MEPs have reached a compromise on the most controversial aspects of the EU regulation that will introduce strict obligations for internet giants.
The Digital Markets Act (DMA) is designed to regulate gatekeepers, online platforms so large that they have a systemic role in the internet economy. Until now, MEPs have been scrambling on provisions around the scope, killer acquisitions, and targeted advertising.
The proposal is now expected to be adopted by the European Parliament’s internal market and consumer protection committee on 22 November, with then voted on during the December plenary session.
At the most basic level, EU lawmakers have been arguing about which platforms the regulation should target.
Andreas Schwab, the Christian-democrat MEP leading on the file, advocated for a narrow scope of only four or five largest companies, Google, Amazon, Facebook, Apple and Microsoft (GAFAM), to concentrate on the most influential players.
By contrast, progressive political groups pushed for a broader scope, considering new problems might emerge in the fast-changing digital environment. As a result, the quantitative thresholds for companies were only slightly increased to €8bn in turnover and €80bn in market capitalization.
Schwab’s proposal to consider more than one digital market, the so-called ‘core platform service’, for the designation of a gatekeeper, was rejected. As a result, European-based companies such as Booking are likely to fall under the scope of the new regulation.
The initial list of core platform services covered e-commerce and video sharing platforms, search engines, social media, operating systems, cloud and messaging services. The list was enlarged to include web browsers, virtual assistants and smart TVs.
A significant addition to the proposal were provisions on ‘killer acquisitions’, takeovers of companies deigned to cut off emerging competitors. There were strong reservations from the European Commission on adding such measures into the DMA, as the legal basis for the regulation is the internal market rather than competition policy.
On the other hand, antitrust advocates including the Commission’s former chief competition economist Tommaso Valletti stressed the need for such provisions to be included in the DMA, since reforming the bloc’s competition rulebook is hampered by the requirement for unanimity among member states.
Under the final compromise, the Commission might impose temporary limitations for acquisitions to platforms that have systematically disregarded their obligations.
“In doing so, the Commission might take into account different elements, such as likely network effects, data consolidation, and possible long-term effects or whether and when the acquisition of targets with specific data resources can significantly put in danger the contestability and the competitiveness of the markets through horizontal, vertical or conglomerate effects,” recital 64 reads.
Another controversial point was the proposal for a ban on targeted advertising. The initiative was advanced by a cross-party coalition of progressive MEPs that consider targeted ads are based on the invasive surveillance of users to the benefit of a few companies.
Most liberal and conservative MEPs argued that a total ban would be disproportionate and harm small businesses that try to make reach their customers via digital means.
The total ban was only introduced for minors, leaving it up to the platforms to assess their users’ age.
#DMA S&D sticks to its position to ban targeted ads. In spirit of compromise we could accept targeted ads if requested by the user and based on consent BUT minors should be exempted. Same goes for sensitive data on religious/political believes or ethnic origin.
— Evelyne Gebhardt (@egebhardtMdEP) November 15, 2021
For adults, the text allows targeted ads on the basis of explicit consent from the user. It also limits the processing of personal data related to politics, religion, race, trade union membership, and other sensitive information such as health conditions and sexual orientation.
The measures for systemic non-compliance under Article 16 are the most feared by the internet giants as they enable the EU executive to impose structural or behavioural remedies, which in the most extreme cases might include breaking up the platform into separate entities.
Systemic non-compliance will be considered after two infringements, and after the first offence behavioural remedies could be imposed.
The sanctions regime has also been toughened by MEPs. The minimum fine was set to 4% of the annual turnover, which might reach a maximum of 20%.
The compromise text introduces interoperability of ancillary services, including for devices, messaging services and social media, leaving it up to the Commission to define the technical standards.
It strengthens the provisions against tying up different services together, a practice known as bundling. The prohibition to self-reference was extended to all services, not only those providing a ranking.
Users would also be able to uninstall apps and change default settings as well as to move the data they generated to a different platform.
[Edited by Benjamin Fox]