European Union: a new era for tech regulation


In summary

The pace and intensity of competition law enforcement continues to accelerate even as additional tools to tackle digital markets are introduced.


Discussion points

  • Political agreement has been reached on new legislation specifically targeting the digital economy
  • Updates to existing guidelines aimed at strengthening enforcement
  • Recent developments in the application of competition law in the digital sector

Referenced in this article

  • Proposed Digital Markets Act
  • Proposed Digital Services Act
  • EC investigations into Apple Inc
  • EC investigation into Amazon Inc
  • EC investigation into Meta
  • EC investigation into Google
  • Horizontal Guidelines
  • Meta/Kustomer
  • Google Shopping judgment
  • Illumina/Grail

Legislation

The first half of 2022 has seen the finalisation of the legislative package known as the Digital Services Act package, comprising proposals for two new EU Regulations to govern the digital economy: the Digital Markets Act (DMA) and the Digital Services Act (DSA). The final texts were agreed upon by the European Parliament and the Council of the European Union (the Council) on 24 March 2022 and 23 April 2022 respectively and are in the process of being closely analysed by interested stakeholders. Both texts are expected to enter into force in late 2022 or early 2023.

The DMA[1]

The DMA represents the first attempt by the European Union to enact ex ante regulation to promote contestability and fairness in the digital economy, and is set to fundamentally change the way in which competition rules are applied in the digital sector.

Only 16 months after the European Commission (EC) published its draft legislative proposal, the EU legislators adopted the final text of the DMA – in record time by EU standards.

What does the DMA seek to achieve?

Investigations into anticompetitive conduct typically take several years to complete, followed by several years of litigation before the EU courts. In the digital economy, which evolves incredibly rapidly, this has often resulted in prolonged uncertainty and irreversible harm to competition and consumers. The DMA enables the EC to act more quickly and without needing to establish an infringement of EU competition rules.

At the heart of the DMA is a list of 22 prohibitions and obligations, regulating the conduct of digital companies designated as gatekeepers.[2] Those ‘dos and don’ts’ are one-size-fits-all – for the most part, they apply to all gatekeepers irrespective of their business model.[3] The EC has based the list of dos and don’ts on real examples of conduct by known large digital companies that the EC is formally investigating or about which it has previously expressed concerns.

An earlier, far-reaching proposal to introduce a power to investigate markets and impose remedies where those markets were at risk of tipping into monopoly was dropped from the Digital Services Act package, although aspects of this proposal were subsumed into the DMA. [4]

To which companies will the DMA apply?

The DMA will apply to companies that the EC will designate as gatekeepers. Gatekeepers are providers of one or more core platform services (CPSs)[5] on the following exhaustive list:

  • online intermediation services, including, among other things, app stores and online marketplaces; [6]
  • online search engines, including not just display online search but also search through any other means (eg, voice);
  • online social networking services;
  • video-sharing platform services;
  • number-independent interpersonal communication services (eg, email and other messaging services);
  • operating systems;
  • web browsers;
  • voice assistants, such as Siri;
  • cloud computing services; and
  • online advertising services provided by a provider of any of the foregoing CPSs. [7]

In the EC’s view, CPSs feature several characteristics that service providers can exploit, including extreme economies of scale, very strong network effects, multi-sidedness, lock-in effects and an absence of significant multi-homing.

A provider of a CPS will be designated as a gatekeeper if all of the following three conditions are met:

  • it has a significant impact on the internal market;
  • it operates a CPS that serves as an important gateway for business users to reach end-users; and
  • it enjoys an entrenched and durable position in its operations, or it is foreseeable that it will do so in the near future.[8]

To make it relatively straightforward to designate gatekeepers, the EC relies on rebuttable presumptions. A company is presumed to satisfy the gatekeeper conditions in respect of a specific CPS if three cumulative quantitative thresholds are met, relating to (1) turnover, market capitalisation or fair market value; (2) number of business users and end-users; and (3) stability of market presence. Each of the three quantitative thresholds reflects one of the three gatekeeper conditions. [9]

Companies that meet the quantitative criteria can seek to avoid the gatekeeper designation by providing ‘sufficiently substantiated’ arguments that ‘manifestly put into question’ whether they satisfy the three gatekeeper conditions.[10] If they do so, the EC will open a market investigation to determine whether designation is appropriate. [11]

Companies that do not meet the quantitative thresholds can still be designated as gatekeepers if the EC so determines following a market investigation.[12] As part of the market investigation, the EC will make a qualitative (rather than quantitative) assessment of the (potential) gatekeeper’s market presence as well as structural characteristics of the market. [13]

Finally, the DMA gives the EC the power to designate not only existing gatekeepers but also emerging ones.[14],[15] A company designated as an emerging gatekeeper will only be subject to a subset of the 22 dos and don’ts deemed appropriate and necessary to prevent the emerging gatekeeper from achieving an entrenched and durable position through unfair means. [16]

The gatekeeper criteria are low enough to capture not just US-based big tech but also a few other players active in Europe.

What restrictions will the DMA apply to gatekeepers?

The dos and don’ts of the DMA are based on the EC’s real-world experience of enforcing antitrust rules in digital markets and primarily cover data-related practices, some forms of tying, interoperability with gatekeeping CPSs, transparency obligations when providing advertising services, and non-discrimination. Some key prohibitions and obligations that could have a significant impact are highlighted below.

  • Article 5(2) prohibits various types of personal data combinations and cross-use. More specifically, gatekeepers are prohibited from:
  • processing for the purposes of advertising personal data sourced from services of third parties that make use of the gatekeeping CPS unless the end-user has been presented with the specific choice and provided meaningful consent in the sense of the EU General Data Protection Regulation;
  • combining personal data from the gatekeeping CPS with personal data sourced from any other CPS or other service of the gatekeeper or a third party;
  • cross-using personal data from the gatekeeping CPS in any other service of the gatekeeper; and
  • signing in end-users to other services of the gatekeeper to combine personal data.

This will primarily affect companies active in digital advertising, which combine data to gain an advantage in targeted advertising.[17] As currently drafted, however, article 5(2) would still allow data combinations for advertising purposes if end-users consent to it.

Article 5(4), among other things, obliges gatekeepers to allow business users of their gatekeeping CPS to advertise offers to customers and transact with consumers freely and at no charge, without needing to use the gatekeepers’ mechanisms (eg, its payment mechanism) to carry out those transactions. This provision seems to be inspired by the EC’s current investigations into Apple’s App Store (the App Store) practices.[18] In practice, it would oblige app store owners, such as Apple, to allow app developers to promote offers to consumers acquired via the App Store and conclude contracts with them without necessarily using Apple’s in-app purchase mechanism. [19]

Article 5(7) prohibits certain types of tying, by requiring gatekeepers to refrain from requiring users to offer or interoperate, inter alia, with the gatekeeper’s identification services, web browsers, payment services or in-app purchase systems in the context of offering services through the gatekeeping CPS. As a result, the DMA appears to prohibit any obligation imposed by an app store on app developers exclusively to use its in-app purchase mechanism to carry out in-app sales of digital content.

Article 6(11) obliges search engine gatekeepers to provide rivals with access on fair, reasonable and non-discriminatory terms to user-generated search data. Search engine gatekeepers would be required to share virtually all data generated by users, including the data about users’ long-tail searches (ie, less common searches). This could have a dramatic impact on search engine competition.

Article 6(12) obliges gatekeepers to apply fair, reasonable and non-discriminatory general conditions for businesses’ access to app stores, online search engines and social networks. The DMA requires gatekeepers to publish these general conditions of access, which should provide for an EU-based alternative dispute settlement mechanism with guarantees of independence and impartiality. The DMA’s recitals make particular reference to app stores, highlighting pricing as one of the conditions of access on which the EC will focus its attention. To determine the fairness of an app store’s conditions of access, the DMA proposes using as comparators the prices charged and conditions imposed by other app stores, or by the same app store for different services to different types of end-users for the same service in different geographic regions in respect of the same service the gatekeeper offers to itself. [20]

Article 7, which was not part of the draft text of the DMA but was added relatively late in the legislative deliberations, creates an obligation on gatekeeper instant messaging services, such as iMessage and WhatsApp, to provide interoperability to rival messaging services free of charge to allow them to provide basic functionality such as text messaging, sharing of images and other attachments, voice calls and video calls. Contrary to initial predictions, the DMA did not include an equivalent interoperability obligation to social networks, but the EC indicated that this might be considered in the future. Gatekeepers can take measures to protect the integrity, security and privacy of their messaging services to the extent that interoperability might endanger them.

The EC has purposefully avoided using the DMA as a vehicle to make amendments to merger control rules.[21] Nevertheless, merger control is not unaffected: article 15 obliges gatekeepers to report to the EC, pre-closing, any intended concentration involving another digital service provider, irrespective of whether the concentration is notifiable for merger control approval in the EU. Reporting the transaction discharges the gatekeeper’s obligation, and there is no clearance process involved. This obligation is expected to put more transactions on the EC’s radar, especially viewed in conjunction with the EC’s recently amended interpretation of article 22 of the EU Merger Regulation (EUMR).[22] In addition, gatekeepers systematically not complying with the DMA risk being sanctioned with a temporary freeze from entering into new concentrations. [23]

The DSA[24]

The DSA is the first major overhaul of EU rules for the internet and online businesses since the introduction of the E-Commerce Directive 20 years ago. The DSA seeks to regulate the way that providers of online services interact with their customers and users and sets out obligations in respect of harmful or illegal content.

Updating the E-Commerce Directive

The proposed DSA aims to equip the EU with a modernised and harmonised rulebook that will facilitate the free provision of digital services within the Union and create enhanced responsibilities for online intermediaries and platforms.

The DSA will not repeal the E-Commerce Directive but will instead replace certain provisions and coexist with other unrepealed provisions. The core principles under the E-Commerce Directive (ie, the liability regime, the prohibition of general monitoring and the internal market clause that safeguards the freedom to provide digital services across the European Union) have been maintained and, in some instances, built upon in the DSA proposal.

New obligations

The proposed DSA introduces a series of new requirements that increase in their obligations depending on the type of service provider. They are divided into four layers, best visualised as concentric circles.

  • Layer 1, the core, applies to all providers of digital intermediary services that connect EU consumers to goods, services or content, and includes an obligation on service providers established outside the EU to designate a point of contact and legal representative within the Union for communications with regulators.
  • Layer 2 creates additional obligations for providers of hosting services (eg, cloud or web hosting) and includes the implementation of a mechanism to allow third parties to notify them of illegal content.
  • Layer 3 creates additional obligations for online platforms that disseminate their customers’ information to the public (eg, app stores, marketplaces and social media). The obligations include a requirement to assign priority to notifications made by ‘trusted flaggers’, which are designated by national authorities, when dealing with notifications of illegal content.
  • Layer 4 creates additional obligations for very large online platforms (VLOP), which are platforms with 45 million or more average monthly active users in the EU. The obligations include higher standards on transparency, content moderation, advertising and reporting, owing to their impact on the economy and society, by carrying out risk assessments to mitigate any identified systemic risks.

Harmonisation

The E-Commerce Directive will remain the cornerstone of digital regulation. The DSA will complement it to ensure harmonisation across the EU rather than introducing a range of targeted, sector-specific interventions. For example, it introduces:

  • measures to counter illegal content online, including goods and services, such as a mechanism for users to flag this content and for platforms to cooperate with trusted flaggers;
  • new rules on the traceability of business users in online marketplaces to help identify sellers of illegal goods;
  • measures to counter manipulation by online platforms and marketplaces of users’ choices through ‘dark patterns’, namely, by nudging users into using their services;
  • new rules on online advertising, such as through banning targeted advertising when it comes to sensitive data;
  • wide-ranging transparency measures for online platforms, including on the algorithms used for recommending products and services to users;
  • obligations for VLOPs to prevent abuse of their systems by taking risk-based action, including oversight through independent audits of their risk management measures; and
  • an oversight structure to address the complexity of the online space. For VLOPs, the EC will provide enhanced supervision and enforcement.

To become law, the DMA and the DSA proposals must be formally adopted by the European Parliament and the Council, which can amend the EC’s proposals. With the entry into force of the DMA estimated for late 2022, the expectation is that companies designated as gatekeepers under the DMA will likely be required to fully comply with the DMA’s obligations and prohibitions in early 2024. The timeline for the entry into application of the DSA is currently still unclear, with the EC’s press release however noting that the DSA will apply ‘15 months or from 1 January 2024, whichever later, after entry into force'.[25] For VLOPs and very large online search engines, the EC indicates that ‘the DSA will apply from an earlier date, that is four months after their designation.’

On 23 February 2022, the Commission also presented a proposal for a Regulation on harmonised rules on fair access to and use of data (the Data Act). The proposed Regulation seeks to redefine rules and practices on the access and use of data to foster data (re)use and to ensure fairness in how the value of data is allocated among actors who are active on different levels of the data value chain. There might be substantial overlaps between the rules of the Data Act and the new obligations on gatekeepers and digital companies under the DMA and DSA proposals, leading to a complex web of compliance obligations for digital companies.

Cases

Antitrust

Apple investigations

In 2020, Apple became subject to four formal EC antitrust investigations, three of which focus on the conditions Apple imposes on app developers in its App Store[26] and the fourth on Apple’s practices regarding Apple Pay.[27] Meanwhile, it is understood that the way Apple’s hardware products such as iPhones and iPads interact with wearable devices (eg, smart watches, headphones and fitness bands) has triggered questions from the EC. However, no formal investigation has been announced to date.

The App Store investigations

In June 2020, the EC announced[28] the opening of three formal investigations to assess whether Apple’s rules for app developers seeking to distribute apps via the App Store violate competition law. All three investigations focus on rules imposed on app developers that directly compete with Apple’s apps and services. Two of those investigations were prompted by complaints to the EC from competitors of Apple – audio streaming service Spotify and eBook and audiobook provider[29] Kobo; hence, they are limited to music streaming and eBooks and audiobooks respectively. The third investigation is a ‘catch-all’ that does not have a thematic focus.

It is understood that at least two other Apple competitors – game developer Epic Games[30] and tracking device manufacturer Tile – have also submitted complaints to the EC regarding the App Store rules. [31]

The EC’s investigations focus on the following two App Store terms:

  • Apple obliges developers who want to sell digital content within their iOS apps (in-app sales) exclusively to use Apple’s own payment mechanism, In-App Purchase (IAP).[32] For every in-app sale a developer makes via IAP, Apple takes a 30 per cent commission.[33] Apple gets full control over the billing relationship with users who purchase content via IAP, disintermediating developers from critical customer data; and
  • Apple imposes anti-steering rules, restricting developers’ ability to inform users of alternative purchasing possibilities outside apps. For instance, developers may not mention in their iOS app that their digital content is available for purchase (often cheaper) on the developer’s own website.

On 30 April 2021, the EC announced that it had issued a statement of objections (SO) in the music streaming investigation (AT.40437), provisionally finding that Apple has distorted competition in music streaming services by abusing its dominance in the distribution of music streaming apps on iOS. Since then, the EC has been progressing this case. It is expected that the EC will release a supplementary SO shortly based on new evidence it has gathered.

Several jurisdictions globally are also pursuing investigations or market studies regarding Apple’s App Store practices. Notable examples include the United Kingdom,[34] Australia,[35] Japan,[36] the Netherlands[37] and the United States (both at the federal and state level). [38]

Most notably, on 24 December 2021, the Dutch Authority for Consumers and Markets (ACM) obliged Apple to adjust the conditions in its App Store that apply to dating-app providers.[39] Since then, Apple has racked up fines for non-compliance with the ACM’s order and reached the maximum fine of €50 million for non-compliance under Dutch law. Apple has been making compliance offers to the ACM[40] in order to resolve its antitrust concerns and the case could possibly serve as an indication on how the EC’s investigations could unfold, as regulators are expected to take inspiration and lessons from the Dutch regulator’s case.

The Apple Pay investigation

In June 2020, the EC opened a formal investigation into Apple’s practices related to Apple Pay. Not to be confused with Apple’s IAP, Apple Pay is Apple’s proprietary mobile payment solution on iPhones and iPads used to enable payments in merchant apps and websites, as well as in physical stores.

On 2 May 2022, the EC confirmed that they had sent an official SO to Apple, preliminarily finding that Apple may have abused its dominant position in markets for mobile wallets on iOS devices.[41] In particular, the EC is concerned that Apple distorts competition for mobile payment solutions and reduces choice and innovation for consumers through its limitation of access to the near field communication (NFC) functionality (‘tap and go’) on iPhones for payments in stores, as Apple Pay is currently the only mobile payment solution that can access the NFC technology embedded on iOS mobile devices for payments in stores. In support of the issuance of the SO, Executive Vice-President Margrethe Vestager stated: 'Mobile payments play a rapidly growing role in our digital economy. It is important for the integration of European Payments markets that consumers benefit from a competitive and innovative payments landscape.' [42]

Amazon investigations

EC investigation into Amazon’s marketplace practices

In November 2020, the EC issued an SO to Amazon, provisionally finding that some of its marketplace practices are anticompetitive. Amazon’s marketplace enables both its retail business and third-party sellers to offer products to consumers. The EC’s main concern relates to Amazon’s alleged access and use of non-public business data of independent sellers who sell on its marketplace, allegedly to the benefit of Amazon’s own retail business. Since then, limited information has been made publicly available on the progress of the investigation.

EC investigation into Amazon’s buy box practices

In November 2020, the EC opened[43] a formal antitrust investigation to determine whether Amazon preferentially treats its own retail offers and those of marketplace sellers that use Amazon’s logistics and delivery services.[44] The investigation covers the entire European Economic Area (EEA), except Italy, on the grounds that similar issues were already being investigated by the Italian competition authority.

Amazon’s featured offer is displayed on Amazon’s single product detail page, and it allows customers to easily identify the offer they would likely have chosen had they compared all offers for the same product. The EC is investigating whether the criteria considered by the algorithm identifying the featured offer (referred to as the ‘buy box’ by the EC) confers an advantage on Amazon’s own retail business or on third-party sellers using Amazon’s logistics and delivery services.

Amazon appealed against the EC’s decision to initiate proceedings before the General Court of the European Union on the basis that the EC carved Italy out of the scope of the investigation unlawfully, as article 11(6) of Council Regulation (EC) No. 1/2003 relieves national competition authorities of their competence to apply articles 101 and 102 of the Treaty on the Functioning of the European Union (TFEU) to a matter under investigation by the EC. On 14 October 2021, the General Court in a Court Order rejected Amazon’s appeal and ruled it as inadmissible. The EU’s lower court was of the opinion that the opening of the EC investigation, insofar as it excludes Italy from the territorial scope of the investigation, did not alter Amazon’s legal position, and should thus be declared inadmissible.[45] According to the General Court, the protection against parallel proceedings does not imply a right, for the benefit of an undertaking, to have a case dealt with in its entirety by the Commission. Amazon has subsequently instigated further legal proceedings before the EU Court of Justice, arguing that the EC’s decision did produce legal effects, and it therefore could be challenged in court. [46]

Meanwhile, the Italian Competition Authority concluded its investigation on 9 December 2021 and fined Amazon approximately €1.1 billion for abusing its market power and harming competitors offering logistics services for e-commerce. [47]

Investigation of Facebook’s Marketplace and data-related practices

Since 2019, the EC has been informally investigating Meta, Facebook’s parent company, and its practices related to Facebook Marketplace (Meta’s classified ads service), as well as data-related practices. On 4 June 2021, the EC opened a formal antitrust investigation into Meta to assess whether it violated EU competition rules by using advertising data gathered from, for example, advertisers to compete with them in markets where Meta is active such as classified ads.[48] Facebook Marketplace is an online classified ads service for Facebook users where they can buy and sell goods from one another. Facebook is a popular social networking service.

The EC is particularly concerned that Meta’s position in social networks and online advertising allows it to harm competition. Online classified ads providers – platforms on which consumers buy and sell products – advertise their services on Facebook. At the same time, they compete with Facebook Marketplace. This may provide Meta with valuable data that it might use to compete more effectively with competing online classified ads providers. The EC has concerns that this may distort competition for online classified ads services.

In the same investigation, the EC will also look into whether Meta has abused its dominant position by tying Facebook Marketplace with the Facebook social network. This tying could potentially provide Meta with an advantage over competing online classified ads services in reaching customers.

Also on 4 June 2021, the UK’s Competition and Markets Authority (CMA) launched its own investigation into Meta’s use of data.[49] The two authorities are said to be working on their individual investigations in close alignment.

Investigation into Google’s data and ad tech practices

On 22 June 2021, the EC opened a formal antitrust investigation into possible anticompetitive conduct by Google in the online advertising (ad tech) sector. [50]

The EC is examining a ‘really complex ecosystem’, where Google is both a publisher of online display advertising (eg, YouTube) and provides ad tech services. The EC is particularly concerned that Google’s practices harm competition in the ad-stack (ie, the digital advertising supply chain) to the detriment of competing ad tech providers, publishers, advertisers and consumers. [51]

Google provides several advertising technology services that intermediate between advertisers and publishers to display ads on websites or mobile apps. The EC is looking into various Google practices:

  • practices related to YouTube ad-inventory, which is sold exclusively through Google’s own ad tech platforms;
  • the favouring of Google’s ad exchange by DV360 and Google Ads, and vice versa;
  • the restrictions placed by Google on the ability of third parties (eg, advertisers, publishers or competing online ad intermediaries) to access data about user identity or behaviour, which is available to Google’s own ad intermediation services;
  • Google’s announced Privacy Sandbox and its plans to prohibit placement of third-party cookies in its Chrome browsers and their effects on in-line display advertising; and
  • Google’s plans to no longer make the ad identifier available to third parties when a user opts out of personalised advertising on Android smart devices, and its impact on online display advertising.

In connection with its investigation, in September 2021, the EC received a formal complaint by Movement for an Open Web regarding Google’s plans for phasing out third-party cookies. In January 2022, a group of German publishing and advertising associations also made a formal complaint alleging that Google’s Privacy Sandbox and phasing out of third-party cookies will starve competitors and solidify Google’s market power.

In February 2022, the European Publishers Council made a formal complaint to the EC stating that Google is abusing its market power across various different parts of the ad tech chain.

In parallel, the UK CMA had been looking into Google's announced Privacy Sandbox plans since January 2021 and on 11 February 2022 accepted binding commitments to address its concerns.[52] On 26 May 2022, the CMA opened another UK antitrust investigation into Google's adtech practices on suspicion that Google is favouring its own adtech intermediation services.[53] The conduct under scrutiny in both antitrust investigations largely overlaps with the practices under investigation by the EC.

Investigation into the ‘Jedi Blue’ agreement between Google and Meta

On 11 March 2022, a formal antitrust investigation was opened to assess whether an agreement between Google and Meta regarding online display advertising services may have breached EU competition rules.[54] Google provides intermediate advertising technology services between advertisers and publishers by auctioning online display advertising space. Meta provides online display advertising services and participates in auctions using Google’s and rivals’ advertising technology services.

The EC is concerned that an agreement between Google and Meta, code-named ‘Jedi Blue’, excludes ad tech services competing with Google’s ad tech services, and therefore distorts competition in markets for online advertising.

The UK CMA has launched its own investigation into the agreement between Google and Meta and will be working in close cooperation with the EC. [55]

General Court judgment on Google Shopping

On 10 November 2021, the General Court issued its long-awaited judgment in Case T-612/17, Google and Alphabet v Commission (Google Shopping). In its ruling, it upheld the EC’s finding that Google abused its dominant position by favouring its own comparison shopping service in its general search results and displaying rivals’ services less favourably. The General Court found that Google’s conduct was not competition on the merits and upheld the EC’s fine in its entirety. The judgment will likely have important ramifications for the enforcement of article 102 TFEU in relation to digital gatekeepers, as it could embolden competition authorities to find novel abuses in relation to other digital issues (such as online advertising or data uses). Google has appealed the General Court's ruling.

Mergers

Meta/Kustomer

On 27 January 2022, following a Phase II investigation, the EC conditionally cleared Meta’s acquisition of Kustomer, a US provider of customer relationship management (CRM) software that integrates with a wide range of B2C communication channels including email, SMS, Messenger, WhatsApp, Instagram and Twitter.[56] CRM software applications are used by businesses to engage with their customers by answering questions, solving problems and giving advice. Messaging channels such as Meta’s WhatsApp, Instagram and Messenger are used as inputs for CRM software providers and are as such vertically related markets to the CRM software market.

The EC’s concerns related to Meta’s ability and incentive to engage in foreclosure strategies with regard to Kustomer’s competitors and new entrants. Meta could deny or degrade access to Meta’s messaging channels to Kustomer competitors. [57]

To address this competition concern, Meta offered access commitments for a 10-year period:

  • A public application programming interface (API) access commitment: Meta will guarantee non-discriminatory access, without charges, to its publicly available APIs for its messaging channels to competing CRM software providers.
  • A core API access-parity commitment: to the extent that any features or functionalities of Messenger, Instagram and WhatsApp used by Kustomer’s customers are improved or updated, Meta commits to make equivalent improvements available to Kustomer’s competitors. This includes any new features or functionalities if they are used by a sizeable proportion of Kustomer’s customers.

In addition, the EC expressed concerns at Phase I regarding Meta’s position in the market for online display advertising services. The EC had preliminary concerns that the merger would provide Meta with a data advantage that could strengthen its position in online display advertising services. The EC eventually concluded that the merger would not lead to a significant impediment to competition on this market as Meta’s access to data would depend on agreements with business customers who in turn need consent from their end customers; and the amount of additional data would not be significant given Kustomer’s limited size.

The transaction did not meet the turnover thresholds of the EU Merger Regulation. However, the transaction had to be notified in Austria. Following this notification on 2 April 2021, Austria submitted a referral request to the EC. Multiple other EU member states joined Austria’s referral that was accepted by the EC. The referral will lead to member states not applying their national legislation to the transaction. Instead, the EC will assess the impact of the transaction under the EU Merger Regulation within the territory of these member states.

Other

Horizontal guidelines

The EC is currently considering potential revisions to the Horizontal Guidelines, which will expire on 31 December 2022. The EC published drafts of the revised Horizontal Guidelines and related block exemption regulations (regarding R&D and specialisation) in March 2022 and invited all interested parties to comment on the draft revised texts as part of a public consultation. The revised guidelines clarify that their aim is to make economically desirable cooperation between companies easier and to thereby contribute to green and digital transitions within the EU. [58]

One proposed amendment of particular relevance to the digital economy is the addition of guidance on mobile network sharing agreements in the Horizontal Guidelines.[59] The EC recognises in its draft that connectivity networks are today vitally important to the digital economy and society more generally. Network operators often enter into agreements to share some infrastructure elements (such as masts or antennas) to improve the quality or reduce the costs of their services. The EC considers that, in light of their potential benefits, such mobile infrastructure sharing agreements would in principle not be restrictive of competition by object, ‘unless they serve as a tool to engage in a cartel’.[60] The EC also provides guidance on the instances in which such agreements may be considered to give rise to restrictive effects on competition.

The EC is expected to publish the final texts of the Horizontal Guidelines and related block exemption regulations in late 2022.

Change in the interpretation of article 22 EUMR

On 26 March 2021, the EC published guidance on its revised approach to the use of the referral mechanism in article 22 of the EUMR (the Guidance).[61] Article 22 of the EUMR enables one or more member states’ national competition authorities (NCAs) to request the EC to review a transaction where the transaction affects trade between member states and significantly threatens to affect competition within the territory of the member states making the request. Any change to the EUMR itself would have required unanimous approval by all member states.

Prior to the issuance of the Guidance, the EC’s informal policy was to discourage NCAs from requesting referrals for transactions that did not meet the national merger control thresholds. Under the new Guidance, the EC encourages referrals initiated by NCAs even when those NCAs themselves lack jurisdiction. This shift in policy is driven by a perceived ‘enforcement gap’, which allowed potentially problematic transactions (especially ‘killer acquisitions’ of nascent competitors) to escape merger control review.

The Guidance cites the digital economy and the pharmaceutical sectors as examples where those transactions are most likely to occur, as in those industries a target company’s importance on the market may not be reflected in its (low) turnover.[62] The Guidance expands the EC’s merger control remit and is expected to reduce legal certainty for transactions, especially as the EC will accept referrals submitted after a transaction has closed. [63]

In this context, the proposed acquisition by Illumina (a gene-sequencing company) of Grail (a company specialised in developing cancer screening tests) is currently being assessed by the EC[64] following referral requests by several NCAs, despite the transaction falling below the usual turnover thresholds required for a mandatory notification under either national or EU merger rules. The parties have appealed the referral to the General Court, arguing that the EC lacks jurisdiction to review the transaction.[65] The judgment of the General Court is expected to be issued in 2022.

*The authors wish to thank Bram van der Beken and Victoria Baltrusch for their assistance in the preparation of this article.


Notes

[1] At the time of writing, the final text of the DMA has not been released. References to specific articles of the DMA refer to the near-final legislative text dated 11 May 2022 and article numbers reflect this text.

[2] Articles 5, 6 and 7, DMA.

[3] There are, however, some provisions specifically addressed to specific types of services, such as online intermediation services (article 5(3), DMA), advertising services (articles 5(9) and 5(10), DMA) and online search engines (article 6(11), DMA).

[4] For example, articles 16-19, DMA regarding market investigations.

[5]5 The EC may, however, conduct a market investigation with the purpose of examining whether additional services within the digital sector should be added to the list of CPS (article 19, DMA).

[6] The DMA defines ‘online intermediation services’ by referring to the definition in point 2 of article 2 of the Platform-to-Business Regulation (Regulation (EU) 2019/1150 of the European Parliament and of the Council of 20 June 2019 on promoting fairness and transparency for business users of online intermediation services).

[7] Article 2, DMA.

[8] Article 3(1), DMA.

[9] Article 3(2), DMA.

[10] For instance, considering the characteristics of its CPS and the market structure in which it operates.

[11] Article 3(5), DMA.

[12] Article 3(8), DMA.

[13] Articles 3(8) and 17, DMA.

[14] Companies that do not yet enjoy an entrenched and durable market position, but it is foreseeable that they will do so in the near future.

[15] Articles 3(1)(c) and 17(4), DMA.

[16] Article 17(4), DMA.

[17] Facebook’s data combination across its services (leading to the creation of user ‘super profiles’) was sanctioned by the German Federal Cartel Office (FCO) in 2019. See the FCO press release, ‘Bundeskartellamt prohibits Facebook from combining user data from different sources’ (7 February 2019).

[18] European Commission (EC) press release, ‘Antitrust: Commission opens investigations into Apple’s App Store rules’ (16 June 2020).

[19] See section below on the EC’s ongoing investigations into Apple’s App Store practices.

[20] Preamble 62, DMA.

[21] Changing the existing merger control rules would have required the EC to rely on a different legal basis in the EU Treaties, which requires the unanimous approval of the EU member states.

[22] On 26 March 2021, the EC issued guidance explaining its new approach to the interpretation of article 22 of the EU Merger Regulation (EC Guidance on the application of the referral mechanism set out in article 22 of the Merger Regulation to certain categories of cases, 26 March 2021).

[23] Article 18, DMA.

[24] At the time of writing, the final text of the DSA has not been released. The information in this chapter is notably based on the EC press release, ‘Digital Services Act: Commission welcomes political agreement on rules ensuring a safe and accountable online environment’ (23 April 2022) and other public sources and might be subject to change once the final text is published.

[25] EC press release, ‘Digital Services Act: Commission welcomes political agreement on rules ensuring a safe and accountable online environment’ (23 April 2022).

[26] Case AT.40437, Apple – App Store Practices (music streaming); Case AT.40652, App Store Practices (e-books and audiobooks); and Case AT.40716, Apple – App Store Practices.

[27] Case AT.40452, Apple – Mobile Payments.

[28] EC press release, ‘Antitrust: Commission opens investigations into Apple’s App Store rules’ (16 June 2020).

[29] Spotify provided details to consumers and market participants about its complaint submitted to the EC in March 2019 in a dedicated microsite: www.timetoplayfair.com.

[30] ‘Epic Game Files EU Antitrust Complaint Against Apple’, Epic Games (17 February 2021).

[31] In parallel, Epic Games is pursuing litigation against Apple before the US District Court for the Northern District of California, which does not focus on competition between Epic’s and Apple’s apps in the App Store, but rather on competition between Epic’s own app store, the Epic Games Store, and the App Store, as well as competition between Apple’s In-App Purchase and rival in-app purchase mechanisms. Epic’s main claim is that Apple is monopolising those two markets.

[32] See point 3.1.1 in Apple’s App Store Review guidelines.

[33] Apple’s commission is reduced to 15 per cent of the transaction value for subscriptions having lasted for more than a year.

[34] UK Competition and Markets Authority press release, ‘CMA investigates Apple over suspected anti-competitive behaviour’ (4 March 2021).

[35] Australian Competition and Consumer Commission Digital Platform Services Inquiry 2020–2025.

[36] Japan Fair Trade Commission press release, ‘Report regarding trade practices on digital platforms (Business-to-Business transactions on online retail platform and app store)’ (31 October 2019).

[37] The Netherlands Authority for Consumers and Markets (ACM) news, ‘ACM launches investigation into abuse of dominance by Apple in its App Store’ (11 April 2019); and ACM, ‘Market study into mobile app stores’.

[38] For example, the hearing that the US Senate House Judiciary Committee (Subcommittee on Competition Policy, Antitrust, and Consumer Rights) held regarding ‘Antitrust Applied: Examining Competition in App Stores’.

[39] The Netherlands Authority for Consumers and Markets (ACM) publications, ‘ACM obliges Apple to adjust unreasonable conditions for its App Store’ (24 December 2021).

[40] The Netherlands Authority for Consumers and Markets (ACM) publications, ‘ACM to assess adjusted proposal of Apple regarding its conditions for dating apps’ (28 March 2022).

[41] EC press release, 'Antitrust: Commission sends Statement of Objections to Apple over practices regarding Apple Pay' (2 May 2022).

[42] See above.

[43] EC press release, ‘Antitrust: Commission sends Statement of Objections to Amazon for the use of non-public independent seller data and opens second investigation into its e-commerce business practices’ (10 November 2020).

[44] Case AT.40703, Amazon – Buy Box.

[45] Case T-19/21, Amazon v Commission.

[46] These proceedings are referenced under C-815/21 P. Appeal brought in 21 December 2021 (OJ 2022 C84/42).

[47] Italian Competition Authority press releases, ‘Amazon fined over €1,128 billion for abusing its dominant position’ (9 December 2021).

[48] EC press release, ‘Antitrust: Commission opens investigation into possible anticompetitive conduct of Facebook’ (4 June 2021).

[49] UK Competition and Markets Authority press release, 'CMA investigates Facebook’s use of ad data’ (4 June 2021).

[50] EC press release, ‘Antitrust: Commission opens investigation into possible anticompetitive conduct by Google in the online advertising technology sector’ (22 June 2021).

[51] Intervention of the EC’s Executive Vice President Margrethe Vestager at the American Bar Association Antitrust Virtual Spring Meeting (26 March 2021).

[52] UK Competition and Markets Authority press release, 'CMA to keep "close eye" on Google as it secures final Privacy Sandbox commitments' (11 February 2022).

[53] UK Competition and Markets Authority press release, 'Google probed over potential abuse of dominance in ad tech' (26 May 2022).

[54] EC press release, ‘Antitrust: Commission opens investigation into possible anticompetitive conduct by Google and Meta, in online display advertising’ (11 March 2022).

[55] UK Competition and Markets Authority press release, ‘CMA investigates Google and Meta over ad tech concerns’ (11 March 2022).

[56] The deal was notified on 25 June 2021. See EC press release, ‘Mergers: Commission clears acquisition of Kustomer by Meta (formerly Facebook), subject to conditions’ (27 January 2022).

[57] See EC press release, ‘Mergers: Commission opens in-depth investigation into proposed acquisition of Kustomer by Facebook’ (2 August 2021).

[58] Revised draft version of 1 March 2022 of the Guidelines on the applicability of Article 101 of the Treaty on the Functioning of the European Union to horizontal co-operation agreements, para. 1.

[59] Revised draft version of 1 March 2022 of the Guidelines on the applicability of Article 101 of the Treaty on the Functioning of the European Union to horizontal co-operation agreements, section 3.6.

[60] Revised draft version of 1 March 2022 of the Guidelines on the applicability of Article 101 of the Treaty on the Functioning of the European Union to horizontal co-operation agreements, para. 299.

[61] Communication from the EC, 'EC Guidance on the application of the referral mechanism set out in Article 22 of the Merger Regulation to certain categories of cases' (26 March 2021).

[62] Guidance, paras. 9 and 10 and Margrethe Vestager, ‘The Future of EU Merger Control’ (11 September 2020).

[63] The EC has clarified in its Guidance that it will accept referrals even if these are submitted after the transaction has closed and that, while it would generally consider that a referral is no longer appropriate if more than six months have elapsed since closing, this six-month period would only start from the moment material facts about the transaction have been made public in the EU.

[64] See Case COMP No. M.10188.

[65] See Case T-755/21 – Illumina v Commission.

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