Episode 2, Competition Law and Foreign Investment in 2023 – Digital Markets Act

Fiona:
Hello, and welcome to the next episode in our mini-series on anticipated trends in competition law and foreign investment in 2023. My name is Fiona Garside and I'm a Senior Expertise Lawyer in Ashurst's Antitrust, Regulation and Foreign Investment team. I'm delighted to be joined today by Esther Kelly, a partner in our Brussels office, Rafael Baena, a partner our Madrid team, and Gabriele Accardo, a counsel in our Milan office. Thank you all for joining me today.

Rafael:
Hi everybody.

Esther:
Hi Fiona. Great to be here.

Rafael:
Hi Fiona.

Fiona:
Today we're discussing the anticipated impact of the Digital Markets Act, or the DMA. The DMA was formally adopted by the European Parliament and Council in July 2022, and it marks a shift in antitrust enforcement. The DMA contains forward-looking rules to regulate Big Tech, unlike traditional antitrust enforcement, which is backward looking under EU rules. So at a high level, the DMA enables the European Commission to designate large online platforms as gatekeepers and, once designated, these platforms will need to comply with stringent behavioural requirements. So Esther, where do we stand with the DMA and what should we expect in the course of 2023?

Esther:
Thanks, Fiona. So as you say, the DMA officially entered into force late last year and, so, now we are in the first real phase of implementation. From a strictly legal standpoint, this means that the first item is designation of gatekeepers. Platforms are going to need to make submissions about whether they should or should not be designated, and the European Commission will then decide on their designation and, subsequently, there will be additional substantive and procedural rules that really start to bite. This next phase will involve at least a couple of things. First, it's going to be continued progress on the draft accompanying procedural regulation, which had a relatively short consultation period starting in December last year. And secondly, ongoing technical consultations in the form of roundtables.

There's a number of things that are interesting about the DMA, not only from the strict perspective of implementation in digital markets, but more broadly. And the one that really stands out is that the provisions of the DMA are largely premised on the idea that behavioural remedies can work, which is obviously a very hot topic across different sectors at the moment. What we know from experience is that that kind of remedy can work, and it does work in practice, but these remedies are not for the faint-hearted. They require very careful design, and realistically, a significant degree of flexibility in their implementation over time, particularly in tech markets. So the European Commission has wisely acknowledged this point when it comes to the requirements of the DMA, and has planned a series of stakeholder engagement round tables or workshops, as they're being called. The first one happened at the end of last year and covered self-referencing. And so this month and next, that process is going to continue with sessions on interoperability, particularly between messaging services, and then app store related provisions.

The process is, of course, very welcomed from a pragmatic sense but it does have certain limitations from a competition law perspective because there's a limit to what can be shared in public. But interested parties will of course be well advised to participate, but to do so in close collaboration with their advisors. However, realistically, the bulk of discussion is likely to take place behind closed doors, and so those parties that are active in these markets will need to be following a bilateral approach: so both participating in the workshops with the Commission, and also doing their own advocacy in private to the extent that that, for example, relates to business secrets that cannot obviously be discussed in these open forums. There have been countless roundtables and discussions on the topic, I think, in the Brussels market, let's say, and also more broadly. But I think what we will be wise to bear in mind is that this is a deceptively simple document that is intended to apply to a deeply complex industry. And so this year is going to be a period of significant back and forth, both between market actors and regulators. It's really challenging because companies obviously need significant certainty. They have long lead times in order to implement the provisions of the DMA in their code, for example, or in their algorithms. And there are significant fines. So there are challenges, which I think we'll discuss throughout this session, both from a legal certainty perspective and also just from a business one. So this is going to be a really critical phase, and I think we all need to anticipate that this will be an intense year, but it will probably seep over into 2024 in terms of how we get to a point where we're comfortable with what the provisions really mean.

Fiona:
Thanks, Esther. And while the DMA has been working its way through the legislative process, there have been a number of concerns raised about respect for the rights of defence under the DMA. So, as Esther has mentioned, in December, the Commission produced a draft procedural regulation for consultation and that seemed to be intended to assuage some of these concerns. Rafael, what are your thoughts on this?

Rafael:
Thanks, Fiona. There is a long history of case law and the protection of rights of defence under competition law in the EU, with extensive commentary by the EU courts. In this regard, the DMA is an interesting beast because it takes concepts from competition law, but the European Commission has been at pains to emphasise that this is not a competition law instrument. In fact, the EC has designed the DMA as a more flexible tool aimed at capturing any potential risk and to solving problems quickly. And here we may have an issue because the balance between legal certainty, fundamental rights and due procedure on the one hand, and flexible, fair, and agile enforcement on the other, is not easy to get.

The informal approach by the EC with a lot of room for informal conversations and compromise is really challenging from a rule of law perspective. In this context, there is therefore an important question as to how the rise of defence of designated gatekeepers, or companies in the process of being designated as gatekeepers, can be protected, particularly in the context of the very substantial fines that can be imposed under the DMA. So do the draft procedural guidelines address the key concerns? Well, the draft outlines streamlined rights compared to traditional competition law enforcement. For instance, as to documents, gatekeepers access to documents from the file will be limited to those mentioned in the preliminary assessment of the European Commission, not the entire file as is the case under the traditional competition law enforcement. Gatekeepers will get a list of documents not provided and will be able to issue justified requests to access them. So the process of access to documents including the process of agreeing redactions of business secrets of third parties has historically been blamed for the perceived slowness of enforcement in Article 101 and Article 102 cases so it's unsurprising that the Commission would like to streamline this process. However, it seems inevitable that these will reduce gatekeepers access to documents that might favour their position over that of the European Commission. At the end, companies will have to ask for documents when they don't really know what's the content of those documents, and this is challenging.

The second, no hearings. Hearings are important. And in addition, competition law enforcement proceedings, parties have the right to request a hearing. This takes place before, not only, the responsible case team but also before members of the hierarchy and the Hearing Officer. Although views are mixed on whether hearings are always beneficial, they offer an opportunity to present arguments in live format to respond to questions, to expand the audience and to address those who are taking decisions. So, this is another important point, and there is no mention of a Hearing Officer in this procedure, in these procedural rules, so it remains to be seen how this is going to work.

It also remains to be seen what the revised draft will look like, and how respondents have reacted to the relatively short consultation period, which encompassed the end of the year holidays. However, without some concessions on rights of defence, it doesn't seem impossible that the European Commission will find itself with more litigation than might otherwise have been the case, by both gatekeepers and interested third parties. After all, the rights of defence protect the parties' interests, but respect for the rules also protects the Commission, to some extent, against cumbersome appeal procedures.

Fiona:
Thanks, Rafa. And speaking of litigation and challenges to European Commission decisions, Esther, how do you see that evolving under the DMA?

Esther:
It seems really hard to imagine that the DMA will not unleash a new wave of litigation at some point. The question is probably when that will really get underway in earnest. There are so many potential bases for challenge. First of all against designation decisions: so companies may feel that they are designated when they should not have been. Secondly, I think as Rafa says, there's significant potential for appeal against issues related to procedural rights. Then there are third parties or companies that were not designated, but wish that their rivals or counterparties had been. And then there is a higher level challenge that we might need to anticipate, which is, to the very legal basis of the Act itself, which is not uncontroversial.

And as we go, I think we would be unwise to suppose that there will not be challenges based on the respect or not of the so-called dos or don'ts in the Act itself; not only the Commission, but the third parties may be interested in that. So it's going to be challenging for companies in the digital sector and their advisors, particularly in challenging, economic times, which we may be facing in the coming years. There will be a choice about allocation of resources between challenge and compliance, and that will increasingly be the case since, as we are given to understand by the authorities, it's not because we have the DMA that there will not continue to be significant competition enforcement under the traditional rules.

Fiona:
Thanks, Esther. So far, we've been focusing on the DMA today and therefore looking at enforcement at an EU level, but competition law is an area where there's enforcement at both the EU and national level. Rafa, how do you see the DMA impacting national enforcement in this space?

Rafael:
Well, there will certainly continue to be a role for national enforcement in digital markets, even after the DMA. First, although some voices from the Commission mentioned that the DMA will be prioritised over antitrust enforcement in particular as regards Article 102 on abuse of dominance, let's not forget that the digital sector is not only about gatekeepers. There will continue to be merger control cases, potential abuse cases, potential for coordination and so on. Second, even when it comes to the DMA, national authorities may continue to play an important role, and we have seen some of them very active against antitrust infringement by digital behemoths. The question is then, what will that role be, and how will the various national authorities interpret it?

There is an obvious challenge in terms of resources that the commission is going to face in the next year or so. Between the DMA, the Foreign Subsidies Regulation, and a generally heavy workload that is ongoing, staffing is going to be a challenge for the Commission, and experience national authorities are a natural resource that is already there, and which might support the Commission. In fact, the DMA itself allows national competition authorities to investigate potential infringement of the new rules, although the final decision will always be taken by the Commission, which makes sense in terms of consistency. Therefore, in the current uncertain context, it is likely that the role of the national competition authorities may be important in detecting potential infringements, in gathering evidence for the Commission's investigations, in monitoring enforcement and national level, and in enforcing competition law.

Additionally, the role of national competition authorities may also be relevant as regards to the evolution of the Digital Markets Act, as the decision making process for market investigations may be open to the active contribution, and to constructive inter-agency debate. And finally, Member States are also passing new national legislation, which, if not inspired by the DMA, addresses the same kind of problems when the companies do not operate in three or more EU member states and these will require more dialogue and coordination at agency level.

Fiona:
Thanks, Rafa. So clearly still an important role for national authorities to enforce competition law in digital markets. And Gabriele, the Italian competition authority has already shown a strong interest in digital issues. What insights can you share from the Italian market?

Gabriele:
Absolutely, I would echo what Rafa just said. And in fact, the Italian competition authority is among the NCAs that will certainly continue to play a very active role in digital markets. Well, the following three indicators may confirm this trend. First, the ICA has a track record of six antitrust cases against the large digital platforms. Secondly, in 2021, the Italian competition authority has actually requested the Italian Parliament to pass legislation, providing new enforcement powers to tackle conducts by digital platforms. Notably first, an entirely new toolbox akin to the DMA, including a designation procedure. And secondly, a strengthened set of powers in relation to abuse of economic dependence conducts. In fact, some of these powers have actually been introduced in 2022 by the Italian Parliament, with the annual law on competition. And the third hint is actually that, as of 1 January 2023, the Italian competition authority has a new competition director for digital platforms and communications.

So with that in mind, to consider now, in terms of new tools, the Italian Parliament, while it refrained from duplicating the DMA at national level, however, it has tasked the ICA with new enforcement powers under the abuse of economic dependence rules. It is worth recalling that economic dependence arises when one party to a contract is in a position of strength compared to the other party. Now, the new legislation has introduced two key changes. First, a rebuttable presumption that business users are economically dependent on digital platforms, in cases where the platform acts as a key gateway for business users to reach their customers or suppliers: for instance, in terms of network effects or data availability. Secondly, the law has introduced a non-exhaustive list of potentially abusive practices by these digital platforms, including providing insufficient information or data on the scope or quality of the service offered through the platform, requesting undue unilateral services that are not justified by the nature or content of the activity and, thirdly, adopting practices that inhibit or impede multi-homing, including through the application of unilateral conditions or additional costs not provided for in the contractual agreements or in existing licences. So it will be interesting to see how the Italian competition authority will apply the new rules in practice. For instance, one may wonder, and I guess businesses could wonder, which platforms will be subject to such rules, and obviously, the presumption of economic dependence. Also, whether the ICA will expand the list of conducts beyond the ones that I mentioned, for instance, including enforcement against interoperability or data portability conducts, which, in fact, were in the wish list that the Italian competition authority indicated to the Parliament in the first place.

However, the law introducing such new powers, also provides that the President of the Council of Ministries (with the Ministry of Justice and in cooperation with the Italian competition authority) may adopt specific guidelines to facilitate the application of these new rules, and in particular, with the goal of preventing litigation and actually promoting best practices. So clearly the AGCM, the Italian competition authority, has to take the lead on this, and it will be important to understand whether and when such guidance will be provided. And in that respect, obviously, public debate or a consultation with stakeholders will be very welcome and helpful.

Fiona:
Thanks, Gabriele. A lot to keep an eye on in Italy as well then. Now Esther, as both Rafa and Gabriele have mentioned, the DMA doesn't replace traditional competition law enforcement. So what trends do you anticipate seeing in this space in the next year or so?

Esther:
Indeed, so competition law and the DMA will continue to co-exist, and I see two large challenges, not to simplify too much in this respect. The first point I think is that, as Olivier Guersent has confirmed, the DMA and competition law will not be mutually exclusive and so the following 18 months will continue to see probes against a number of tech companies. The hope on the side of the European Commission seems to be to wrap up several of them before the DMA fully enters into force, but they still anticipate the competition law enforcement will continue. That's natural because as Rafa said, competition law is not only applicable to gatekeepers, and there are concepts in the DMA that will continue to arise outside of the gatekeeper context.

There also are a number of ongoing cases against companies that might potentially be designated as gatekeepers, and so there will be a degree of parallelism. The second issue is that, as Commissioner Vestager has said, the DMA is intended to provide a clear list of do and don'ts. But some of those do and don'ts do also apply in other contexts outside of the pure gatekeeper scenario. And so it is an open question to what extent ongoing enforcement of these same concepts, outside of the gatekeeper context, will lead to potential divergence with or not with the DMA. And there are a number of elements in the dos and don't list that will inevitably invite a need for clarification. I'll cite a few from Article 6, mainly.

The first one is that question of, what measures will be considered necessary and proportionate under 6(4)? That is something that will probably come up, to some extent, in other cases. The second one is under 6(5), which refers to similar services, which of course, to all competition lawyers, invites us to think about market definition. Is "similar", the same test that we would apply in a traditional competition law context? Are we going to be looking at market definition concepts or not? Article 6(6), what is the degree of restriction that is relevant? These are just a few examples, but of course, there are many more, and it's going to be important to try to maintain a degree of consistency, I think, for companies to be able to predict how they should behave.
And then finally, there's the question of double jeopardy. Identical conduct might be sanctionable under, for example, 102 and the DMA. This brings to mind the questions that we had not too long ago when we talked about, in the context of Messenger and Facebook, potential double jeopardy under 102 and data protection law. So this is something that's going to be, I think, a point of attention, both for advisors, companies, and also on the other side, for enforcers. And where I think the ECN will have an important role to play to make sure that we don't have too much divergence between centralised enforcement and national enforcement.

Fiona:
Thanks, Esther. And finally, just to wrap up today, what are the key takeaways for each of you for the future of digital enforcement in the coming year? Perhaps, Esther, if we start with you.

Esther:
Thank you, Fiona. There's a lot to take away. To wrap up, from my perspective, I think it's important to remember that Europe is not the entire world, as much as we like to think that it is, and so the DMA does not encompass the totality of regulation in the so-called digital sector. There are many things that we'll bear in mind, and I think Gabriele and Rafa have their own thoughts. The first, I think is that the US is increasingly active in this space. They've faced recent setbacks in court, but they don't seem to be showing any sign of slowing down. Australia has been ahead of this curve for some time now. They have been investigating these type of sectors for a little bit longer, I think, than others, which is somewhat connected to the dual role that the regulators have in terms of consumer enforcement and competition enforcement. We have the UK with a similar but slightly different regime, and increasingly, we're going to see other jurisdictions jumping on the bandwagon in a follow-the-leader type of scenario. So what is going to become increasingly important, I think, is a really coordinated global approach for anyone that is active in this space.

Gabriele:
Yeah, I cannot agree more. In fact, like Esther said, there will be increasingly situations with multiple investigations that may run in parallel, although under different set of rules, obviously. So besides considerations on double jeopardy, that obviously, will likely arise and be decided by the courts, I believe the European Commission and national competition authorities should prevent such situation occur in the first place by coordinating more closely, so before they actually launch their own investigation. And I think this is really where the national competition authority may play an important role in the enforcements also of the DMA.

Rafael:
I fully agree with you, Gabriele. We have to take into account that the DMA is a new, unprecedented set of rules like no other before, and the Commission will have to talk a lot with potential gatekeepers and other companies. The more dialogue behind the door, less transparency, and the more discretion and flexibility, less predictability. And to come back to the answer to the first question, this from a pure rule of law perspective means a challenging and demanding process for all those involved.

And also, as regards to interplay between the DMA and competition law enforcement, this will require thorough analysis in the coming months and years. While the EC may decide to prioritise the new rules over traditional antitrust law to facilitate a more agile solution to problems in digital markets, national competition authorities remain active in this field and may have their own agendas. And let's not forget that there will be plenty of interested third parties in the digital world, which may use private enforcement of competition law before the courts in Europe to address their concerns and solve their problems. So at the end, consistency and clever enforcement should be at the forefront of the Commission's concerns to keep a balanced and efficient legal framework in the digital sector.

Fiona:
Thank you all for that fascinating overview there. There's a lot more we could talk about, I know. We've been building up to this for several years now, and digital is clearly still firmly in the antitrust spotlight, as you say, with both the ongoing enforcement cases and also now the DMA and similar national provisions coming into force. So this is going to be a very interesting year, particularly seeing how the designation process plays out and challenges, both legal and practical, as the DMA and its obligations start to bite.

To keep up to date with competition law developments, watch out for the next episode in this podcast series. And to ensure you don't miss out on any future episodes, do subscribe now on Apple Podcasts, Spotify, or your favourite podcast platform. And while you're there, please feel free to keep the conversation going and leave us a rating or a review. Until then, thanks for listening.