focus on consumer welfare, gatekeepers’ products and services will be geared towards “contestability” and the European Commission’s particular notions of “fairness.” Unlike all other companies built on private investment, successful risk taking, investment, ingenuity, and hard work, these designated companies could be tasked by the regulator to pursue an ever-moving series of goalposts, with no defenses in sight.
No Harm, No Defenses
In competition cases, enforcers must not only show harm, but also afford the defendants a chance to provide defenses. Defendants can argue that their behavior was pro-competitive; that it led, on balance, to increased competition and improved consumer welfare; or that it lowered prices or led to increased quality or innovation. Dominant platforms who engage in the same kind of anticompetitive conduct that is prohibited (for gatekeepers) by the DMA will continue to have the right to defend themselves on these grounds — for conduct that is essentially the same as that covered by the DMA (self-preferencing, lack of interoperability, use of nonpublic third-party data, anti-steering provisions, MFNs, etc).
But under the DMA, designated gatekeepers do not have the right to defend themselves on these same grounds. This goes against the recommendation of experts, who recognize that the conduct in question can be pro-competitive and should not be prohibited per se. Even the DMA-modeled regulatory proposals of some U.S. lawmakers have added “affirmative defenses,” while the UK’s Digital Markets Competition and Consumers Bill contains a “countervailing benefits exemption” that at least theoretically looks at consumer welfare, so that companies have a chance to prove their innocence, and compete fairly on the market.
The lack of pro-competitive defenses in Europe under the DMA means that there is a very real risk that some of the law’s provisions could end up prohibiting procompetitive conduct when applied in the wrong context.
International Antitrust Reform?
Legislators around the world have been considering their own models of antitrust reform, and how best to address the enforcement challenges posed by the digital industrial revolution. But there shouldn’t be a debate on whether antitrust reform includes basic legal pillars like the right of defense or judicial review, or whether the law ought to unfairly target specific companies with a different legal standard. Punishing companies’ market conduct without proof of harm, and instrumentalizing them to achieve certain market outcomes without consideration of competitive effects or consumer welfare, is not a sound basis for reform.
The DMA was first mooted as a reform updating antitrust law to address existing flaws. The explosion of new enforcement actions in the digital sector might itself be sufficient to show that evolution of the existing tools can make reform itself unnecessary.
Then why do we have the DMA? There’s a saying that “the purpose of a system is what it does.” To put it plainly, the DMA removes legal protections from a handful of large technology companies in order to apply far-reaching economic interventions that go beyond existing competition-law precedents.
European stakeholders rightfully take umbrage with foreign governments who would punish European companies arbitrarily and without rights of defense. U.S. lawmakers do, as well, and this unified front helps ensure that open-market economies can continue to deal on fair terms when trading abroad. The EU benefits greatly from this, and yet has created these new rules that could force leading U.S. tech firms to subsidize European rivals for their services (and potentially pay for the privilege, as well).
This can hardly be seen as “fair.” But it is a reality that, unless European policymakers find some limiting principles for the DMA, they could soon find European champions facing similar difficulties abroad.
Conclusion
The DMA is law and it must be enforced. There is, however, room in the enforcement regime to take account of “the specific circumstances of the gatekeeper” (Article 8(3)). Moreover, proportionality is a general principle of European law. There is room to avoid the worst outcomes and to ensure that, in practice, the DMA promotes consumer welfare, innovation, and value creation. Some of the conduct prohibited by the DMA will inevitably be beneficial and should be permitted.
There is a lot of commentary suggesting guiding principles that could limit unintended consequences. The question remains whether the Commission will do a thorough investigation and to reflect before enforcing changes that could have harmful consequences. After all, with great power comes great responsibility, and the greatest power is the power of governments.
