The DMA Enforcer Playbook: Recommendations for Effective Enforcement
The upcoming enforcement phase of the EU’s new Digital Markets Act (DMA) will put this high-profile regulation to its first real test. The DMA’s main provisions officially entered into force on 2 May. This means that in the next few months, some of the largest tech companies will officially be designated as so-called “gatekeepers” by the EU.
These companies will then have to make changes to their digital services and products by March 2024 in order to comply with the DMA’s prohibitions and obligations. To ensure the DMA also fully serves the interests of Europeans, and doesn’t merely function as an extra layer of red tape, there are three key recommendations that enforcers at the European Commission should carefully consider.
1.) Unlocking the code to clarity
In practice, compliance means much effort and costs for the targeted companies, as they are now scrambling to adapt their products and services to the new rules. Business users of products provided by large tech companies, as well as others who seek to benefit from the DMA’s access provisions, will also need to adapt their business models to the changes in the tools they use. Evidently, this will not be a walk in the park.
In adapting digital services and products to what is prescribed by the DMA, the challenge lies in understanding what really constitutes “contestability” and “fairness”, the two objectives of the DMA. If we look at recital 32 of the DMA, “contestability should relate to the ability of undertakings to effectively overcome barriers to entry and expansion and challenge the gatekeeper on the merits of their products and services.” Unfairness “should relate to an imbalance between the rights and obligations of business users where the gatekeeper obtains a disproportionate advantage.”
These two concepts are supposed to be at the heart of any DMA compliance solutions, but the European Commission still has to clarify what they actually would mean in practice. It is also not clear how the success of those efforts will be measured, especially given the dynamism of the digital sector – with constant changes and new technologies emerging at an increasingly rapid pace. If the way how these factors are measured is not clarified before March 2024, this would have a severe impact on the functioning of the EU’s digital market and ultimately disadvantage businesses and consumers in Europe at large.
For example, without clarity on what exactly constitutes fairness and contestability, companies designated as gatekeepers could feel obliged to introduce changes to their services going way further than what actually is required by the DMA – simply because clear guidance is lacking, and despite negative consequences for the user experience. Such “overcompliance” would without a doubt increase the cost of those services, slow down innovation, and degrade the quality of consumer-facing services.
Indeed, for effective compliance it is essential that the European Commission clarifies how each of the DMA’s prohibitions and obligations will apply in the specific circumstances of each digital service subject to the new rules. Likewise, the Commission should ensure that this assessment is done in a fair, transparent, and non-discriminatory way.
2.) Striking a balance: proportionality in DMA enforcement
Any enforcement action based on the DMA should respect the key EU principle of proportionality. That is, enforcement should not go beyond what is strictly necessary to achieve the goals of the DMA. Why does this matter you might wonder? Well, overzealous enforcement could harm the competitiveness of digital markets. That, in turn, would lead to higher prices, lower quality of services, less innovation, and reduced consumer choice.
To prevent that from happening, when enforcing the DMA, the Commission should consider the compliance efforts of gatekeeper-designated companies, as well as the characteristics of their products and services, and the specific circumstances in which respective product or service is provided.
Moreover, the EU executive should check a company’s respective compliance efforts not only against the DMA’s objectives, but also other EU policy and regulatory goals. Think, for example, of undistorted competition, the preservation of an open market economy with free competition favouring an efficient allocation of resources, privacy, security, safety, intellectual property, freedom to contract, freedom to conduct a business, and so on.
3.) Avoiding parallel enforcement
The DMA is a new addition to an existing pool of EU and national laws with similar objectives. Article 37(1) of the DMA states that the Commission and Member States should ensure that all these laws are applied to the companies designated as the gatekeepers under the DMA in a complimentary manner. In other words, Member States may not prohibit or mandate conduct already covered by the DMA – or worse, impose contradictory requirements for companies operating in what is supposed to be a single European market.
Such fragmentation could increase the cost and complexity of doing business in Europe, and lead to higher prices and degraded services for consumers. It would also make it more difficult for companies to enter new markets, thus reducing competition and consumer convenience. For consumers, fragmentation of the single market also means a lower availability of products and services across borders, leading again to reduced choice and increased prices.
That is why the European Commission and the National Competition Authorities (NCAs) should seamlessly cooperate and coordinate their enforcement actions. It is key to avoid parallel enforcement. This may sound obvious, but will require a strong commitment once enforcement starts.
Putting the playbook into practice
In conclusion, the enforcement phase of the Digital Markets Act puts not only the impacted companies to the test, but also the overall reputation of the DMA. To ensure that the DMA fully serves the interests of European businesses and consumers, some work still remains to be done with regard to enforcement.
First, there is an urgent need to clarify what exactly constitutes “contestability” and “fairness” – otherwise it’s going to be very difficult for companies to effectively comply. Second, enforcement of the DMA should be proportionate, taking into account the compliance efforts of the companies subject to the new law, as well as the specific circumstances of their respective digital products and services.
Finally, it is essential that the Commission and NCAs cooperate and coordinate their enforcement actions to prevent fragmentation of the single market. The higher the level of harmonisation in this respect, the lower the chance of negative impacts on European consumers and business users of regulated services. Only once these key challenges are properly addressed, will the DMA truly have the potential to create a fairer and more contestable digital market in Europe.