Publication 29 March 2021

Digital Markets Act: A revolution or a legal contradiction?

AUTHORS

  • Jennyfer Chrétien General Director, Renaissance Numérique

  • Henri Isaac President, Renaissance Numérique

The draft European legislation on digital markets, the Digital Markets Act (DMA), raises questions. From a legal point of view, the text as it stands appears to constitute a break with the construction of European Union law in many respects, and could, as such, create a precedent undermining the principle of legal certainty. From an economic point of view, the proposed measures question the robustness of the definition of the targeted problems, as well as the understanding of the business models of the concerned actors, and the consequences that they could have for innovation within the European single market. In this note, Renaissance Numérique proposes an analysis aimed at feeding the upcoming debates.

A novel construction, which raises the question of legal stability

The novel way in which the DMA is built, between sectoral regulation and competition law, raises questions about its legitimacy and effectiveness. Presented on the basis of the single market, the text seems to address an issue of a different nature: competition law, i.e. the behaviour of private companies. The DMA offers a reversal of perspective in relation to competition law: here the regulator does not start from a market failure, and then propose a remedy to resolve this failure. It presupposes that the power of the actor constitutes in itself a market failure. In other words, it establishes a system of presumption of impairment of the functioning of markets.

Margrethe Vestager

Vice-president of the European Commission, in L’Agefi, 4 February 2021

“We also want to build better digital markets and the Digital Markets Act is a good example of the way in which competition law and regulation can complement each other to keep markets open.”

As such, the major concepts on which this new regulation is based are defined in a rather imprecise manner, whether it be the “gatekeepers” or the “core platform services” concerned. General remedies are deduced from vague criteria for designating digital platforms and the activities concerned, which leads to a breach of equality before the law. Furthermore, the text introduces revision mechanisms that leave a lot of room for interpretation and, consequently, offer little legal stability to actors.

RECOMMENDATION

As the text stands, Renaissance Numérique calls for a reflection on the impact this new architecture of European law could have on other economic sectors, if this approach were to be extended beyond the digital sphere.

A problematic separation of powers and distribution of competences

The text also raises questions about the separation of powers of the institutions of the European Union. Indeed, there may be a confusion of roles in the legal chain when the same body, in this case the European Commission, participates in the definition of the rule, investigates any violation of the rule, determines the sanction and then adapts it. Similarly, the text does not address the articulation with national competition authorities, the network logic, and the issues of overlap of the various European texts framing digital services.

Presented as a common legislative package aimed at regulating digital platforms, the parallel introduction of the legislation on digital markets (the DMA) and of the legislation on digital services (the Digital Services Act, or DSA) raises a question of articulation. These texts are based on two different approaches when it comes to coordinating regulators and on different definitions of the same actors.

RECOMMENDATION

For Renaissance Numérique, this new regulation should be an opportunity to think about an extended collaboration between European regulators, taking advantage of existing skills.

Particularly narrow procedural guarantees

As it stands, the procedural elements introduced are restricted and are confined to a bilateral dialogue between the European Commission and the “gatekeepers”. As a result, this legislative proposal departs from the foundations of telecoms market regulation and the competition law on which it is based, which rely on an open dialogue with stakeholders.

RECOMMENDATION

Renaissance Numérique questions the reasons why the Commission did not include these procedures in their entirety and regrets the weakness of the text in terms of dispute settlement.

This question is all the more important as the text promotes a principle of ex ante regulation and the obligations mentioned call for technical specifications which implementation require an in-depth dialogue.

A difficulty in understanding the business models of the digital economy

From an economic point of view, the understanding of business models requires greater precision than that offered by the legislative proposal. The remedies envisaged by the text often lead to a significant change in the business model of the digital platforms concerned – this is particularly the case for marketplaces and application stores.

As regards the online advertising market, the transparency required on the price paid by the advertiser and the remuneration of the publisher is welcome. However, this may not be enough to develop competition in this sector. Renaissance Numérique therefore calls for further reflection on real time regulation. Moreover, regulation is based on an ex ante thresholds logic, and entails risks for the dynamics of European startups, which should be anticipated. Transactions (such as certain acquisitions) could be blocked by the European Commission, which would constitute a loss of opportunity for startups wishing to be acquired. Moreover, establishing a principle of ex ante regulation requires an open dialogue with stakeholders.

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