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The European Union’s Digital Markets Act (DMA)

Why is it in the news?

  • Recently, the EU Commission has designated 22 services provided by six major tech companies as “gatekeepers” in its efforts to regulate Big Tech.
  • The tech companies identified as gatekeepers are Alphabet (Google), Amazon, Apple, Meta (Facebook), Microsoft, and TikTok owner ByteDance.
  • The designation is based on the European Union’s Digital Markets Act (DMA), which came into force in November.

Overview of the EU Digital Market Act (DMA)

Introduction and Purpose:

  • The DMA came into force in the European Union (EU) on November 1, following approval by the European Parliament in March.
  • It aims to address unfair practices by tech companies acting as ‘gatekeepers’ in the online space.
  • The goal is to counter the dominance of Big Tech, which can hinder the growth of new platforms and innovations.
  • The DMA applies six months after entering into force, starting from May 2, 2023.

Key Provisions and Objectives

  • The DMA establishes quantitative thresholds and penalties for companies that dominate core platform services.
  • It seeks to create a level playing field for smaller and emerging players to compete based on the merit of their products and services.
  • Consumers benefit from increased access to options and potentially lower service prices through enhanced competition and de-exclusivity.

Designation of Gatekeepers

  • Companies with substantial dominance in ‘core platform services’ are designated as ‘gatekeepers.’
  • These services include app stores, search engines, social networks, messaging services, video-sharing platforms, virtual assistants, web browsers, cloud computing, operating systems, online marketplaces, and advertising services.

Quantitative Thresholds for Gatekeepers

  • To be considered a ‘gatekeeper,’ a company must meet specific criteria:
  • Annual turnover of at least €7.5 billion in each of the last three financial years in the EU.
  • An average market capitalization of at least €75 billion in the last financial year.
  • At least 45 million monthly active users in the EU.
  • Over 10,000 annual active business users in the last financial year.
  • Sustained meeting of these criteria for the past three financial years.
  • Proportional obligations may apply if a non-gatekeeper company reaches these thresholds in the future.
Penalties for Violations
  • Non-compliance can result in fines of up to 10% of the company’s annual revenue from global operations, potentially increasing to 20% for repeated infringements.
  • Violations may also lead to periodic penalty payments of up to 5% of daily worldwide turnover.
  • For systematic infringements, additional remedies can be pursued, including the forced sale of a business or essential parts, restrictions on acquisitions, or other measures.

Interoperability and Data Access

  • ‘Gatekeepers’ must not favour their services over third-party offerings on their platforms.
  • Interoperability with similar services is required.
  • Businesses must have access to user data generated on the platform, preventing unfair advantages.

Consumer Protections

  • ‘Gatekeepers’ must allow users to easily unsubscribe from core platform services.
  • They cannot pre-install default software with the operating system.
  • Businesses can use alternative in-app payment systems, and users can download alternative app stores.

Messaging Services Interoperability

  • Interoperability is crucial for messaging services, allowing users to send and receive messages across competing platforms.
  • Text message interoperability starts immediately, group messaging within two years, and audio or video calls within four years.
  • Users of non-gatekeeper companies can choose whether to enable interoperability.
Criticisms and Concerns
  • Critics argue that interoperability could compromise end-to-end encryption, which is essential for security and privacy.
  • Sharing user data may hinder targeted advertising and affect competitive success.
  • Some fear that the ‘gatekeeper’ threshold may discourage innovation due to compliance requirements.
  • Restrictions on acquisitions may disrupt start-up lifecycles, reducing exit prospects for entrepreneurs.
  • The trade-off between innovation and compliance could deter companies from pursuing ‘gatekeeper’ status.

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