The European Union’s plan to impose new rules and restrictions on the Big Tech companies such as Google, Meta, Amazon and Apple has sparked concerns among start-ups and investors, who fear that the regulation could stifle innovation and growth in the digital sector. The EU’s Digital Markets Act (DMA), which is expected to be finalized by March 2024, aims to curb the market power and the unfair practices of the Big Tech platforms, which are deemed to be digital “gatekeepers” that control the access and the distribution of online services and products.
The DMA, which was proposed by the European Commission in December 2020, is one of the most ambitious and comprehensive attempts to regulate the Big Tech platforms in the world. The DMA defines a gatekeeper as a company that meets three criteria: it has more than 45 million monthly active users in the EU, it has more than 10,000 annual business users in the EU, and it has a significant impact on the internal market or the public interest.
The DMA lists about 20 obligations and prohibitions that the gatekeepers have to comply with, such as allowing users to uninstall pre-installed apps, enabling interoperability with other services, sharing data with rivals, and refraining from self-preferencing their own services over those of competitors. The DMA also gives the Commission the power to impose fines of up to 10% of the global annual turnover of the gatekeepers, and to order structural remedies or even break-ups in case of repeated or serious infringements.
The DMA is expected to affect about 10 to 15 companies, mostly from the US, such as Google, Meta, Amazon, Apple, Microsoft, Booking.com, and ByteDance. The Commission has said that the DMA is necessary to ensure fair and open competition in the digital market, and to protect the interests and the choices of the consumers and the businesses.
The Start-ups and Investors Fear the Unintended Consequences
However, the start-ups and investors in the EU have expressed their worries and criticisms about the DMA, arguing that the regulation could have unintended consequences for the innovation and the growth of the digital sector. They have raised several issues and challenges that the DMA could pose for the start-ups and investors, such as:
- The DMA could create a regulatory barrier for the start-ups that aspire to become gatekeepers, as they would have to comply with the same rules and restrictions as the established platforms, which could limit their ability to scale up and compete.
- The DMA could reduce the incentives and the opportunities for the start-ups to exit or to raise capital, as they would face less demand and lower valuations from the potential acquirers or investors, who would be deterred by the regulatory risks and costs associated with the gatekeeper status.
- The DMA could hamper the innovation and the diversity of the digital sector, as it could discourage the start-ups from developing new or disruptive services or products, or from entering new or emerging markets, where they could face the competition or the regulation of the gatekeepers.
- The DMA could create legal uncertainty and complexity for the start-ups and investors, as it could lead to inconsistent or conflicting interpretations and applications of the rules and the criteria by the different national authorities and courts in the EU.
The start-ups and investors have called for more clarity and flexibility in the DMA, and for more consultation and involvement of the stakeholders in the legislative process. They have also urged the Commission to adopt a more balanced and proportionate approach, and to consider the potential benefits and trade-offs of the regulation for the digital sector and the economy.
The Commission Defends and Adjusts the DMA
The Commission has defended and adjusted the DMA, in response to the feedback and the concerns of the start-ups and investors, as well as of other parties, such as the Big Tech platforms, the member states, the European Parliament, and the civil society. The Commission has made several changes and clarifications to the DMA, such as:
- The Commission has introduced a “market investigation tool”, which would allow it to designate or de-designate a company as a gatekeeper, based on a case-by-case assessment of its market position and behaviour, rather than on a fixed set of criteria.
- The Commission has added a “regulatory sandbox”, which would enable the start-ups and the gatekeepers to test and experiment with new or innovative services or products, under the supervision and the guidance of the Commission, without having to comply with all the obligations and prohibitions of the DMA.
- The Commission has provided more details and examples on the scope and the application of the obligations and prohibitions of the DMA, and has clarified the exceptions and the exemptions that could apply for the start-ups and the gatekeepers, depending on the circumstances and the objectives of the regulation.
- The Commission has established a “cooperation mechanism”, which would involve the participation and the consultation of the national authorities, the European Parliament, the stakeholders, and the public, in the implementation and the enforcement of the DMA, and in the review and the revision of the regulation.
The Commission has said that it is open to further dialogue and improvement of the DMA, and that it is committed to finding a balanced and effective solution that would foster the competitiveness and the innovation of the digital sector, and that would benefit the consumers and the businesses in the EU.
