Artificial intelligence, algorithms or digital platforms are only a few elements in the development which is about to change the world. Economies, business concepts and markets have changed compared to only a few years ago. The question is - are we ready for the digital era? The European Commission is about to upgrade the rules on the introduction of the Digital Services Act package which will also affect competition legislation on the digital markets.
Digital competition: What has happened so far?
In 2020, the Commission made legislative proposals on digital services and on digital markets to keep up with the digital development. “Digital services” are the primary focus, and the concept must be construed widely covering a wide range of digital companies from simple websites to online platforms and so-called gatekeepers.
Why introduce new legislation on digital competition?
The Commission recognises that most enterprises active on platforms are SMEs. However, only a small percentage of these enterprises achieve the largest part of the generated value. These platforms benefit from their strong network effects, create their own platform ecosystems and strengthen the obstacles to access thereby preventing others from entering the market.
The focus is to regulate the platforms classified as gatekeepers. Gatekeepers are major and financially powerful enterprises with decisive influence on and power over other enterprises when it comes to reaching the customers.
These market structures may lead to disloyal practices, ineffective results as to higher prices, lower quality and less alternative options. Gatekeepers may therefore contribute to negative consequences for a well-functioning competitive internal market.
The purpose of the proposal is therefore to supplement existing EU and national legislation by addressing behaviour on the digital market which may not be addressed correctly at present, or which falls outside the scope of competition law.
The issues that the Commission is focusing on are in accordance with the proposals from the Nordic competition authorities which have published a report on the Nordic recommendations and proposals. The Commission’s proposals concerning regulation of the digital markets and gatekeepers are very much supported by this report. In the report, the Nordic competition authorities recommend introduction of a harmonised procedure where traditional enforcement of competition law is combined with new legislative initiatives focusing on the problems on the digital markets.
The Danish position
Not much public material on the member states’ positions on the legislative proposal is available. The Danish position appears from a memo to the Danish parliament’s European committee stating that the Danish government’s position is generally positive and therefore supportive of the ambitious plans of the European Commission to create a new and fair platform economy. But the Danish government also expresses a wish to create clear, precise and well-formulated concepts under the act. In this connection, the government is working on the definition of a gatekeeper being based on quantitative criteria to point out the largest platforms and the platforms that are not so large, but are still gatekeepers.
What can you expect: The effect on competition legislation
The legislative proposal on digital markets is to supplement the existing enforcement of national and EU competition law. The main initiatives of the legislative proposal are:
The regulatory framework must apply to all providers of central platform services that fulfil the following requirements:
- Have a substantial effect on the internal market (EU markets) based on a turnover threshold of EUR 6.5 billion in the last three financial years;
- Act as important portals to business users to reach the consumers. Important portals are defined as having more than 45 million active customers per month which are situated or established in the EU, or 10,000 active users per year; and
- Have a fixed and permanent position on the market.
Platforms which meet the above thresholds must notify the Commission and fulfil the requirements laid down in the Regulation, for instance:
- To refrain from preventing or limiting business users from asking any relevant authority questions concerning the practice of gatekeepers.
- To notify the Commission of all planned and concluded acquisitions of other providers of central platform services or other services provided within the digital sector.
In addition, the Commission may:
- Carry out market surveys to investigate whether a provider of central platform services ought to be appointed gatekeeper.
- Order a gatekeeper to undertake measures to control behaviour or structural measures which are proportionate to the violation.
- Order a gatekeeper to pay a penalty of up to 10 % of the gatekeeper’s total turnover in the preceding financial year in case of non-compliance.
The legislative act on digital markets: What happens thereafter?
In December 2020, the Commission submitted its legislative proposal for consultation in the European Council and the European Parliament. The consultation is expected to be a comprehensive process.
We have developed a digital competition tool which may help you comply with competition legislation. For more information: Digital competition.