Position paper on the proposal for a regulation on contestable and fair markets in the digital sector (Digital Markets Act)

To the European Commission

1 General remarks on the proposal

Online platforms, such as online marketplaces, search engines, app stores, operating systems, and social media, have become paragons of the digital economy. Their rise is based on the rapid evolution of big data, cloud computing and machine learning.

Unfortunately, Europe and European companies have not been at the forefront of the platform transition. This is in part due to the fragmentation of the European Digital Single Market, which has hampered blitz scaling across national borders for the innovative European startups and SMEs, a key requirement to achieve the virtuous cycles of network effects and data accumulation.

This has resulted in a situation where a handful of mostly non-European platforms, who, supported by the momentum gathered from their home markets, have become to dominate large sectors of the European digital market, acting in many respects as de facto gatekeepers to these fields, thus suppressing innovation and competition and making it doubly hard for other companies to challenge them.

As it happens, a growing number of SMEs have also become dependent on these large platforms for conducting their day-to-day business and reaching customers. This dependence has been very apparent during the Covid-19 pandemic. Although platform ecosystems have brought many benefits to SMEs, trading relationships between large platforms and their small-business users are often excessively asymmetrical. The new EU-wide P2B regulation, applied as of July 2020, is aimed at improving the transparency of the platforms, but in our mind falls short of tackling their unfair behavior.

Considering the gravity of the situation described above, the EU needs a regulatory approach which makes the Digital Single Market, and especially the platform ecosystems that form its backbone, fairer, more competitive, and more innovative. It is also important to harmonize the rules of the digital markets in the EU and create a cohesive playing field that makes it possible for European SMEs, whether as providers of platform services or users of these services, to thrive and grow.

Therefore, we agree with the general objectives of the Commission’s proposal for the Digital Markets Act. In our assessment, the proposed regulation will bring clear benefits for the SME users of the gatekeeper platforms who currently lack effective means to address their unfair practices. This creates a more balanced relationship between business users and gatekeepers, on one hand, and between smaller platforms and bigger gatekeepers, on the other, generating new opportunities for SMEs and more options for consumers.

Although improving the functioning of the Digital Single Market is vital, it is worth reminding that regulation will bring the EU and European companies only so far when it comes to achieving increased competitiveness and productivity. In short, the EU cannot regulate its way to the top. Therefore, more attention needs to be paid to enhancing the capacity of European companies, especially SMEs and startups, to not just follow the digital trendsetters elsewhere but to blaze a trail into the emerging digital fields.

Keeping this in mind, it is imperative that the EU together with the Member States adopt a more committed stance towards investing in education and training, research, development and innovation (RDI) and deployment of new technology.

2 The gatekeeper definition

The quantitative requirements (45 million active end users / month and 10 000 active business users / year located in the EU) that a provider of core platform services needs to satisfy to be designated a gatekeeper are appropriate in terms of scale but not of scope. In our view, in the digital realm, it makes little difference for the power and impact of a gatekeeper where its end users or business users are situated. It would be more in line with the purposes of the regulation to also include users outside the EU in the count. If they are left out, the regulation would give several major third-country platforms an unfair competitive advantage over EU-based platforms.

It is also to be noted that the additional criteria of turnover (6,5 billion euros) and market capitalisation (65 billion euros) will further narrow down the regulation to a very small number of very large platform companies. To achieve a more level playing field in all markets where dominant platforms exist, we would advise the Commission to hold accountable platforms that, despite not meeting the numeric criteria, perform as de facto gatekeepers in relation to SMEs in a certain industry or a market.

Although the proposition mandates the Commission upon market investigation to identify as a gatekeeper a platform that does not satisfy the quantitative thresholds, it would be advisable, to foster legal certainty of large platforms and their users, to consider drafting a separate set of criteria for the pre-gatekeeper stage where it is foreseeable that a full gatekeeper status is reached in the near term. These criteria could be qualitative or quantitative or a combination of both. Some gatekeeper obligations could be applied during this pre-stage, as is proposed in Article 15.

3 The obligations for gatekeepers

Given the wide-spread harm caused by inappropriate practices of gatekeeper platforms, we consider the obligations, laid out in Articles 5 and 6, to be well targeted and proportionate to the challenges at hand.

The obligations presented in Article 5 are aimed at regulating unfair behavior which, in general, can be viewed as being contrary to good business practices and should therefore be off limits even without explicit ex ante prohibitions. It is then only reasonable that they apply to all gatekeepers as such.

The obligations proposed in Article 6 are susceptible of being further specified by the Commission depending on a gatekeeper in question. It is evident that these obligations are drafted with a view to improving the position of business users, balancing asymmetries of bargaining power and creating new business opportunities. To be clear, they are indispensable in making platform markets more open and competitive. We therefore urge the final text to clearly outline the procedure through which these obligations are specified for a gatekeeper. This would help business users to better anticipate the application and deployment of the obligations.

For business users the most relevant obligations proposed are those that force the gatekeeper to refrain from limiting a business user from operating outside the platform. It is essential that SMEs can offer and promote their products and services through third-party online intermediary services at prices and conditions that are different from those they offer or promote through the gatekeeper. The text should also explicitly state that this also applies to the business user’s own website or other web applications. It is also important that SMEs can conclude contracts and interact with end users through a service of their own choosing. In the same vein, gatekeepers should be prevented from determining a price for products or services that business users offer through a gatekeeper platform.

With a view to policing the double role of certain gatekeeper platforms, we support the obligations that prevent these gatekeepers from treating their own products and services more favorably than those of their business users. Due to the competition risks inherent in the double role, it is also justified to forbid gatekeepers from using, in competition with business users, any data not publicly available.

The dominant position of a gatekeeper stems to a large part from its ability to access and combine data from its business users and end users and from its practice of limiting the access of busines users to this data. This results in sub-optimal performance of the Digital Single Market. In this view it is justified that the proposition compels a gatekeeper to provide business users access to and portability of data that is generated in the context of the use of the relevant core platform services by those business users and the end users engaging with the products or services provided by those business users. In addition, it is vital that the regulation requires a gatekeeper to facilitate the exercise of data portability, access and use free of charge and through effective technical solutions.

The improved access to the user-generated data of a platform creates efficiency gains for business users and, consequently, benefits the end users. The greater availability of data is also likely to stimulate entrepreneurial activity in the platform markets and create new opportunities for both business users and platform companies.

Article 8 would give the Commission a mandate to exceptionally suspend a specific obligation laid out in Articles 5 and 6, upon on a reasoned request by the gatekeeper. We stress that these suspensions need to be carefully weighed and clearly outlined. We would also recommend taking into consideration whether some obligations ought to be ruled as core obligations that cannot be suspended.

Given the fast evolution of the platform economy and technology that underpins it, the Commission needs to be adequately empowered and equipped to update the list of obligations for gatekeepers in a timely manner when there is evidence of new practices that limit the contestability of core platform services or treat business users or end users unfairly.

4 Enforcement and monitoring

To effectively implement the rules laid out in this regulation, it is important to ensure that the means of enforcement and monitoring available to the competent authorities are effective and proportionate. Sanctions, including fines and structural remedies, imposed on a non-compliant gatekeeper need to cause a sufficient deterrence effect, making the rules breaking financially an unattractive option for any gatekeeper.

Small businesses are often reluctant to file complaints on the unfair behavior of a large platform in fear of retaliatory measures. To cast light on potentially inappropriate platform practices, we consider it essential that a gatekeeper is kept from preventing or restricting a business user from raising issues with any relevant public authority relating to any practice of a gatekeeper. However, we would like to see the text also banning a gatekeeper from engaging in retaliatory measures against a business user who has informed an authority about unwarranted actions taken by a gatekeeper.

The Federation of Finnish Enterprises

Joonas Mikkilä Karoliina Katila

Head of Digital and Educational Affairs Legal Counsel