The Digital Markets Act: European Precautionary Antitrust
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The Digital Markets Act: European Precautionary Antitrust AURELIEN PORTUESE | MAY 2021 The European Commission has set out to ensure digital markets are “fair and contestable.” But in a paradigm shift for antitrust enforcement, its proposal would impose special regulations on a narrowly dened set of “gatekeepers.” Contrary to its intent, this will deter innovation—and hold back small and medium-sized rms—to the detriment of the economy. KEY TAKEAWAYS ▪ The Digital Markets Act (DMA) arbitrarily distinguishes digital from non-digital markets, even though digital distribution is just one of many ways rms reach end users. It should assess competition comprehensively instead of discriminating. ▪ The DMA’s nebulous concept of a digital “gatekeeper” entrenches large digital rms and discourages them from innovating to compete, and it creates a threshold effect for small and mid-sized rms, because it deters successful expansion. ▪ This represents a paradigm shift from ex post antitrust enforcement toward ex ante regulatory compliance—albeit for a narrowly selected set of companies—and a seminal victory for the precautionary principle over innovation. ▪ By distorting innovation incentives instead of enhancing them, the DMA’s model of “precautionary antitrust” threatens the vitality, dynamism, and competitive fairness of Europe’s economy to the detriment of consumers and rms of all sizes. ▪ Given its fundamental aws, the DMA can only be improved at the margins. The rst steps should be leveling the playing eld with reforms that apply to all rms, not just “digital” markets, and eliminating the nebulous “gatekeeper” concept. ▪ Authorities in charge of market-investigation rules need to be separated from antitrust enforcers; they need guidance and capacity for evidence-based fact-nding; and they should analyze competition issues dynamically, focusing on the long term. INFORMATION TECHNOLOGY & INNOVATION FOUNDATION | MAY 2021 CONTENTS Introduction .................................................................................................................. 3 The “Digital” in the Digital Markets Act ........................................................................... 4 The Digital Sector Cannot Easily Be Distinguished From the Non-Digital Sector ................ 5 Digitally Enabled Abuses or Digital Disruptions? .......................................................... 10 Market Tipping and Market Concentration ................................................................... 14 Market Tipping as a Superfluous Concept ................................................................ 14 Market Tipping as a Harmful Concept ..................................................................... 16 The Nebulous Concept of Gatekeeper ............................................................................ 21 Digital Gatekeepers as Large Digital Platforms ............................................................. 24 Digital Gatekeepers—the Unavoidability Assumption ................................................... 26 Digital Gatekeepers—the Unassailability Assumption ................................................... 30 The Unassailability Assumption: The Entrenched and Durable Position ...................... 32 The Entrenched and Durable Position Under Siege ................................................... 34 Digital Gatekeepers—the Quantitative Criteria ............................................................. 37 The Failed Objectivization of the Designation of Gatekeepers ..................................... 37 The Arbitrariness of the Designation of Gatekeepers ................................................. 42 Digital Gatekeepers—an Assessment .......................................................................... 43 The Gatekeepers’ Core Obligations—Article 5 ................................................................. 45 Leveraging, Envelopment, and Bundling ..................................................................... 47 Prohibitions of Most Favored Customer Clauses ........................................................... 49 Data Sharing Through Free Riding .............................................................................. 51 Out-of-Court Settlements for Antitrust Claims Made Out of Question ............................. 53 Prohibition of Data Interoperability ............................................................................. 54 Forced Interoperability of Ancillary Services (or the Implicit Prohibition of Bundling) ...... 55 Communication of Advertising Prices and Publishers’ Remunerations ............................ 58 Specifiable Obligations—Article 6 ................................................................................. 60 Prohibition of Using Third-Party Providers’ Data .......................................................... 62 Uninstallation Requirements ..................................................................................... 63 Mandatory Access to Third-Party App Stores and Side-Loading Apps ............................. 64 Prohibition of Self-Preferencing ................................................................................. 65 Prohibition of Lock-Ins .............................................................................................. 66 Mandatory Interoperable Add-Ons .............................................................................. 67 Mandatory Tools for Advertisers and Publishers ........................................................... 68 Data Portability and Data Instant Accessibility ............................................................ 69 Data Access For Business Users ................................................................................. 70 INFORMATION TECHNOLOGY & INNOVATION FOUNDATION | MAY 2021 PAGE 1 FRAND Access to Ranking and View Data for Search ................................................... 70 FRAND Access to App Stores..................................................................................... 72 Precautionary Antitrust in the DMA ............................................................................... 74 Characteristics of Precautionary Antitrust in the DMA .................................................. 74 Regulating Amid Uncertainties ............................................................................... 74 Consumer Choice as the New Precautionary Theory of Harm ...................................... 76 Reversed Burden of Proof—Harmful Unless Proven Otherwise ................................... 77 Interim Measures and the Assumption of Irreversibility ............................................. 79 Innovation Concerns Are Absent ................................................................................. 81 The Assault on Scale Economies ............................................................................ 82 Static Approach for a Dynamic World ...................................................................... 84 Dynamic Capabilities Discarded .............................................................................. 86 Conclusion .................................................................................................................. 89 Endnotes .................................................................................................................... 90 INFORMATION TECHNOLOGY & INNOVATION FOUNDATION | MAY 2021 PAGE 2 INTRODUCTION Updated regulations for the Internet have been looming—and were finally unfurled in Brussels in December 2020. “So, for the world’s biggest gatekeepers, things are going to have to change,” warned EU vice president Vestager.1 The EU announced its aims to create “digital traffic lights to stop certain practices and allow others to proceed better” in a debatable metaphor that conveys its belief that web traffic should be regulated like road traffic.2 The EU’s regulatory proposals will shape how tech companies compete, innovate, and interact with market actors in digital markets. Like the General Data Protection Regulation’s (GDPR) extraterritorial effects, the European regulatory proposals will determine the competition rules for European digital players and non-European ones whenever they operate in Europe and potentially outside.3 Together with the Digital Services Act (DSA), which updates the sensible E-Commerce Directive of 2000, EU commissioners Breton and Vestager presented the Digital Markets Act (DMA).4 Deemed “pretty aggressive” even by proponents of a heavy regulatory overhaul of the digital markets, the DMA constitutes a radical change in regulating digital innovation and competition.5 Against decades of improvement in antitrust knowledge and practice, the DMA introduces per se prohibitions of practices for a narrowly targeted set of companies—the so- called “digital gatekeepers.” These prohibitions are blacklisted practices enforced through ex ante interventions. The DMA represents a paradigm shift from ex post analysis of antitrust liability wherein arguments are debated in courts toward ex ante regulatory obligations wherein the administration ensures compliance. The DMA exhibits the logic of the precautionary principle to competition rules at the expense of innovation. The Commission attempted to introduce the blacklisted practices without any evidence of economic harm during the negotiations on the Platforms to Business Regulation in 2019.6 Many member states blocked this attempt because these prohibitions violated the fundamental principle