European Parliament's 'Schwab Report' proposes significant changes to DMA

Europe

On 15 December 2020, the European Commission submitted its proposal for a Digital Markets Act (DMA) to establish dos and don’ts for "gatekeepers" in digital markets and ensure that gatekeepers conduct business fairly online. If passed, the DMA will lead a shift from ex post competition law intervention to ex ante regulation and could substantially change how large digital platforms are allowed to operate in the EU. Together with the Digital Services Act, the Digital Markets Act is a centrepiece of the European digital strategy.

The DMA proposal is subject to the “ordinary legislative procedure”, which means that the European Parliament and the Council of the EU need to adopt it jointly. On 1 June 2021, Dr. Andreas Schwab, the rapporteur assigned by parliament to the DMA, presented a draft report on the proposal.  Eagerly anticipated, the 82-page Schwab report “fully supports the overall objectives of the proposed Regulation” and the general structure of the proposed law, but proposes several significant changes to the Commission proposal.

These changes include the following:

1. Scope of the DMA

The first important amendment proposed by the rapporteur concerns the scope of application of the DMA. While under the Commission proposal up to 20 companies can potentially be caught by “gatekeeper rules”, the Schwab report pursues a significantly more targeted approach under which the DMA would only apply to companies that play “an unquestionable role as gatekeepers due to their size and their impact on the internal market”. To this end, the Schwab report proposes to amend Article 3 DMA by increasing the size threshold (i.e. EEA turnover threshold: EUR 10bn instead of EUR 6.5bn; EUR 100bn market capitalisation instead of EUR 65bn) and further requiring that a gatekeeper operate at least two core platform services, which would exclude mono platform companies from the scope of the DMA.

2. Obligations (Dos and Don’ts)

A frequent criticism regarding the DMA proposal is the structure of the obligations and prohibitions in Articles 5 and 6, which lack a systematic approach and overarching principles. The Schwab report notes in this respect that a different clustering of the obligations and prohibitions “could have brought added value to the DMA”, but also sees the benefit of an effective application of a clearly defined set of rules. The rapporteur does not propose a change of the structure but suggests further strengthening the principle of self-execution. In this respect, the Schwab report proposes different amendments, including:

  • shifting obligations from the “obligations susceptible of being further specified” section (Article 6 DMA proposal) to the section comprising the fully defined obligations (Article 6 DMA proposal);

  • strengthening the anticircumvention clause (new Article 6a DMA proposal);

  • sharpening the text of the implementation clause (Article 7 DMA).

The Schwab Report also provides for tightening the obligations on content. This includes:

  • a proposed prohibition of “most favourite nation” clauses (Article 5 (1) lit. b DMA proposal);

  • increased transparency requirements for the online advertisement market (Article 5 (1) lit. g DMA proposal);

  • measures to prevent self-preferencing in online search markets (Article 6 (1) lit. d DMA proposal);

  • sharpening of data portability and data access rules (Article 6 (1) lit. h, i DMA proposal);

  • regulation of access to core platform services at FRAND conditions (Article 6 (1) lit. k DMA proposal).

3. Remedies

Considering the ex ante self-executing nature of the DMA, the Schwab report sees no room for commitment decisions and proposes to delete Article 23 DMA proposal. With regard to remedies to address problems with the implementation of the DMA rules, the rapporteur proposes a significant tightening of the rules. According to the report, the imposition of remedies should not require that the respective gatekeepers further strengthen or extend its gatekeeper. In addition, structural remedies should be possible already after the adoption of two non-compliance decisions. Moreover, structural remedies should not be the ultima ratio any longer (Article 16 DMA proposal).

4. Acceleration of procedures

The report provides for a considerable acceleration of the procedure at various stages, including the designation of gatekeepers (Article 3 (3) 1 DMA proposal), the deadline to comply with obligations (Article 4 (2) 1 DMA proposal), the Commission procedures (Article 7 (4); 16 (5) DMA proposal) or market investigations (Article 15; 16 (5) DMA proposal).

5. Guidelines

The Schwab report also proposes to add a provision allowing the Commission to issue guidelines to help gatekeepers to comply with DMA obligations. Furthermore, the Commission should have the option to authorise standardisation bodies to develop

standards to facilitate the implementation of the obligations.

6. Involvement of third parties

Moreover, the Schwab report suggests that the regulatory dialogue should allow the Commission to 'market test' the measures that the gatekeeper is expected to implement in order to ensure effective compliance with the Regulation and to allow third parties to comment on the proposed measures.

7. Involvement of National Competition Authorities

The Schwab report also proposes the stronger involvement of National Competition Authorities, which according to the rapporteur should also be informed about mergers (Article 12 DMA proposal) and could support market investigations (Article 14 (3) lit. a DMA proposal).

8. European High Level Group of Digital Regulators

The rapporteur points out the nature of digital services means that different regulatory regimes will inevitably interlink and overlap. For this reason, the Schwab report proposes the creation of a “European High Level Group of Digital Regulators”, which would bring together representatives of the competent authorities of all member states, the Commission, as well as other experts, particularly in the field of data protection and electronic communications (Article 31a, 31b DMA proposal). The High Level Group would be tasked to facilitate cooperation and coordination between the Commission and member states in their enforcement decisions, in the interest of a consistent regulatory approach. Moreover, the High Level Group would use its expertise to assist the Commission in monitoring compliance with the DMA.

In contrast to demands brought up during the discussion in recent months, the Schwab report proposes that the general concept and structure of the Commission's proposal for the DMA should be retained. Nevertheless, the (draft) report makes far-reaching proposals for change. Both the Commission's concept and the rapporteur's new ideas will now be the subject of discussion between parliament, member states through the EU Council and the Commission in Trilogue negotiations.

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