Digital Services Act and New Competition Tool Consultations of the European Commission
Digital Services Act and New Competition Tool Consultations of the European Commission
Authors: Victoria Mertikopoulou, Orestis Mylonas Lekkas, KG Law Firm
Over the last years, technological evolution and online platforms have brought radical changes to the European Union single market. In response to that, and in order to establish a modern legal framework which responds to the challenges of the digital era, the European Commission is consulting on new pieces of legislation in the framework of the Digital Services Act Package (see Communication “Shaping Europe’s Digital Future”) which the European Commission announced in February. It is also consulting on how competition policy should evolve to continue to promote pro-consumer innovation in the digital age (building on the expert report of April 2019 [«Competition Policy for the Digital Era»][1]).
In particular, on 02 June 2020, the European Commission launched three separate impact assessments:
- The European Commission is preparing legislation, inter alia, updating the horizontal rules that define the responsibilities and obligations of digital services and intending to propose a new Digital Services Act. This is with a view to harmonising the responsibilities of online platforms and information society service providers, setting clearer rules and reinforcing oversight over platforms’ content policies in the EU in the context of the single market for digital services.
- An Inception Impact Assessment (DG CNECT, DG GROW) is exploring potential options for an ex-ante regulatory instrument for very large online platforms with significant network effects acting as gate-keepers in the EU’s internal market (part of the Digital Services Act package). Gatekeeper platforms are big tech firms that acquire difficult to contest dominance in digital markets and which may thus operate as regulators vis-à-vis other market participants.
- New tool to combat emerging risks to fair competition: In the context of the announced evaluation and potential review of the fitness of EU competition rules for the digital age, a separate Inception Impact Assessment (DG Comp) lists potential options for a New Competition Tool [‘NCT’] that would complement the existing EU competition law framework, potentially applicable to all economic sectors (including individual platform ecosystems or digital markets). It is thus establishing an early intervention mechanism for competition threats of the digital markets. This aims to address structural competition problems across markets (to deal with, inter alia, market characteristics such as extreme economies of scale and scope, strong network effects, zero pricing and data dependency, market dynamics favouring sudden radical decreases in the competition (‘tipping’) and ‘winner-takes-most’ scenarios).
In parallel, the European Commission has also launched two respective public consultations:
– Consultation on Digital Services Act Package:
The consultation covers the two main streams:
A. The first set of rules refers to the fundamentals of the e-commerce directive, namely freedom to provide digital services across the EU single market and a broad limitation of liability for content created by users. The aim is to establish clearer rules concerning the role and obligations of online intermediaries, including non-EU ones active in the EU, and a governance system to ensure that such rules are correctly enforced across the EU single market.
B. The second measure safeguards the level playing field in European digital markets, in view of the role of the few large online platforms which act as gatekeepers. Contemplated rules to address market imbalances ensure that consumers have the widest choice and that the EU single market for digital services remains competitive. This could be through additional general rules for all platforms of a certain scale, such as rules on self-preferencing, and/or through tailored regulatory obligations for specific gatekeepers, such as non-personal data access obligations, specific requirements regarding personal data portability, or interoperability requirements.
Through this consultation, the Commission seeks to collect stakeholder views on the following issues:
- How to effectively keep users safer online.
- Reviewing the liability regime of digital services acting as intermediaries.
- What issues derive from the gatekeeper power of digital platforms?
- Other emerging issues and opportunities, including online advertising and smart contracts.
- How to address challenges around the situation of individuals offering services through online platforms.
- What governance to reinforce the single market for digital services?
– Consultation on a New Competition Tool
Regarding the new competition tool, the Commission has identified certain structural competition problems that the current rules cannot address effectively enough. It is aimed that the new competition tool shall enable the Commission to address gaps in the current competition rules and to intervene against structural competition problems across markets in a timely manner. In particular, after establishing a structural competition problem through market investigation, the Commission shall be able to impose behavioural and, where appropriate, structural (divestment) remedies, without finding an infringement, or imposing fines. This tool exists already in the UK and Greece (since 2011).
Against the baseline scenario of competition law framework remaining unchanged, the following four policy options are considered (based on whether they are dominance or market-structure-based, and applicable across sectors or limited to digital markets):
- Option 1: A dominance-based competition tool with a horizontal scope (competition concerns arising from unilateral conduct by dominant companies without any prior finding of infringement pursuant to Article 102 TFEU).
- Option 2: A dominance-based competition tool with a limited scope, without any prior finding of infringement pursuant to Article 102 TFEU, limited to sectors in which the problem is most prevalent (digital or digitally-enabled markets).
- Option 3: A market structure-based competition tool with a horizontal scope not limited only to dominant companies, and applicable across all sectors.
- Option 4: A market structure-based competition tool with a limited scope, and limited to certain sectors (digital or digitally-enabled markets).
According to the European Commission, structural competition problems can arise mainly in the following forms.
a. Structural risks for competition:
Certain market characteristics (e.g. network and scale effects, lack of multi-homing and lock-in effects) combined with the conduct of the companies operating in those markets may produce a threat to competition, especially in markets at risk of “tipping”[2]. This refers to powerful market players with an established market and/or gatekeeper position and unilateral strategies by non-dominant companies to monopolise a market through anti-competitive means.
b. A structural lack of competition:
Certain market structures do not deliver competitive outcomes (i.e. a structural market failure), even without companies acting anti-competitively. This may be due to systemic failures of markets provoked by features such as high concentration, entry barriers, consumer lock-in, lack of access to data or data accumulation. This is also true for oligopolistic market structures with a risk of tacit collusions, such as markets in which algorithm-based solutions create increased transparency and competition risks.
Next steps
The Commission is consulting stakeholders from the public and private sector, academia, legal and economic practitioners. Respondents are invited to submit their views on the inception impact assessments until 30 June 2020 and respond to the public consultations until 08 September 2020. Legislative proposals are scheduled for Q4/2020.
[1] Jacques Crémer, Yves-Alexandre de Montjoye, Heike Schweitzer.
[2] According to the definition adopted by the Commission, ‘Tipping markets’ refers to markets where the number of customers is a key element for business success: if a firm reaches a critical threshold of customers, it gets a disproportionate advantage in capturing remaining customers. Due to the characteristics of that market, only one or very few companies will remain in those markets in the long term.
Authors: Victoria Mertikopoulou, Orestis Mylonas Lekkas, KG Law Firm
Over the last years, technological evolution and online platforms have brought radical changes to the European Union single market. In response to that, and in order to establish a modern legal framework which responds to the challenges of the digital era, the European Commission is consulting on new pieces of legislation in the framework of the Digital Services Act Package (see Communication “Shaping Europe’s Digital Future”) which the European Commission announced in February. It is also consulting on how competition policy should evolve to continue to promote pro-consumer innovation in the digital age (building on the expert report of April 2019 [«Competition Policy for the Digital Era»][1]).
In particular, on 02 June 2020, the European Commission launched three separate impact assessments:
- The European Commission is preparing legislation, inter alia, updating the horizontal rules that define the responsibilities and obligations of digital services and intending to propose a new Digital Services Act. This is with a view to harmonising the responsibilities of online platforms and information society service providers, setting clearer rules and reinforcing oversight over platforms’ content policies in the EU in the context of the single market for digital services.
- An Inception Impact Assessment (DG CNECT, DG GROW) is exploring potential options for an ex-ante regulatory instrument for very large online platforms with significant network effects acting as gate-keepers in the EU’s internal market (part of the Digital Services Act package). Gatekeeper platforms are big tech firms that acquire difficult to contest dominance in digital markets and which may thus operate as regulators vis-à-vis other market participants.
- New tool to combat emerging risks to fair competition: In the context of the announced evaluation and potential review of the fitness of EU competition rules for the digital age, a separate Inception Impact Assessment (DG Comp) lists potential options for a New Competition Tool [‘NCT’] that would complement the existing EU competition law framework, potentially applicable to all economic sectors (including individual platform ecosystems or digital markets). It is thus establishing an early intervention mechanism for competition threats of the digital markets. This aims to address structural competition problems across markets (to deal with, inter alia, market characteristics such as extreme economies of scale and scope, strong network effects, zero pricing and data dependency, market dynamics favouring sudden radical decreases in the competition (‘tipping’) and ‘winner-takes-most’ scenarios).
In parallel, the European Commission has also launched two respective public consultations:
– Consultation on Digital Services Act Package:
The consultation covers the two main streams:
A. The first set of rules refers to the fundamentals of the e-commerce directive, namely freedom to provide digital services across the EU single market and a broad limitation of liability for content created by users. The aim is to establish clearer rules concerning the role and obligations of online intermediaries, including non-EU ones active in the EU, and a governance system to ensure that such rules are correctly enforced across the EU single market.
B. The second measure safeguards the level playing field in European digital markets, in view of the role of the few large online platforms which act as gatekeepers. Contemplated rules to address market imbalances ensure that consumers have the widest choice and that the EU single market for digital services remains competitive. This could be through additional general rules for all platforms of a certain scale, such as rules on self-preferencing, and/or through tailored regulatory obligations for specific gatekeepers, such as non-personal data access obligations, specific requirements regarding personal data portability, or interoperability requirements.
Through this consultation, the Commission seeks to collect stakeholder views on the following issues:
- How to effectively keep users safer online.
- Reviewing the liability regime of digital services acting as intermediaries.
- What issues derive from the gatekeeper power of digital platforms?
- Other emerging issues and opportunities, including online advertising and smart contracts.
- How to address challenges around the situation of individuals offering services through online platforms.
- What governance to reinforce the single market for digital services?
– Consultation on a New Competition Tool
Regarding the new competition tool, the Commission has identified certain structural competition problems that the current rules cannot address effectively enough. It is aimed that the new competition tool shall enable the Commission to address gaps in the current competition rules and to intervene against structural competition problems across markets in a timely manner. In particular, after establishing a structural competition problem through market investigation, the Commission shall be able to impose behavioural and, where appropriate, structural (divestment) remedies, without finding an infringement, or imposing fines. This tool exists already in the UK and Greece (since 2011).
Against the baseline scenario of competition law framework remaining unchanged, the following four policy options are considered (based on whether they are dominance or market-structure-based, and applicable across sectors or limited to digital markets):
- Option 1: A dominance-based competition tool with a horizontal scope (competition concerns arising from unilateral conduct by dominant companies without any prior finding of infringement pursuant to Article 102 TFEU).
- Option 2: A dominance-based competition tool with a limited scope, without any prior finding of infringement pursuant to Article 102 TFEU, limited to sectors in which the problem is most prevalent (digital or digitally-enabled markets).
- Option 3: A market structure-based competition tool with a horizontal scope not limited only to dominant companies, and applicable across all sectors.
- Option 4: A market structure-based competition tool with a limited scope, and limited to certain sectors (digital or digitally-enabled markets).
According to the European Commission, structural competition problems can arise mainly in the following forms.
a. Structural risks for competition:
Certain market characteristics (e.g. network and scale effects, lack of multi-homing and lock-in effects) combined with the conduct of the companies operating in those markets may produce a threat to competition, especially in markets at risk of “tipping”[2]. This refers to powerful market players with an established market and/or gatekeeper position and unilateral strategies by non-dominant companies to monopolise a market through anti-competitive means.
b. A structural lack of competition:
Certain market structures do not deliver competitive outcomes (i.e. a structural market failure), even without companies acting anti-competitively. This may be due to systemic failures of markets provoked by features such as high concentration, entry barriers, consumer lock-in, lack of access to data or data accumulation. This is also true for oligopolistic market structures with a risk of tacit collusions, such as markets in which algorithm-based solutions create increased transparency and competition risks.
Next steps
The Commission is consulting stakeholders from the public and private sector, academia, legal and economic practitioners. Respondents are invited to submit their views on the inception impact assessments until 30 June 2020 and respond to the public consultations until 08 September 2020. Legislative proposals are scheduled for Q4/2020.
[1] Jacques Crémer, Yves-Alexandre de Montjoye, Heike Schweitzer.
[2] According to the definition adopted by the Commission, ‘Tipping markets’ refers to markets where the number of customers is a key element for business success: if a firm reaches a critical threshold of customers, it gets a disproportionate advantage in capturing remaining customers. Due to the characteristics of that market, only one or very few companies will remain in those markets in the long term.