Richard Feasey / Mar 2021
Photo: European Union 2021
The European Commission has moved quickly since realising that its existing competition law tools will not be sufficient to restrain global digital platforms like Google, Facebook, Apple or Amazon. It is ahead of both the Americans and the British in proposing new legislation, the Digital Markets Act, in December last year. If adopted, the Act would give the Commission significant new powers to regulate ‘gatekeeper’ platforms in order to ensure that markets remain competitive and users are treated fairly. That is a good start.
Designing regulations which will achieve their intended effects is difficult when it comes to digital platforms. Specifying in law what actions are prohibited and what are required to ensure competition is challenging. So is determining whether those actions have their intended effects. The threat of fines, even of billions of euros, has proved no guarantee of compliance by firms like Facebook or Microsoft in the past. They, and other global platforms, have virtually unlimited resources when it comes to negotiating with the Commission or challenging them in the courts.
The Commission’s response is to try to use the Digital Markets Act to turbo charge competition law. Instead of having to prove that a firm is dominant, the Commission can regulate a firm provided it is large enough and provides a ‘core platform service’. It will be difficult for Google or Facebook to argue they do not meet the criteria. However, identifying who to regulate is the easy part.
The Commission has proposed a total of eighteen obligations which all regulated firms will be required to fulfil (to the extent they are relevant to that firm’s business activities). Most of these obligations have been derived from previous competition law investigations where the Commission found evidence of anti-competitive behaviour by a digital platform. These findings are now generalised as a list of rules which must be complied with by every regulated firm. The actions required to comply with more complex obligations – such as requirements to share customer data or open up access to operating systems or app stores –can be specified by the Commission in guidance to an individual firm. But the overriding assumption is that the problems are already understood, the rules are clearly set out in the legislation, and the Commission expects to devote most of its time ensuring they are complied with and imposing fines or threatening to break up firms when they do not. The Commission thinks it will need 80 staff to undertake these tasks.
The Commission’s reluctance to get drawn into protracted negotiations with the digital platforms before the rules can be enforced is understandable. But its expectation that the threat of fines or other sanctions will be enough to ensure the rules are complied with is misguided and contradicted by its own experience of trying to ensure effective remedies are implemented by digital platforms in competition cases. It would indeed be remarkable if the Commission could regulate much of the European digital economy with a staff of 80 when national regulators of energy or telecoms markets each require hundreds of staff to do a similar job, but I see little prospect of that happening.
In my view, the prospects of compliance will be higher, and the costs of enforcement may even be lower, if the Commission were prepared to invest more effort upfront in providing guidance to firms about what each of them needs to do to comply with the rules. The Digital Markets Act should also encourage the regulated firms to assess their own compliance and actively seek guidance from the Commission if they think they may have failed. This may require giving immunity from prosecution for those firms that come forward. In financial services regulation, ‘supervision’ envisages an ongoing dialogue between the firm’s senior management and its regulator, rather than a series of skirmishes into which lawyers and external consultants are deployed. It would require more staff for the Commission but, given the issues at stake, that should not be difficult to justify.
The Digital Markets Act understandably draws on the experience and frustrations of the Commission when it has tried to use competition law to regulate global digital platforms in the past. The Act seeks to remove those features of competition law, like proving dominance, defining markets and tailoring rules each individual firm, which often delay action being taken. However, simply subtracting the problematic features of competition law whilst retaining its approach to compliance will not guarantee that regulation will be effective. New features will also need to be added. If we get the legislation right, what has become an increasingly adversarial relationship between Europe and the global digital platforms could begin to evolve into something more constructive. That would mean fewer fines but better outcomes for everybody.