Updated Guidance to the EU’s Digital Markets Act

The shared goal of the European Commission (EC) Digital Markets Act (DMA) and Digital Services Act (DSA) is to transform how digital content is ranked, advertised, and removed with the aim of restricting the monopoly held by large multinationals in the digital space. Tech companies such as Google, Amazon, Facebook, and Apple (GAFA) operating in the European Union (EU) will have to follow a new set of rules that will apply to all digital services, including social media, online marketplaces, and other online platforms. For pharmaceutical companies and digital therapeutic manufacturers, this would affect how products are digitally marketed and advertised, and the management of personal data sourced from a core platform which falls under the remit of Article 5(a) which “prohibits combining personal data sourced from a core platform service with data from other services offered by the gatekeeper or from third-party services” (1).

The legislative proposal was submitted by the EC to the European Parliament and to the Council of the EU on 15 Dec. 2020. Together with the DSA, the DMA is part of the European Digital Strategy entitled “Shaping Europe’s Digital Future” (2). This proposal is not expected to be implemented until 2023, as it must be approved by the European Parliament and Council.

Digital Markets Act

The DMA is a legislative proposal designed to place significant obligations on the largest tech companies operating in the EU. The aim of the legislation is to create a fairer business environment and to encourage competition by allowing new players to enter the market. The DMA covers eight different sectors that are referred to as ‘core platform services’ that include:

• online intermediation services
• online search engines
• online social networking services
• video-sharing platform services
• number-independent interpersonal communication services

• operating systems
• cloud computing services
• advertising services offered by a provider of any of the other core platform services (3).

The EC views that these services are characterised by “extreme scale economies that result from nearly zero marginal costs to add users, a significant degree of user lock-in and dependency, and data driven advantages” (4). From the EC’s perspective, this has allowed a small number of large tech companies to wield considerable economic power, thereby assuming the role of ‘gatekeepers’ that determine how smaller companies engage with online consumers.

Under the proposed rules, business users must be granted access to any data they generate when using the gatekeeper’s platform; while companies advertising on the gatekeeper’s platform will have the legal right to access tools and information to conduct independent verification of their ads and will be allowed to manage contracts with customers outside of that platform (3). In addition, gatekeeper platforms will not be allowed to ‘self-preference’, which means ranking their own services more favourably than similar services offered by third parties. Furthermore, gatekeepers will also be prohibited from preventing customers from linking to other businesses outside of their platforms or prevent users from removing any pre-installed software or apps.

The DMA designates gatekeepers using qualitative criteria as well as quantitative criteria. Qualitative criteria are laid down in Article 3(1) of the DMA, while quantitative criteria are presented in Article 3(2). In terms of quantitative criteria, two broad tests are used to identify gatekeepers:

Size of undertaking test: This includes any company providing (a) core services in at least three EU member states; (b) has earned European revenues of more than €6.5 billion in the last three financial years, or which has an average market capitalisation of at least €65 billion; and

Core platform service test: the relevant core platform service has 45 million monthly active end users in the EU and more than 10,000 yearly active business users in the last three years (5).

Companies that meet any of the above criteria can be deemed a gatekeeper as it enjoys an “entrenched and durable market position, either at present or in the foreseeable future” (6). However, the EC may also designate as gatekeeper a company that does not meet all these quantitative thresholds but poses similar risks to the fairness of the market, based on a qualitative assessment. The intention of the DMA is that the regulation will apply to such gatekeepers, where the users of their services are established or located in the EU. According to de Streel, given the fast-paced nature of the internet economy, these obligations would apply ‘ex-ante’ instead of ‘ex-post’, which is usually the case with competition policy (7).

Digital Services Act

The DSA has a much broader scope than the DMA and is aimed at updating the EC’s e-Commerce Directive of 2000 by introducing new rules and enhanced responsibilities for online intermediaries and platforms regarding content, safety of users online, audit, reporting, traceability, and transparency requirements for all digital providers, as well as certain specific rules for very large online platforms (1). Under the terms of the DSA, the largest organizations (i.e., those that reach more than 10% of 450 million consumers in Europe) will be required to give regulators and external groups greater access to internal data. The DSA will “uphold exemptions from liability enshrined in the e-Commerce Directive, but will impose new due diligence obligations, transparency requirements and establish an EU-wide board for digital regulators” (4). While the DMA focuses on the competitive conduct of digital intermediaries, the DSA aims to regulate the way in which they interact with their customers, with obligations towards preventing the dissemination of harmful or illegal content.

Updated guidance

On 23 Nov. 2021, the DMA legislative proposal was endorsed with an overwhelming majority by the European Parliament’s Committee on the Internal Market and Consumer Protection (IMCO), which was to be later voted on in the December plenary session. While the quantitative thresholds were increased slightly (rising to €8 billion in annual turnover in the European Economic Area [EEA] and a market capitalisation of €80 billion), the number of digital markets considered was kept to just one (8). The involvement of national competition authorities was also enhanced, as these legislative bodies are viewed as vital sources of advice to the EC, and which will contribute to future investigations. In addition, the list of digital markets was also extended to include connected TVs, virtual assistants, and web browsers.

The legislation was also amended to include additional rules on the use of data for targeted or micro-targeted advertising except in instances where there is a “clear, explicit, renewed, informed consent”, in line with the General Data Protection Regulation (GDPR) (8). Furthermore, the updated guidance prohibits the use of personal data of children from being processed for commercial purposes under any circumstances. This stipulation is also mirrored in the DMA’s sister legislation, the DSA. Other fundamental additions to the DMA were provisions against “killer acquisitions”, which would be employed in cases of systematic non-compliance. In such instances, the commission would temporarily block takeovers of relevant companies. The fines for systematic non-compliance have been made harsher, with the minimum set at 4% of a company’s annual turnover and the maximum doubled to 20% (9).

The approved text will become parliament’s mandate for negotiations with EU governments, planned to commence under the French presidency of the council in early 2022. The council of the EU has also confirmed its negotiating position on the DSA, a parallel proposal to the DMA intended to regulate illegal content and algorithms online.

Impact of the DMA on business

The DMA heralds a shift by the EC to a more interventionist regulatory stance by allowing the commission to impose prescriptive rules regulating the conduct of the largest tech firms simply by virtue of their market position (Table I). More importantly, the DMA is also serving to create another important tool in the EU’s regulatory landscape, following in the example of the GDPR legislation that was formulated in 2018. Although the scope of the DMA at this stage is to some extent relatively narrow, as it is designed to capture only the largest players in the market, smaller businesses may expect to reap the benefits of some of the measures in favour of transparency and competition, as well as gain greater rights and bargaining power vis-a-vis gatekeeper firms (3). In the healthcare domain, companies that act as gatekeepers in the life sciences and digital therapeutics sectors will also be impacted. This is especially relevant in areas relating to Big Data, the creation of digital tools designed to support research and better patient care, and digital marketing.

References

1. Talking Tech, “EU Digital Services Act and Digital Markets Act: What are the Implications?” Clifford Chance International, Expert Briefing, 21 Jan. 2021.
2. EC, Shaping Europe’s Digital Future: The Digital Services Act Package (last updated on 21 Oct. 2021).
3. J. Peters, “The EU’s Proposed Digital Markets Act,” Fieldfisher, Competition and Consumer Insight Blog, 23 July 2021.
4. L. Ardill, “Details of the Digital Services Act Revealed,” Silicon Republic, Article, 15 Dec. 2020.
5. W. Leslie, L. Prompers, and A. Michailidou, “The European Commission’s Digital Markets Act Proposal: Regulating Systemically Important Digital Platforms,” Linklaters, Article, 18 Dec. 2020.
6. A. Portuese, “The Digital Markets Act: European Precautionary Antitrust,” Information Technology & Innovation Foundation (ITIF), Report, 24 May 2021.
7. A. de Streel, et al., “The European Proposal for a Digital Markets Act: A First Assessment,” Centre on Regulation in Europe (CERRE), Assessment Paper, 19 Jan. 2021.
8. Pinsent Masons LLP, “EU Parliament Prepares for Vote on Digital Markets Act,” Out-Law News, 26 Nov. 2021.
9. L. Bertuzzi, “EU Parliament’s Key Committee Adopts Digital Markets Act,” Euractiv, News, 23 Nov. 2021.

About the Author

Bianca Piachaud-Moustakis is lead writer at Pharmavision, Pharmavision.co.uk.

Article Details

Pharmaceutical Technology Europe
Vol. 34, No. 2
February 2022
Pages: 7–8

Citation

When referring to this article, please cite it as B. Piachaud-Moustakis, “Updated Guidance to the EU’s Digital Markets Act,” Pharmaceutical Technology Europe 34 (2) 2022.