When the DMA’s ambitious intentions interact with the EU’s constitutional set-up: A future drama in three acts Open Access

1. Introduction

For years, the world had not seen much regulation of digital competition beyond some attempts to use antitrust in the digital sphere. Having identified a number of problems in digital markets, the European Union (EU) has decided to step up and address perceived issues by means of the Digital Markets Act (DMA). The Commission, after pressure from Member States and the EU Parliament, made a proposal which was well-intentioned and seems impressive. The resulting DMA is an ambitious piece of legislation that sets itself an equally ambitious aim. It should

[…] contribute to the proper functioning of the internal market by laying down rules to ensure contestability and fairness for the markets in the digital sector in general, and for business users and end users of core platform services provided by gatekeepers in particular.¹

But well-intentioned is often the opposite of well done. In fact, we can imagine how the DMA might create a drama with a classical three-act structure. This potential future drama is the focus of this paper.

In the first act, the setup, we will recognize that the DMA, in fact, limits fairness creating problems for Member States wishing to protect consumers and non-gatekeeper businesses. These problems result from the constitutional logic of the competence allocation between the EU and Member States. In the second act, the confrontation, we will see how the political push to include fairness in the DMA has potentially created further issues. In this act, cases come to the Court which in turns is asked to make difficult judgments on the allocation of competences between the EU and Member States. In the third and final act, the resolution, the Member States react to the Court decisions. Their reaction creates potential future problems for competition law and competition enforcers.

In the following, these three acts of the drama will be further elaborated on, and it will become clear that the Court, Member States, and advocates for consumers and non-gatekeeper businesses, as well as competition enforcers, may all soon face challenges with profound implications.

2. The first act: accidentally limiting fairness

As in every drama, the first act is the setup. In the context of the DMA, we can see that the DMA is aimed at ensuring fairness and contestability. Yet, in its current form, it also limits the level of contestability and fairness that gatekeepers need to comply with and might even end up privileging gatekeepers as shown by Hoffmann, Herrmann, and Kestler.² This result stems from the fact that the DMA is a harmonizing measure under the internal market. In other words, it sets the standard for all gatekeepers across the whole of the EU. As a harmonizing measure, the DMA is close to maximum harmonization and broadly prevents Member States from imposing further obligations on gatekeepers.³ We can observe the limiting function of the DMA in particular, where Member States aim to impose rules with the purpose of ensuring that digital markets remain ‘fair and contestable […] for business users and end users of core platform services provided by gatekeepers’.⁴

One area where Member States may struggle especially is consumer protection. Member States might want to address new unfair practices in digital markets by imposing new obligations on platforms or gatekeepers by means of consumer protection rules. Similarly, the interaction between small and medium-sized (SME) businesses and their interactions with gatekeepers might in the future be an area where Member States might want to ensure other fairness-related matters. However, in both cases, Member States might have substantial difficulties in adopting such new rules under national law. Hoffmann, Herrmann, and Kestler also show how the DMA might already limit existing obligations under, for example, unfair competition law.⁵

We might be surprised by this result as Article 1(5) contains an apparently strong reaffirmation of Member States’ competence to regulate. This article emphasizes that Member States remain free to impose ‘obligations on undertakings, including undertakings providing core platform services, for matters falling outside the scope of this Regulation, […] and do not result from the fact that the relevant undertakings have the status of a gatekeeper within the meaning of this Regulation’.

However, when we look more closely, the scope left for Member States remains rather narrow. The statement also implies important limitations. First, Member States are not allowed to use the status of gatekeeper under the DMA to impose further obligations. This limitation on the Member States’ competences may seem more of a nuisance than a substantive problem. We can imagine that Member States could achieve their desired aims by using another point of reference than the gatekeeper status to achieve their consumer or SME protection aims. Yet, the second limitation that the DMA imposes has rather far-reaching consequences. It means that Member States are only allowed to impose obligations on gatekeepers with regard to ‘matters falling outside the scope’ of the DMA. The scope of the remaining competence of the Member States, thus, depends on the scope of the DMA. The Member States only retain their competence to regulate outside the scope of the DMA. To determine the DMA’s scope its purpose is crucial. Article 1(1) DMA explains that ‘[t]he purpose of this Regulation is […] laying down harmonised rules ensuring for all businesses, contestable and fair markets in the digital sector across the Union where gatekeepers are present, to the benefit of business users and end users.’ This aim and purpose of the DMA is, then, further elaborated on in Article 1(2) DMA. That article states that ‘[t]his Regulation shall apply to core platform services provided or offered by gatekeepers to business users established in the Union or end users established or located in the Union, irrespective […] of the law otherwise applicable to the provision of service.’ Hence, we can define the scope of the DMA covering:

Contestability and fairness in markets in all situations where gatekeepers provide services in the digital sector to business and end users.⁶

This broad scope means that the DMA has the potential to pre-empt Member State regulation in a rather wide-ranging field of competences.⁷ As such, this outcome provides for a possibly rather surprising setup, forming the first act of the drama.

3. The second act: constitutional logic of the EU internal market and the Court’s impossible position

The second act of a drama contains the confrontation. In our case, we can see the confrontation emerging when gatekeepers want to use the DMA to shield themselves from Member States rules that impose further contestability and fairness requirements with regard to consumers or other businesses. Once such a case comes to the Court, it has to decide how broad the pre-empted effect of the DMA vis-à-vis the Member State’s competences is. It will be a nearly impossible task for the Court as it has to navigate a legal landscape where the competence allocation between the EU and Member States is particularly unclear.

The original idea of the DMA was based on competition concerns grounded in the idea of addressing gatekeepers in winner-takes-all markets.⁸ Yet, the DMA is not based on competition law’s Article 103 TFEU but has instead been adopted under the EU’s harmonization provision of Article 114. While not free from criticism,⁹ this legal basis has the advantage of an easier legislative procedure¹⁰ and has allowed in particular the Parliament (jointly with the Council) to be involved as the so-called co-legislators.¹¹ At the same time, the choice of this legal basis changes the logic of the DMA to one of the internal market, as also expressed in the Preamble.¹² The law is a harmonisation measured and is routed in the cross-border nature of (often global) platforms and the diverging attempts by Member States to regulate their behaviour. This setting of a single standard across the EU in the form of EU harmonization also makes sense with regard to the EU’s ambition to create a single digital market.¹³

The harmonization logic is then paired with concerns around contestability and fairness in the DMA. It explains:

Moreover, while gatekeepers […] can adopt, and in some cases have adopted, different business conditions and practices in different Member States, which is liable to create disparities between the competitive conditions for the users of core platform services provided by gatekeepers, to the detriment of integration of the internal market.¹⁴

By approximating diverging national laws, it is possible to eliminate obstacles to the freedom to provide and receive services, including retail services, within the internal market. A targeted set of harmonised legal obligations should therefore be established at Union level to ensure contestable and fair digital markets featuring the presence of gatekeepers within the internal market to the benefit of the Union’s economy as a whole and ultimately of the Union’s consumers.¹⁵

Fragmentation of the internal market can only effectively be averted if Member States are prevented from applying national rules which are within the scope of and pursue the same objectives as this Regulation. […]¹⁶

In the same direction, the subject matter and scope of the DMA¹⁷ explain that Member States shall be prevented from imposing ‘further obligations on gatekeepers by way of laws, regulations or administrative measures for the purpose of ensuring contestable and fair markets’.¹⁸

The crucial question is, thus, the extent of this pre-emptive effect. Two situations may arise in that regard. A Member State might adopt or enforce measures that are aimed at ensuring the contestability of markets, and/or it might adopt fairness-related measures. To determine the pre-emptive effect of the DMA and thus map the boundaries of the Member States’ competences, the Court will use the usual tools to determine the level of pre-emption. In other words, it will determine the scope of EU law by (i) exploring the objective of the regulation, (ii) examining how detailed the regulation is, and (iii) whether it foresees explicit or implicit derogations for the harmonizing measure.¹⁹

With regard to the contestability of markets, the assessment may be rather straightforward. Such measures are in general pre-empted by the DMA although an explicit derogation exists with regard to competition law.²⁰ However, the real problem is the issue of fairness. To determine what Member State measures are pre-empted by the DMA, the Court would have to make an assessment of fairness or at least define what fairness means. Competition lawyers are well aware of the difficulties in establishing fairness in markets. The problem that the DMA creates, is that this concept becomes central to the delineation of the competences between the EU (as exercised by means of the DMA) and Member States’ competences. In other words, the DMA imposes a unified and exhaustive fairness requirement on gatekeepers.²¹ How the Court interprets this fairness requirement determines the extent to which Member States are pre-empted from regulating. In general, fairness seems to be a broad term and the broader fairness is defined the less scope for Member States actions will exist. The second act thus contains the confrontation, the confrontation between Member States and EU competences. The only way out of the created dilemma is the use of the derogations that exist in the DMA and which are explored in the next section.

4. The third act: the Trojan horse of fairness and future problems for competition law and enforcement

The third and final act is the resolution. But as in many dramas, the resolution is not always a happy end. The previous attempts of Member States to protect their competences invite complications with potential future problems for competition law and competition enforcers. The Member States insisted on retaining competences under competition law.²² This inclusion in the DMA combined with the Court’s interpretation of the scope of fairness regulated under the DMA and the Member States’ reaction to any such judgments can create knock-on effects for competition law.

In fact, we might describe the DMA as an unintentional Trojan horse that leads to a future where fairness is taking over competition law, or at least where it takes a substantially more important role. This is so because a Court’s expansive interpretation of fairness and the pre-emptive effect of the DMA can create pressures to include more fairness matters in the national competition laws. In other words, depending on how far the Court allows or restricts the competences of Member States to enforce fairness-related concerns regarding consumers and businesses in other areas of law, Member States will react. Where other areas of law are broadly are pre-empted, Member States will have an incentive to include more fairness matters in their competition laws.

In the previous two acts, we have seen how the DMA sets the absolute level of fairness for gatekeepers and how the Court will have to use fairness as a concept to delineate the Member State and EU competences. This situation creates a legal landscape where the concept of fairness in the digital world is unable to evolve substantially,²³ and where Member States are generally prevented from protecting consumers and businesses from (new) unfair practices by gatekeepers. Thus, beyond changes to the DMA, Member States only option to address such fairness issues in digital markets is by the expansion and reshaping of their competition laws.

As we have seen,²⁴ the DMA aims to comprehensively regulate fairness for gatekeepers, yet it also contains a narrowly drafted exception for competition law. In particular, Article 1(6) allows for the application of national merger rules and the national equivalents of Articles 101 and 102 TFEU. More importantly, national competition laws can impose more stringent unilateral conduct rules than the DMA imposes, as long as they are applying not only to gatekeepers.²⁵

Hence, national laws but only in the form of competition can impose obligations on gatekeepers that go beyond their obligations under the DMA. Thus, depending on the extent to which the Court sees other fairness-related measures as being pre-empted by the DMA, the pressure might build to increase fairness via national competition laws as the only viable route to ensure fairness in digital markets for consumers and businesses. We can imagine two avenues of how this pressure may play out with regard to national competition laws. On the one hand, national competition authorities might be focusing more on fairness in the enforcement of the national equivalent of Article 102 TFEU. On the other hand, we might see national legislation being adopted that is aimed at ensuring fairness in digital markets for consumers and businesses. Yet, instead of adopting such rules under other relevant areas of law, such as consumer protection or unfair competition law, the rules would be included in the national competition laws. This move would immunise them from challenges based on EU supremacy and the pre-emptive effect of the DMA.

Overall, we can describe the unintended consequence of the inclusion of fairness in the DMA combined with its harmonization imperative as a Trojan horse. While the adoption of the DMA has certainly been welcomed because it took away (some) questions of fairness from core competition law provisions and placed them into a separate regulatory regime, this (Trojan) present might still lead to fairness taking hold of competition law after some time.

5. Conclusion

Whether the DMA drama will play out in these three acts will have to be seen. But we may imagine two alternative explanations for the drama. One explanation is the story of a sinister plan where the EU legislature was captured by gatekeepers to protect them from further regulation by the Member States. In this story, the DMA was set up in a way that does not impose any new obligations that did not already exist under competition law.²⁶ But it was instead designed to block new obligations that Member States could come up with. In this evil plan, the contestability does not have much meaning as competition law already ensures contestability. However, the real impact is created by the fairness element of the DMA as Member States are not allowed to impose further fairness-related rules on gatekeepers. The alternative explanation for the drama is more mundane. It is a story along the lines of good intentions: the EU institutions and Member States aimed to do good by ensuring fairness and contestability in digital markets. Yet, what they created inadvertently leads to future problems that they never intended to create. It resulted from the inherent character of the EU’s mighty competences in regulating the internal market combined with a desire to ensure not only fairness and contestability but also predictability for the gatekeepers. In any case, it will be interesting to see how this competence back-and-forth over fairness in digital markets between the EU and Member States will play out.

Acknowledgements

This article builds on ideas presented at a conference in Reykjavik in the beginning of 2023 and expressed in Julian Nowag and Carla Valeria Patiño ‘Enough of fairness: pre-emption and the DMA’ in Annegret Engel, Xavier Groussot, and Gunnar Þór Pétursson, Recent developments in the field of Digitalization, the Digital Single Market and the EU Charter of Fundamental Rights (Springer 2024) available at <https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4769198> (accessed 23 March 2024).

Footnotes