February 6, 2024

Navigating the Digital Markets Act (DMA): Compliance, Enforcement, and Innovation

The information provided below is as of February 5, 2024

In a rapidly evolving digital landscape, the European Union has introduced the Digital Markets Act (DMA), Regulation (EU) 2022/1925, to address the challenges posed by dominant online platforms. This groundbreaking legislation aims to foster fair competition, protect consumers, and ensure innovation within the digital ecosystem. Understanding the DMA is crucial for all industries that use digital platforms. In this blog post, we delve into the critical aspects of the DMA, outlining its applicability, compliance requirements, regulatory enforcement powers, and opportunities for innovation and collaboration. 

Applicability and Fair Practices

The DMA primarily targets large online platforms, referred to as "gatekeepers" in the digital sector. These gatekeepers play a pivotal role in the digital economy and are identified based on specific criteria outlined in the regulation. 

The law aims to ensure contestable and fair markets in the digital sector across the European Union where gatekeepers are present to fall under the DMA's purview; a platform must meet certain thresholds, including a significant presence in the European Union and providing core platform services. It is important to note that the DMA applies to tech giants and any platform meeting the specified criteria, regardless of geographical location.

Article 5 of the DMA aims to ensure fair competition, user privacy, and transparency in the digital marketplace and outlines the legal requirements for gatekeepers in online platforms. Gatekeepers must adhere to specified rules, including restrictions on processing personal data for advertising without user consent, preventing interference with business users' pricing strategies, and enabling communication between business users and end-users. The gatekeeper is prohibited from hindering users from accessing content through alternative channels and engaging in unfair practices that could stifle competition. This includes preferential treatment of their own services, leveraging data in a manner that hampers competition, and imposing unreasonable conditions on users. Additionally, the gatekeeper must provide transparent information on advertising transactions to advertisers and publishers upon request. 

Compliance Requirements

Under Section 28, Compliance check function, the DMA introduces specific obligations and requirements for gatekeepers, and a well-thought-out compliance strategy can help digital platforms not only meet regulatory standards but also position themselves competitively. Developing a comprehensive compliance strategy will not only mitigate legal risks but also position platforms to thrive in a regulatory environment that values fair competition and consumer protection.

Assessment of Applicability:

  • Start by conducting a thorough assessment to determine whether your digital platform qualifies as a gatekeeper under the DMA criteria. Evaluate factors such as market presence, core platform services, and user reach.
  • Clearly define the scope of your platform's services and assess whether it meets the criteria outlined in the regulation.

Internal Compliance Audit:

  • Under Article 15 Audit obligation, a gatekeeper must Conduct an internal audit to evaluate current business practices against the requirements set forth by the DMA. This includes transparency requirements, prohibitions on unfair practices, and requirements related to interoperability and data access. 
  • Further laws may be adopted to develop audit methodology and procedure.

Data Governance and Privacy Compliance:

  • Given the emphasis on data access and portability, review and enhance your platform's data governance practices. Ensure compliance with data protection regulations and develop mechanisms for user-friendly data portability features.
  • Establish clear policies on data usage, sharing, and protection, aligning them with both DMA requirements and broader data privacy principles.

Implementation of Transparency Measures:

  • Develop and implement transparent communication strategies for your users. This includes providing clear terms and conditions, data usage policies, and notifications about any changes to your platform's services.
  • Consider user-friendly interfaces and dashboards that empower users to understand and control their interactions with your platform.

Interoperability Enhancements:

  • Explore opportunities for enhancing interoperability within your digital platform. Collaborate with other service providers, adopt standardized interfaces, and work towards creating an ecosystem where users can seamlessly switch between different platforms.
  • Consider the development of APIs and other tools that facilitate interoperability while complying with the DMA.

Scenario Planning for Regulatory Changes:

  • Anticipate potential changes in DMA regulations and proactively engage in scenario planning. Stay informed about ongoing discussions and proposals related to the DMA and adjust your compliance strategy accordingly.
  • Develop a flexible compliance plan that can adapt to changes in the regulatory environment.

Continuous Monitoring and Reporting:

  • Implement continuous monitoring mechanisms to assess ongoing compliance with DMA requirements. Establish reporting mechanisms to provide regulatory authorities with the necessary information about your platform's operations.
  • Be prepared to adapt your compliance strategy based on feedback from regulatory authorities and evolving industry standards.

Regulatory Powers and Enforcement

Under Section 23, Powers to carry out inspection, the DMA grants significant regulatory powers to authorities to ensure compliance and address anticompetitive behavior. National regulatory authorities and the European Commission are empowered to investigate alleged violations ”and may require the company or association of companies to provide access to its organization, operations, IT system, algorithms, data processing, and business practices and to provide explanations of these different elements.” Gatekeepers must proactively track impending laws, as authorities may issue further binding decisions and impose fines for non-compliance. 

Market Investigations:

  • Regulatory authorities, including national competition authorities and the European Commission, have the authority to initiate market investigations. These investigations aim to identify and assess gatekeepers within the digital market.
  • Through market investigations, authorities can gather information, assess market dynamics, and determine whether a platform qualifies as a gatekeeper under the DMA criteria.
  • Third parties can pursue designated gatekeepers for failure to comply with the DMA's rules and seek enforcement.

Binding Remedies:

  • In the event of a breach of the DMA provisions, regulatory authorities can impose binding remedies on gatekeepers. These remedies are designed to address specific anticompetitive practices and restore fair competition within the market.
  • Remedies may include changes to business practices, structural changes, or any other measures deemed necessary to ensure compliance with the DMA.

Fines and Sanctions:

  • Regulatory authorities have the power to impose fines and sanctions on gatekeepers that fail to comply with the DMA. Fines can be significant, serving as a deterrent against anticompetitive behavior.
  • Under Section 30 Fines, the Commission may impose fines of up to 10% of its total worldwide turnover during the previous financial year when it finds voluntary or negligent failure to comply with the law. The amount of fines may be calculated based on the severity and duration of the infringement. Repeat offenders may face higher penalties.

Interim Measures:

  • In cases where urgent action is required to address potential harm to competition or consumers, regulatory authorities can impose interim measures. These temporary measures aim to prevent further harm while a full investigation is conducted.
  • Interim measures can include restrictions on specific business practices or implementing changes to prevent ongoing anticompetitive behavior.

Monitoring and Reporting Requirements:

  • Gatekeepers under investigation may be subject to monitoring and reporting requirements to ensure compliance with the DMA's remedies. Authorities may require regular reports to assess the effectiveness of the implemented measures.
  • Monitoring requirements helps authorities track the impact of the DMA on the digital market and make adjustments as needed to maintain fair competition.

Cooperation with National Authorities:

  • The DMA emphasizes cooperation between national regulatory authorities and the European Commission. National authorities play a crucial role in enforcing the DMA within their respective jurisdictions.
  • Close collaboration ensures a coordinated approach to enforcement, allowing for the sharing of information and resources to address cross-border issues effectively.

Appeals Process:

  • Gatekeepers subject to enforcement actions have the right to appeal decisions made by regulatory authorities. An effective appeals process provides a mechanism for gatekeepers to challenge fines, remedies, or other enforcement measures.
  • The appeals process contributes to procedural fairness and allows parties to present their case before an independent body.

Innovation and Collaboration Opportunities

The Digital Markets Act brings about regulatory challenges and opportunities for innovation and collaboration within digital platforms with an emphasis on interoperability. The law requires gatekeepers in the digital sector to ensure interoperability with, and access for interoperability to, certain services, and they should publish a reference offer laying down the technical details and general terms and conditions of interoperability with their services. It also allows for some flexibility and protection of proprietary information since digital platforms may justify preventing interoperability from compromising the integrity of the operating system.

Interoperability Advancements:

  • The DMA encourages gatekeepers to ensure interoperability, allowing users to seamlessly switch between different platforms. Digital platforms can innovate by enhancing interoperability features, making it easier for users to integrate various tools and services.
  • Collaboration with other digital platforms to create standardized interfaces or data-sharing protocols can contribute to a more interconnected and user-friendly ecosystem.

Data Portability Initiatives:

  • Gatekeepers are required to facilitate data portability, allowing users to transfer their data between different platforms. Digital platforms can proactively develop tools and solutions that make it simple for users to move their data across services.
  • Implementing user-centric data portability features not only complies with the DMA but also positions Digital platforms as user-focused, enhancing trust and user satisfaction.

Innovation in User Transparency:

  • Transparency requirements under the DMA necessitate clear communication of terms, conditions, and data usage policies. Digital platforms can innovate by adopting advanced transparency measures, such as user-friendly dashboards, real-time notifications, and easy-to-understand privacy settings.
  • Enhancing user transparency ensures compliance and fosters a positive user experience, building trust and credibility in the industry.

The Digital Markets Act marks a pivotal moment in regulating the digital economy, holding significant consequences for a wide range of industries using digital platforms. Navigating the forthcoming changes to the regulatory landscape, set to take effect this March and potentially expand further as member states implement the DMA, will require adaptability and a proactive approach to compliance. In anticipation of this transformative shift, compliance departments must be prepared to evolve and address the changing regulatory framework in the short term and for the years to come.