The Draft DMA Implementing Regulation – Balancing effectiveness with due process?
14 min read
On 9 December 2022, the European Commission published its draft DMA Implementing Regulation for consultation, together with the proposed Notification Form for "gatekeepers". The text deals with notifications, submissions and practical arrangements in relation to future Commission decisions under the DMA. Despite a laudable attempt to balance the need for the Commission to act swiftly and effectively and the rights of "gatekeepers", we think the Commission’s proposal needs a recalibration in order to adequately safeguard companies’ rights of defense.
The context
The Digital Markets Act ("DMA") entered into force on 1 November 2022 and will start applying on 2 May 2023 (see The Digital Markets Act (DMA) goes live). It aims at improving contestability and fairness in digital markets and imposes a number of obligations and prohibitions on companies that provide "core platform services" ("CPSs") and are designated as "gatekeepers" by the European Commission ("EC").
The DMA has given the EC the power to adopt a number of implementing decisions, in particular:
- to designate gatekeepers pursuant to certain quantitative thresholds (Article 3(2)) or qualitative criteria (Article 3(3);
- to specify the measures that the gatekeeper concerned is to implement in order to effectively comply with the obligations laid down in Articles 6 and 7 (Article 8);
- to grant suspensions on the grounds that compliance would endanger, due to exceptional circumstances beyond the gatekeeper’s control, the economic viability of its operations in the Union (Article 9);
- to grant exemptions on grounds of public health and public security (Article 10);
- to update obligations for gatekeepers (Article 12);
- to open market investigations; to impose interim measures (Article 24);
- to accept commitments (Article 25); and
- to adopt non-compliance decisions (Article 29), including imposing fines (Article 30) and periodic penalty payments (Article 31).
The EC will also have investigatory powers that are very similar to its competition law enforcement powers, such as to address requests for information (Articles 21), carry out interviews and take statements (Article 22), and conduct inspections (dawn raids) (Article 23).
Article 46 of the DMA allows the EC to adopt acts laying down the detailed arrangements for the implementation of the DMA. On that basis, on 9 December, the EC published for consultation its Draft Implementing Regulation, which includes a number of detailed rules on delicate subjects such as notification and submissions to the EC, the opening of proceedings, the right to be heard, access to file, time limits, transmission and receipt of documents.
The Draft Implementing Regulation and the Form GD
The Draft Implementing Regulation is composed by the main text of the proposed Regulation itself and two Annexes.
A major part is dedicated to the notification and designation process. As a reminder, designation is an important first step in the whole process and is based on meeting certain quantitative thresholds outlined in Article 3(2) DMA. These quantitative thresholds function as a rebuttable presumption for satisfying certain qualitative criteria, which are introduced in Article 3(1) DMA. In accordance with Article 3(5) DMA, presumptive gatekeepers can rebut this presumption by putting forward "sufficiently substantiated arguments" to demonstrate that, due to the circumstances in which the relevant CPS operates, it does not meet the qualitative criteria. In that case, the EC may open a market investigation in accordance with Article 17(3) DMA, if the presumptive gatekeeper’s arguments "manifestly call into question" the presumption set forth by the quantitative criteria. Conversely, the DMA allows also the EC to designate companies on the basis of the qualitative criteria, even if they do not meet the quantitative thresholds, following a market investigation in accordance with Article 17(1) DMA.
Article 2 of the Draft Implementing Regulation deals with the submission of notifications for companies that meet the quantitative thresholds. Such notifications will need to include the elements described in Annex I, which contains the Notification Form to be used, appropriately called "Form GD" ("GD" standing for "gatekeeper designation").
The Form GD is divided into three substantive sections (2, 3, and 4). Section 2 focuses essentially on the so-called "delineation" of CPSs. The presumptive gatekeepers have to notify all of their CPSs (including those that do not meet the quantitative criteria) under "any plausible alternative delineation". This will be challenging for presumptive gatekeepers, considering that the services offered usually come in the form of a unitary value proposition, rather than self-standing services, which can be easily segmented. This is reminiscent of the similar provision in the Form CO, which is used in merger control, that obliges notifying parties to submit "plausible alternative product and geographic market definitions", a notoriously difficult exercise, and one that creates uncertainty given how subjective the concept of "plausible alternative" can be. In the case of the DMA, an additional complication will be that the gatekeepers will not be able to rely on EC decisional practice and precedents spanning more than thirty years, as they can in merger control.
Sections 3 and 4 of the Form GD are shorter and relate to the calculation of the quantitative criteria in relation to turnover and market capitalization (Section 3) and the CPSs itself (Section 4). As for the rebuttal of the quantitative thresholds presumption, the Form GD states that the gatekeepers will need to submit their "sufficiently substantiated arguments" to that aim in separate annexes (one per CPS).
Article 3 of the Draft Implementing Regulation states that the EC will consider the notification as complete only when all the relevant (and correct) information has been provided. This means that the date of designation may slip, if the Commission restarts the clock on account of incomplete or incorrect information in the notification. Currently, the expectation is that designation decisions will have to be adopted by 6 September 2023 (45 working days after the notification on 3 July 2023), but Article 3 of the Draft Implementing Regulation clarifies that the 45 working-day period starts only from the moment that the notification is considered to be "complete".
Recital 2 of the Implementing Regulation provides that "an undertaking providing core platform services may engage in pre-notification contacts with the Commission". The pre-notification process, which is a typical feature of EU merger control, shows the EC’s preference for a cooperative approach to reduce delays and ensure that much of the work related to the notification is done before the DMA begins to apply on 2 May 2023. The EC hopes that this will ensure that notifications pursuant to Article 2 are complete when submitted.
Article 4 refers to Annex II, which includes details on the form and length of documents to be submitted under the DMA. The Annex provides that all documents must be submitted in a format allowing the EC to process them electronically, in a font of at least 12 in the body and 10 in the footnotes. More significantly, the Annex provides for stringent page limits in relation to submissions made to the EC. Specifically, notifications through the Form GD should not exceed 50 pages, annexes with "sufficiently substantiated arguments" are limited to 25 pages, requests for suspension and exemption to 30 pages and replies to preliminary findings to 50 pages. Neither Annex II nor the Regulation, however, provide for the consequences of not meeting these strict requirements.
Article 5 briefly mentions the opening of proceedings, simply stating that the opening must precede the issuance of the preliminary findings, which are equivalent to a "Statement of Objections" in antitrust terms. Article 6 provides that the presumptive gatekeeper may "succinctly inform the Commission of its views in writing and submit evidence in support thereof" following the issuance of the preliminary findings. In other words, there is no right to an oral hearing and only a written response is allowed. Article 7 concerns the identification and protection of confidential information. It allows third parties to request anonymity and grants the Commission extensive powers to order restricted means of access to information on which confidentiality is claimed (most likely, confidentiality rings, data rooms, NDAs), which currently is not possible under antitrust rules.
Article 8 regulates access to the file, which is granted only before the notification of preliminary findings (para. 1) and is limited to "all the documents mentioned in the preliminary findings as well as a list of all documents in the Commission’s file." (para. 2). For a fuller access to the file, including to documents not mentioned in the preliminary findings, the gatekeeper needs to "substantiate why access to a specific document or part thereof is necessary to exercise its right to be heard" (para. 3). If these documents contain no business secrets or other confidential information, the EC will normally grant access (para. 4). In the opposite scenario, the EC will give access pursuant to special modalities, in other words under most likely a data room procedure (para. 5). Interestingly, these provisions do not envisage any role of Hearing Officer.
Articles 9 through 12 regulate respectively the beginning of time periods, the setting of time limits, transmission and receipt of documents, and entry into force.
Main shortcomings
The Draft Implementing Regulation is a relatively short text. To an extent, this may be due to the fact that the DMA already lays down very prescriptive rules in many respects, e.g. with reference to the market investigation procedures. However, the Draft Implementing Regulation fails to address the practical details around specification decisions, exceptions, Article 14 notifications and many other aspects. It also mentions nothing about the role of complaints, which represents a policy option to allow the EC to treat them simply as a source of information, instead of granting procedural rights to complainants.
Below, we mention two specific shortcomings of the Draft Implementing Regulation.
Proportionality – difficulty in rebutting the quantitative thresholds presumption
A problematic aspect of the Implementing Regulation relates to the practical limitations imposed by Annex II on the rights of presumptive gatekeepers when submitting arguments to the EC. Perhaps the most striking limitation relates to the page limit associated with the "sufficiently substantiated arguments" that the gatekeepers have to make while attempting to rebut the presumption stemming from the quantitative thresholds of Article 3(2) DMA.
The possibility to rebut that presumption makes the DMA consistent with the principle of proportionality.1 However, as if the very restrictive language in the text of Recital 23 of the DMA were not enough,2 the Draft Implementing Regulation imposes unreasonable page limitations. While, it is reasonable to restrict the possibility for gatekeepers to bury the EC in papers and studies, the EC would be well advised to adopt a more balanced approach. We should not forget that the presumptive gatekeeper has to satisfy a very high standard during the notification period, while trying to rebut the presumption: its arguments must "manifestly call into question" the presumption in order for the EC to decide to open an Article 17(3) market investigation. One wonders how the submission of only 25 pages can meet that high standard.
EC officials have justified page limits by referring to page limits before the EU Courts. This is a weak and unfortunate justification: the EU Courts exercise a control of legality over the EC’s decisions, whereas the EC is the decision maker and must adopt a decision on the merits, which will potentially include making complex economic and technical assessments.
Due process and right to be heard
The most important problem is the limitation of the gatekeepers’ right to be heard. Specifically, the Draft Implementing Regulation foresees neither a right to be heard orally nor a role of Hearing Officer. It does not allow access to elements of the file (such as third parties’ informal complaints or submissions) prior to the issuance of the preliminary findings, and curtails the right of access to the file, by allowing access only to the documents specifically mentioned in the preliminary findings, while further access can only be granted pursuant to a reasoned request and under certain limitations.
These are significant restrictions compared with antitrust proceedings where (i) an oral hearing is guaranteed,3 (ii) there is a Hearing Officer with powers both to preside over hearings and decide over procedural disputes (including on access to the file, deadlines, confidentiality and legal privilege),4 (iii) early access to the complaint and other "key submissions" may be granted prior to the Statement of Objections5 and (iv) access is not restricted to the documents cited by the EC but extends to all the documents on the file.6
Against this background, the Draft Implementing Regulation goes too far in curtailing the rights of companies. Particularly in the area of non-compliance proceedings, DMA and competition enforcement are similar. Both of them amount to ex post enforcement and can lead to quasi criminal sanctions for companies. Full access to the file and an oral hearing will not only safeguard the rights of defense, but also reinforce the legitimacy and quality of the EC’s decisions. The EC should also consider the appointment of a Hearing Officer for the DMA too, as this role has proved very useful in antitrust and merger proceedings, and no doubt, has saved the EC from many procedural annulments in court.
Finally, the Draft Implementing Regulation is silent on hearing the presumptive gatekeepers on certain instances prior to the adoption of a designation decision. While this may be due to the fact that Article 34(1) DMA is also silent about this scenario, there may be cases where the EC must accord a gatekeeper the opportunity to be heard, prior to designation. This may be the case if the EC decides to proceed to a designation contrary to or absent a gatekeeper’s Form GD submission with regard to a particular CPS. For example, the gatekeeper, while preparing its Form GD, may consider that a particular service does not amount to a self-standing CPS or that the quantitative thresholds are not satisfied for that particular CPS. If the EC decides to designate a gatekeeper according to Article 3(3) DMA, second sub-paragraph,7 the EC should accord that gatekeeper the possibility to comment and be heard on any findings that are based on the "information available to the Commission", prior to adopting the designation decision. Separately, the EC will need to do the same and hear the gatekeeper, if it intends to rely on third parties’ RFI responses and other information, in a way that can make a difference for the reasoning of the designation decision. In that case, the EC would also need to give the gatekeeper access to that information. If the EC refused to grant a right to be heard in the above circumstances, its decision would violate Article 41(2) of the Charter of Fundamental Rights of the EU.
Next steps
The EC will now consult until 9 January 2023 and probably publish the Implementing Regulation shortly thereafter. While the draft provides clarity to important aspects, particularly in relation to the process of designation of gatekeepers, it risks lacking important safeguards for undertakings which are caught by the DMA.
1 See Opinion of the Regulatory Scrutiny Board on the Digital Markets Act of 10 December, 2020, criticising the "quasi automatic designation of gatekeepers" and stating that the EC should have better explained "why a market investigation is not deemed necessary or proportionate in these situations." See also, EC, Impact Assessment of the Digital Markets Act, 16 December 2020, para. 389, fn. 280 "While considering the high probative value of the considered quantitative threshold, it cannot be completely excluded that in very exceptional circumstances a provider of core platform services that meets these quantitative thresholds nonetheless does not act as a gateway for its business users and end users. To ensure necessary proportionality in such exceptional circumstances, the provider of core platform services should have the opportunity to present serious and substantiated arguments in order to demonstrate that, in the circumstances in which the relevant core platform service operates, and taking into account other relevant elements, the provider does not meet the conditions discussed in paragraph 387" (emphasis added).
2 Although Article 3(5) includes no such limitation, Recital 23 provides that "the Commission should take into account only those elements which directly relate to the quantitative criteria".
3 See Article 12 Commission Regulation No. 773/2004 of 7 April 2004 relating to the conduct of proceedings by the Commission pursuant to Articles 81 and 82 of the EC Treaty "The Commission shall give the parties to whom it has addressed a statement of objections the opportunity to develop their arguments at an oral hearing, if they so request in their written submissions."
4 Decision of the President of the European Commission of 13 October 2011 on the function and terms of reference of the hearing officer in certain competition proceedings, Articles 7, 10, 11, 12, 13.
5 Commission Notice on best practices for the conduct of proceedings concerning Articles 101 and 102 TFEU, paras 71-73.
6 Commission Notice on the rules for access to the Commission file in cases pursuant to Articles 81 and 82 of the EC Treaty, Articles 53, 54 and 57 of the EEA Agreement and Council Regulation (EC) No 139/2004, para. 10 "The parties must be able to acquaint themselves with the information in the Commission's file, so that, on the basis of this information, they can effectively express their views on the preliminary conclusions reached by the Commission in its objections. For this purpose they will be granted access to all documents making up the Commission file, as defined in paragraph 8, with the exception of internal documents, business secrets of other undertakings, or other confidential information."
7 "Where the undertaking providing the core platform service fails to notify the Commission pursuant to the first subparagraph of this paragraph and fails to provide within the deadline set by the Commission in the request for information pursuant to Article 21 all the relevant information that is required for the Commission to designate the undertaking concerned as gatekeeper pursuant to paragraph 4 of this Article, the Commission shall still be entitled to designate that undertaking as a gatekeeper, based on information available to the Commission."
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