European Union: Enactments of DMA and DSA signal dawn of a new era for tech regulation

In summary

The pace and intensity of competition law enforcement continues to accelerate even as additional tools to tackle digital markets are introduced.

Discussion points

• New legislation enacted to regulate the digital economy
• Updates to existing guidelines aimed at strengthening enforcement
• Recent developments in the application of competition law in the digital sector

Referenced in this article

• Digital Markets Act
• Digital Services Act
• EC investigations into Apple Inc
• EC investigation into Amazon Inc
• EC investigation into Meta
• EC investigation into Google
• Google Shopping judgment
• Illumina/Grail
• Microsoft/Activision

Legislation

In the first half of 2023, a key focus of the EU has been on applying the newly enacted legislation known as the Digital Services Act package, comprising of two new EU Regulations to govern the digital economy: the Digital Markets Act (DMA) and the Digital Services Act (DSA). After a remarkably fast legislative process, the DMA entered into force on 1 November 2022, with the DSA following closely thereafter on 16 November 2022.

The DMA

The DMA represents the first attempt by the European Union to enact ex ante regulations to promote contestability and fairness in the digital economy, and is set to fundamentally change the way in which competition rules are applied in the digital sector.

Only 16 months after the European Commission (EC) published its draft legislative proposal, EU legislators adopted the final text of the DMA – in record time by EU standards.

What does the DMA seek to achieve?

Investigations into anticompetitive conduct typically take several years to complete, followed by several years of litigation before the EU courts. In the digital economy, which evolves incredibly rapidly, this has often resulted in prolonged uncertainty and irreversible harm to competition and consumers. The DMA enables the EC to act more quickly and without needing to establish an infringement of EU competition rules.

At the heart of the DMA is a list of 22 prohibitions and obligations, regulating the conduct of digital companies designated as gatekeepers. Those ‘dos and don’ts’ are one-size-fits-all – for the most part, they apply to all gatekeepers irrespective of their business model. The EC has based the list of dos and don’ts on real examples of conduct by known large digital companies that the EC is formally investigating or about which it has previously expressed concerns.

An earlier, far-reaching proposal to introduce a power to investigate markets and impose remedies where those markets were at risk of tipping into monopoly was dropped from the Digital Services Act package, although aspects of this proposal were subsumed into the DMA.

To which companies will the DMA apply?

The DMA applies to companies that the EC will designate as gatekeepers. Gatekeepers are providers of one or more core platform services (CPSs) on the following exhaustive list:

• online intermediation services, including, among other things, app stores and online marketplaces;
• online search engines, including all search through means such as voice;
• online social networking services;
• video-sharing platform services;
• number-independent interpersonal communication services (eg, email and other messaging services);
• operating systems;
• web browsers;
• voice assistants, such as Siri;
• cloud computing services; and
• online advertising services provided by a provider of any of the foregoing CPSs.

In the EC’s view, CPSs feature several characteristics that service providers can exploit, including extreme economies of scale, very strong network effects, multi-sidedness, lock-in effects and an absence of significant multi-homing.

A provider of a CPS will be designated as a gatekeeper if all of the following three conditions are met:

• it has a significant impact on the internal market;
• it operates a CPS that serves as an important gateway for business users to reach end-users; and
• it enjoys an entrenched and durable position in its operations, or it is foreseeable that it will do so in the near future.

To make it relatively straightforward to designate gatekeepers, the EC relies on rebuttable presumptions. A company is presumed to satisfy the gatekeeper conditions in respect of a specific CPS if three cumulative quantitative thresholds are met, relating to: (1) turnover, market capitalisation or fair market value; (2) the number of business users and end-users; and (3) the stability of market presence. Each of the three quantitative thresholds reflects one of the three gatekeeper conditions.

Companies that meet the quantitative criteria can seek to avoid the gatekeeper designation by providing ‘sufficiently substantiated’ arguments that ‘manifestly put into question’ whether they satisfy the three gatekeeper conditions. If they do so, the EC will open a market investigation to determine whether designation is appropriate.

Companies that do not meet the quantitative thresholds can still be designated as gatekeepers if the EC so determines following a market investigation. As part of the market investigation, the EC will make a qualitative (rather than quantitative) assessment of the (potential) gatekeeper’s market presence as well as structural characteristics of the market.

Finally, the DMA gives the EC the power to designate not only existing gatekeepers but also emerging ones., A company designated as an emerging gatekeeper will only be subject to a subset of the 22 dos and don’ts deemed appropriate and necessary to prevent the emerging gatekeeper from achieving an entrenched and durable position through unfair means.

The gatekeeper criteria are low enough to capture not just US-based big tech but also a few other players active in Europe.

What restrictions will the DMA apply to gatekeepers?

The dos and don’ts of the DMA are based on the EC’s real-world experience of enforcing antitrust rules in digital markets and primarily cover data-related practices, some forms of tying, interoperability with gatekeeping CPSs, transparency obligations when providing advertising services, and non-discrimination. Some key prohibitions and obligations that could have a significant impact are highlighted below.

Article 5(2) prohibits various types of personal data combinations and cross-use. More specifically, gatekeepers are prohibited from:

• processing for the purposes of advertising personal data sourced from services of third parties that make use of the gatekeeping CPS unless the end-user has been presented with the specific choice and provided meaningful consent in the sense of the EU General Data Protection Regulation;
• combining personal data from the gatekeeping CPS with personal data sourced from any other CPS or other service of the gatekeeper or a third party;
• cross-using personal data from the gatekeeping CPS in any other service of the gatekeeper; and
• signing in end-users to other services of the gatekeeper to combine personal data.

This will primarily affect companies active in digital advertising, which combine data to gain an advantage in targeted advertising. Article 5(2) appears to still allow data combinations for advertising purposes if end-users consent to it.

Article 5(4), among other things, obliges gatekeepers to allow business users of their gatekeeping CPS to advertise offers to customers and transact with consumers freely and at no charge, without needing to use the gatekeepers’ mechanisms (eg, its payment mechanism) to carry out those transactions. This provision seems to be inspired by the EC’s current investigations into Apple’s App Store (the App Store) practices. In practice, it would oblige app store owners, such as Apple, to allow app developers to promote offers to consumers acquired via the App Store and conclude contracts with them without necessarily using Apple’s in-app purchase mechanism.

Article 5(7) prohibits certain types of tying, by requiring gatekeepers to refrain from requiring users to offer or interoperate, inter alia, with the gatekeeper’s identification services, web browsers, payment services or in-app purchase systems in the context of offering services through the gatekeeping CPS. As a result, the DMA appears to prohibit any obligation imposed by an app store on app developers exclusively to use its in-app purchase mechanism to carry out in-app sales of digital content.

Article 6(4) obliges gatekeepers (including notably mobile OSs) to allow and technically enable third-party app stores and direct downloads (sideloading) of third-party apps onto their systems in an effort to provide consumers and developers with more app distribution options.

Article 6(11) obliges search engine gatekeepers to provide rivals with access on fair, reasonable and non-discriminatory terms to user-generated search data. Search engine gatekeepers would be required to share virtually all data generated by users, including the data about users’ long-tail searches (ie, less common searches). This could have a dramatic impact on search engine competition.

Article 6(12) obliges gatekeepers to apply fair, reasonable and non-discriminatory general conditions for businesses’ access to app stores, online search engines and social networks. The DMA requires gatekeepers to publish these general conditions of access, which should provide for an EU-based alternative dispute settlement mechanism with guarantees of independence and impartiality. The DMA’s recitals make particular reference to app stores, highlighting pricing as one of the conditions of access on which the EC will focus its attention. To determine the fairness of an app store’s conditions of access, the DMA proposes using as comparators the prices charged and conditions imposed by other app stores, or by the same app store for different services to different types of end-users for the same service in different geographic regions in respect of the same service the gatekeeper offers to itself.

Article 7, which was not part of the draft text of the DMA but was added relatively late in the legislative deliberations, creates an obligation on gatekeeper instant messaging services, such as iMessage and WhatsApp, to provide interoperability to rival messaging services free of charge to allow them to provide basic functionality such as text messaging, sharing of images and other attachments, voice calls and video calls. Contrary to initial predictions, the DMA did not include an equivalent interoperability obligation to social networks, but the EC indicated that this might be considered in the future. Gatekeepers can take measures to protect the integrity, security and privacy of their messaging services to the extent that interoperability might endanger them.

The EC has purposefully avoided using the DMA as a vehicle to make amendments to merger control rules. Nevertheless, merger control is not unaffected: article 15 obliges gatekeepers to report to the EC, pre-closing, any intended concentration involving another digital service provider, irrespective of whether the concentration is notifiable for merger control approval in the EU. Reporting the transaction discharges the gatekeeper’s obligation, and there is no clearance process involved. This obligation is expected to put more transactions on the EC’s radar, especially viewed in conjunction with the EC’s recently amended interpretation of article 22 of the EU Merger Regulation (EUMR). In addition, gatekeepers systematically not complying with the DMA risk being sanctioned with a temporary freeze from entering into new concentrations.

The DSA

The DSA is the first major overhaul of EU rules for the internet and online businesses since the introduction of the E-Commerce Directive 20 years ago. The DSA seeks to regulate the way that providers of online services interact with their customers and users and sets out obligations in respect of harmful or illegal content.

Updating the E-Commerce Directive

The proposed DSA aims to equip the EU with a modernised and harmonised rulebook that will facilitate the free provision of digital services within the Union and create enhanced responsibilities for online intermediaries and platforms.

The DSA does not repeal the E-Commerce Directive but instead replaces certain provisions and coexists with other unrepealed provisions. The core principles under the E-Commerce Directive (ie, the liability regime, the prohibition of general monitoring and the internal market clause that safeguards the freedom to provide digital services across the European Union) have been maintained and, in some instances, built upon in the DSA proposal.

New obligations

The proposed DSA introduces a series of new requirements that increase in their obligations depending on the type of service provider. They are divided into four layers, best visualised as concentric circles.

• Layer 1, the core, applies to all providers of digital intermediary services that connect EU consumers to goods, services or content, and includes an obligation on service providers established outside the EU to designate a point of contact and legal representative within the Union for communications with regulators.
• Layer 2 creates additional obligations for providers of hosting services (eg, cloud or web hosting) and includes the implementation of a mechanism to allow third parties to notify them of illegal content.
• Layer 3 creates additional obligations for online platforms that disseminate their customers’ information to the public (eg, app stores, marketplaces and social media). The obligations include a requirement to assign priority to notifications made by ‘trusted flaggers’, which are designated by national authorities, when dealing with notifications of illegal content.
• Layer 4 creates additional obligations for very large online platforms (VLOP), which are platforms with 45 million or more average monthly active users in the EU. The obligations include higher standards on transparency, content moderation, advertising and reporting, owing to their impact on the economy and society, by carrying out risk assessments to mitigate any identified systemic risks.

Harmonisation

The E-Commerce Directive will remain the cornerstone of digital regulation. The DSA will complement it to ensure harmonisation across the EU rather than introducing a range of targeted, sector-specific interventions. For example, it introduces:

• measures to counter illegal content online, including goods and services, such as a mechanism for users to flag this content and for platforms to cooperate with trusted flaggers;
• new rules on the traceability of business users in online marketplaces to help identify sellers of illegal goods;
• measures to counter manipulation by online platforms and marketplaces of users’ choices through ‘dark patterns’, namely, by nudging users into using their services;
• new rules on online advertising, such as through banning targeted advertising when it comes to sensitive data;
• wide-ranging transparency measures for online platforms, including on the algorithms used for recommending products and services to users;
• obligations for VLOPs to prevent abuse of their systems by taking risk-based action, including oversight through independent audits of their risk management measures; and
• an oversight structure to address the complexity of the online space. For VLOPs, the EC will provide enhanced supervision and enforcement.

While both the DMA and the DSA have entered into force, they are not yet fully applicable. Under the DMA, the EC expects to make the first gatekeeper designations in early September 2023, with compliance expected by early March 2024. With respect to the DSA, online platforms and search engines had until 17 February 2023 to publish on their websites their number of active users, to allow the EC to determine to whether they should be designated as VLOPs. Designated VLOPs will be given a period of four months from designation to comply with the DSA and to provide the EC with their first annual risk assessment. Online platforms not designated as VLOPs will have until 17 February 2024 to comply with the DSA.

On 23 February 2022, the Commission also presented a proposal for a Regulation on harmonised rules on fair access to and use of data (the Data Act). The proposed Regulation, which has been moving through the legislative process exceedingly fast, seeks to redefine rules and practices on the access and use of data to prompt data (re)use and to determine how the value of data is allocated among actors active on different levels of the data value chain. It is also expected to have far-reaching and unpredictable implications for cloud services providers in terms of data portability and interoperability requirements. There are substantial overlaps between the rules of the Data Act and the new obligations on gatekeepers and digital companies under the DMA and DSA proposals, leading to a complex web of compliance obligations for digital companies.

Antitrust cases

Apple investigations

In 2020, Apple became subject to four formal EC antitrust investigations, three of which focus on the conditions Apple imposes on app developers in its App Store and the fourth on Apple’s practices regarding Apple Pay. Meanwhile, it is understood that the way Apple’s hardware products such as iPhones and iPads interact with wearable devices (eg, smart watches, headphones and fitness bands) has triggered questions from the EC. However, no formal investigation has been announced to date.

The App Store investigations

In June 2020, the EC announced the opening of three formal investigations to assess whether Apple’s rules for app developers seeking to distribute apps via the App Store violate competition law. All three investigations focus on rules imposed on app developers that directly compete with Apple’s apps and services. Two of those investigations were prompted by complaints to the EC from competitors of Apple – audio streaming service Spotify and eBook and audiobook provider Kobo; hence, they are limited to music streaming and eBooks and audiobooks respectively. The third investigation is a ‘catch-all’ that does not have a thematic focus.

It is understood that at least two other Apple competitors – game developer Epic Games and tracking device manufacturer Tile – have also submitted complaints to the EC regarding the App Store rules.

The EC’s investigations focus on the following two App Store terms:

• Apple obliges developers who want to sell digital content within their iOS apps (in-app sales) exclusively to use Apple’s own payment mechanism, In-App Purchase (IAP). For every in-app sale a developer makes via IAP, Apple takes a 30 per cent commission. Apple gets full control over the billing relationship with users who purchase content via IAP, disintermediating developers from critical customer data; and
• Apple imposes anti-steering rules, restricting developers’ ability to inform users of alternative purchasing possibilities outside apps. For instance, developers may not mention in their iOS app that their digital content is available for purchase (often cheaper) on the developer’s own website.

On 30 April 2021, the EC issued a statement of objections (SO) in the music streaming investigation (AT40437), provisionally finding that Apple has distorted competition in music streaming services by abusing its dominance in the distribution of music streaming apps on iOS. Since then, the EC has been progressing this case and on 28 February 2023 released a replacement SO clarifying its concerns against Apple’s App Store rules.

Several jurisdictions globally are also pursuing investigations or market studies regarding Apple’s App Store practices. Notable examples include the United Kingdom, Australia and the United States (both at the federal and state level). Japan closed an abuse of dominance investigation into Apple’s App Store rules after Apple committed to changing its conduct as part of a settlement.

Most notably, on 24 December 2021, the Dutch Authority for Consumers and Markets (ACM) obliged Apple to adjust the conditions in its App Store that apply to dating-app providers. Since then, Apple racked up fines for non-compliance with the ACM’s order and reached the maximum fine of €50 million for non-compliance under Dutch law. The ACM ultimately accepted Apple’s compliance offers only in June 2022 to resolve its antitrust concerns. The case could possibly serve as an indication on how the EC’s investigations could unfold, as regulators are expected to take inspiration and lessons from the Dutch regulator’s case.

The Apple Pay investigation

In June 2020, the EC opened a formal investigation into Apple’s practices related to Apple Pay. Not to be confused with Apple’s IAP, Apple Pay is Apple’s proprietary mobile payment solution on iPhones and iPads used to enable payments in merchant apps and websites, as well as in physical stores.

On 2 May 2022, the EC confirmed that they had sent an official SO to Apple, preliminarily finding that Apple may have abused its dominant position in markets for mobile wallets on iOS devices. In particular, the EC is concerned that Apple distorts competition for mobile payment solutions and reduces choice and innovation for consumers through its limitation of access to the near field communication (NFC) functionality (‘tap and go’) on iPhones for payments in stores, as Apple Pay is currently the only mobile payment solution that can access the NFC technology embedded on iOS mobile devices for payments in stores. In support of the issuance of the SO, Executive Vice-President Margrethe Vestager stated: ‘Mobile payments play a rapidly growing role in our digital economy. It is important for the integration of European Payments markets that consumers benefit from a competitive and innovative payments landscape.’

Amazon investigations

In December 2022, the EC adopted a decision accepting and making binding commitments offered by Amazon. The commitments address concerns the EC’s concerns in two separate investigations.

EC investigation into Amazon’s use of third-party seller data

In July 2019, the EC opened a formal antitrust investigation into Amazon’s marketplace services. Amazon’s marketplace enables both its retail business and third-party sellers to offer products to consumers.

The EC’s investigation focused on Amazon’s alleged use of non-public business data of independent sellers who sell on its marketplace, allegedly to the benefit of Amazon’s own retail business. In November 2020, the EC issued an SO to Amazon and, in November 2022, Amazon offered final commitments to address the EC’s preliminary concerns, which the EC accepted and made binding in its December 2022 decision. Amazon committed not to use non-public data of independent sellers for its own retail operations in competition with those sellers.

EC investigation into Amazon’s buy box practices

In November 2020, the EC opened a formal antitrust investigation to determine whether Amazon preferentially treats its own retail offers and those of marketplace sellers that use Amazon’s logistics and delivery services. The investigation covers the entire European Economic Area (EEA), except Italy, on the grounds that similar issues were already being investigated by the Italian competition authority.

The alleged preferential treatment concerned the identification of the featured offer (referred to as the ‘buy box’ by the EC) and criteria regarding offers’ eligibility for Amazon’s Prime programme. Amazon’s featured offer is displayed on Amazon’s single product detail page, and it allows customers to easily identify the offer they would likely have chosen had they compared all offers for the same product. Offers that qualify for Amazon’s Prime programme can display a Prime label and provide certain benefits to Amazon customers who subscribe to the programme, such as fast delivery at no additional cost. The EC’s preliminary concerns related to the alleged favouring of Amazon’s retail offers over seller offers and of offers of sellers using Amazon’s logistics and delivery services over offers of sellers who do not use those services. Amazon addressed these concerns by committing to applying objectively verifiable and non-discriminatory criteria in relation to the identification of the featured offer, eligibility to the Prime programme and the display of the Prime label. In addition, Amazon’s commitments foresee that in certain circumstances it would have to display a second offer in addition to the featured offer on the product detail page.

In parallel to the investigations, Amazon challenged before the General Court of the European Union the fact that the EC’s decision to initiate proceedings carved Italy out of the scope of the investigation. Amazon argued that this carving out was unlawful, as article 11(6) of Council Regulation (EC) No. 1/2003 relieves national competition authorities of their competence to apply articles 101 and 102 of the Treaty on the Functioning of the European Union (TFEU) to a matter under investigation by the EC. On 14 October 2021, the General Court rejected Amazon’s appeal and ruled it as inadmissible. The EU’s lower court was of the opinion that the opening of the EC investigation, insofar as it excludes Italy from the territorial scope of the investigation, did not alter Amazon’s legal position and should thus be declared inadmissible. According to the General Court, the protection against parallel proceedings does not imply a right, for the benefit of an undertaking, to have a case dealt with in its entirety by the Commission. Amazon has subsequently instigated further legal proceedings before the EU Court of Justice, arguing that the EC’s decision did produce legal effects, and it therefore could be challenged in court. On 20 April 2023, the EU Court of Justice rejected Amazon’s appeal.

Meanwhile, the Italian Competition Authority concluded its investigation on 9 December 2021 and fined Amazon approximately €1.1 billion for abusing its market power and harming competitors offering logistics services for e-commerce.

Investigation of Facebook’s Marketplace and data-related practices

Since 2019, the EC has been informally investigating Meta, Facebook’s parent company, and its practices related to Facebook Marketplace (Meta’s classified ads service), as well as data-related practices. On 4 June 2021, the EC opened a formal antitrust investigation into Meta to assess whether it violated EU competition rules by using advertising data gathered from, for example, advertisers to compete with them in markets where Meta is active, such as classified ads. Facebook Marketplace is an online classified ads service for Facebook users where they can buy and sell goods from one another. Facebook is a popular social networking service.

On 19 December 2022, the EC issued an SO against Meta. The SO preliminarily finds that Meta is dominant in the market for personal social networks, which is Europe-wide in scope, as well as the national markets for online display advertising on social media. The EC preliminarily found that Meta abused its dominant positions in the following two ways:

• tying Facebook Marketplace with the Facebook social network, meaning that users of Facebook automatically have access to Facebook Marketplace, whether they want it or not, and competitors of Facebook Marketplace may be foreclosed; and
• unilaterally imposing unfair trading conditions on competing online classified ads services that advertise on Facebook or Instagram. The EC is concerned that the terms, which authorise Meta to use ad-related data derived from competitors for the benefit of Facebook Marketplace, are unjustified, disproportionate and not necessary for the provision of online display advertising services on Meta’s platforms. Also, on 4 June 2021, the UK’s Competition and Markets Authority (CMA) launched its own investigation into Meta’s use of data. The two authorities are said to be working on their individual investigations in close alignment.

Investigation into Google’s data and ad tech practices

On 22 June 2021, the EC opened a formal antitrust investigation into possible anticompetitive conduct by Google in the online advertising (ad tech) sector and may subsequently issue a SO where it identified potential concerns.

The EC is examining a ‘really complex ecosystem’, where Google is both a publisher of online display advertising (eg, YouTube) and provides ad tech services. The EC is particularly concerned that Google’s practices harm competition in the ad-stack (ie, the digital advertising supply chain) to the detriment of competing ad tech providers, publishers, advertisers and consumers.

Google provides several advertising technology services that intermediate between advertisers and publishers to display ads on websites or mobile apps. The EC is looking into various Google practices:

• practices related to YouTube ad inventory, which is sold exclusively through Google’s own ad tech platforms;
• the favouring of Google’s ad exchange by DV360 and Google Ads, and vice versa;
• the restrictions placed by Google on the ability of third parties (eg, advertisers, publishers or competing online ad intermediaries) to access data about user identity or behaviour, which is available to Google’s own ad intermediation services;
• Google’s announced Privacy Sandbox and its plans to prohibit placement of third-party cookies in its Chrome browsers and their effects on in-line display advertising; and
• Google’s plans to no longer make the ad identifier available to third parties when a user opts out of personalised advertising on Android smart devices, and its impact on online display advertising.

In connection with its investigation, in September 2021, the EC received a formal complaint by Movement for an Open Web regarding Google’s plans for phasing out third-party cookies. In January 2022, a group of German publishing and advertising associations also made a formal complaint alleging that Google’s Privacy Sandbox and phasing out of third-party cookies will starve competitors and solidify Google’s market power.

In February 2022, the European Publishers Council made a formal complaint to the EC stating that Google is abusing its market power across various different parts of the ad tech chain.

In parallel, the UK CMA had been looking into Google’s announced Privacy Sandbox plans since January 2021 and on 11 February 2022 accepted binding commitments to address its concerns. On 26 May 2022, the CMA opened another UK antitrust investigation into Google’s adtech practices on suspicion that Google is favouring its own adtech intermediation services. In March 2023, the CMA decided to combine this investigation with a separate investigation into whether Google has abused a dominant position through its conduct in relation to header bidding services, owing to the interrelationship of the facts and conduct in the two investigations. The conduct under scrutiny in both antitrust investigations largely overlaps with the practices under investigation by the EC.

Investigation into the Jedi Blue agreement between Google and Meta

On 11 March 2022, the EC opened a formal antitrust investigation to assess whether an agreement between Google and Meta regarding online display advertising services may have breached EU competition rules. Google provides intermediate advertising technology services between advertisers and publishers by auctioning online display advertising space. Meta provides online display advertising services and participates in auctions using Google’s and rivals’ advertising technology services.

The EC was concerned that an agreement between Google and Meta, code-named ‘Jedi Blue’, excludes ad tech services competing with Google’s ad tech services, and therefore distorts competition in markets for online advertising.

The UK CMA launched its own investigation into the agreement.

Both investigations were closed in March 2023 owing to administrative priorities of the two agencies.

General Court judgment on Google Shopping

On 10 November 2021, the General Court issued its long-awaited judgment in Case T-612/17, Google and Alphabet v Commission (Google Shopping). In its ruling, it upheld the EC’s finding that Google abused its dominant position by favouring its own comparison shopping service in its general search results and displaying rivals’ services less favourably. The General Court found that Google’s conduct was not competition on the merits and upheld the EC’s fine in its entirety. The judgment will likely have important ramifications for the enforcement of article 102 TFEU in relation to digital gatekeepers, as it could embolden competition authorities to find novel abuses in relation to other digital issues (such as online advertising or data uses). Google has appealed the General Court’s ruling.

Merger cases

Microsoft/Activision

In May 2023, the EC conditionally cleared Microsoft’s proposed acquisition of Activision Blizzard following a Phase II in-depth investigation.

Microsoft and Activision Blizzard are both developers and publishers of PC games, game consoles and mobile devices, as well as distributors of games for PCs. In addition, Microsoft also distributes games for consoles, offers the Xbox gaming console and related services as well a wide range of products and services, including the PC operating system Windows and the cloud computing service Azure.

The EC had concerns that the acquisition may reduce competition in the distribution of console and personal computer (PC) video games, including multi-game subscription services and cloud gaming streaming services, and in the supply of PC operating systems.

The EC’s concerns focused on whether, by acquiring Activision Blizzard, Microsoft may harm rival consoles, multi-game subscription services and cloud game streaming services by foreclosing access to Activision Blizzard’s console and PC video games, especially to high-profile and highly successful games (AAA games) such as ‘Call of Duty’.

Following its Phase II review, the EC concluded that its concerns were only warranted in relation to the distribution of games through cloud game streaming services, in relation to which it accepted remedies. To the contrary, in relation to consoles and multi-game subscription services, the EC found that:

• Microsoft would have no incentive to refuse to distribute Activision’s games to Sony, which is the leading distributor of console games worldwide, especially given the popularity of Sony’s PlayStation console; and
• even a withdrawal of Activision AAA titles, in particular Call of Duty, from the PlayStation would not harm competition in the consoles market, as despite the popularity of Call of Duty (which was emphasised by third party complainants, in particular Sony), Sony can leverage its size, catalogue and market position to protect itself against any attempts to weaken its position.

In relation to cloud game streaming services, the EC found that making Activision’s games exclusive to Microsoft’s own Game Pass Ultimate would reduce competition. To clear the transaction, the EC accepted what seems to be broad behavioural (licensing) commitments, with a 10-year duration, whereby Microsoft will allow consumers in the EEA to stream all current and future Activision Blizzard PC and console games for which they have a licence via any cloud game streaming service, as well as a corresponding free licence to cloud game streaming service providers.

The EC’s clearance decision came shortly after a surprising decision by the CMA to block the transaction. While the CMA had also referred the transaction to Phase II review, provisionally finding that it may be expected to result in a substantial lessening of competition (SLC) in console gaming services and cloud gaming services in the UK, it had then amended its provisional findings in an extremely unusual U-turn, saying that it did not expect such SLC to occur for console gaming services, based on new evidence.

Microsoft had offered what appears to be a similar commitments package to the CMA, which the CMA rejected, considering that it had several shortcomings (as, according to the CMA, it focused on cloud gaming providers with specific business models) and was difficult to monitor effectively, due to its complexity in the context of a dynamic market, risking circumvention. Microsoft has announced its decision to appeal the CMA’s decision.

Microsoft/Activision highlights the increasing divergence between the EC and the CMA in a post-Brexit world, including in particular in relation to their attitude towards behavioural (as opposed to structural) remedies.

Change in the interpretation of article 22 EUMR

On 26 March 2021, the EC published guidance on its revised approach to the use of the referral mechanism in article 22 of the EUMR (the Guidance). Article 22 of the EUMR enables one or more member states’ national competition authorities (NCAs) to request the EC to review a transaction where the transaction affects trade between member states and significantly threatens to affect competition within the territory of the member states making the request. Any change to the EUMR itself would have required unanimous approval by all member states.

Prior to the issuance of the Guidance, the EC’s informal policy was to discourage NCAs from requesting referrals for transactions that did not meet the national merger control thresholds. Under the new Guidance, the EC encourages referrals initiated by NCAs even when those NCAs themselves lack jurisdiction. This shift in policy is driven by a perceived enforcement gap, which allowed potentially problematic transactions (especially killer acquisitions of nascent competitors) to escape merger control review.

The Guidance cites the digital economy and the pharmaceutical sectors as examples where those transactions are most likely to occur, as in those industries a target company’s importance on the market may not be reflected in its (low) turnover. The Guidance expands the EC’s merger control remit and is expected to reduce legal certainty for transactions, especially as the EC will accept referrals submitted after a transaction has closed.

The EC’s new approach was tested and confirmed by the EU courts very shortly after its implementation in the context of the proposed acquisition by Illumina (a gene-sequencing company) of Grail (a company specialised in developing cancer screening tests). The transaction fell below the turnover thresholds required for a mandatory notification under either national or EU merger rules. Following a complaint, the Commission considered that the case met the criteria for an article 22 referral, in particular owing to the fact that Grail’s importance for competition was not reflected in its turnover, and invited NCAs to request a referral of the transaction to it. In March 2021, the French NCA requested a referral, which was subsequently joined by the Belgian, Greek, Icelandic, Dutch and Norwegian NCAs. Illumina challenged the referral requests before the courts in France and the Netherlands, but without success.

In April 2021, Illumina brought an action for annulment to the General Court under an expedited procedure against the EC’s decision to accept the referral request. In its action for annulment, Illumina was supported by Grail, who was allowed by the General Court to retain its status of intervener despite the closing of the transaction. In its judgment of 13 July 2022 in Case T-227/21, Illumina v Commission (the Judgment), the General Court dismissed Illumina’s challenge in its entirety, ruling that the EC is competent to review referred transactions even when neither the EU nor the referring NCA have merger control jurisdiction, as long as the transaction meets the conditions in article 22 (ie, affects trade between member states and threatens to significantly affect competition within the territory of the member states requesting the referral).

Importantly, the Judgment clarified the starting point for the time limit under article 22. More specifically, Illumina and Grail had argued that the referral request was submitted after the expiration of the 15-working day deadline of article 22. In doing so, they challenged the EC’s interpretation of the term ‘made known’, which the EC had interpreted as requiring the member state to have been informed not only of the existence of the transaction but also of the information enabling a preliminary competitive analysis of the transaction to be carried out. The parties argued that the EC’s interpretation would result in a de facto notification requirement for under-the-thresholds transactions in all member states. Rather, Illumina and Grail argued that the starting point for the 15-working day deadline ought to be the moment when the transaction was made public, by means of a press release and media coverage. The General Court ruled that ‘made known’ requires an active transmission of information, such that issuing a public press release about the transaction is not sufficient.

According to the General Court, it would be excessive to oblige NCAs proactively to monitor media coverage of all transactions globally to identify potential candidates for a referral to the EC. Consequently, the time limit of 15 working days starts to run from the moment when the relevant information was transmitted to the member state concerned. The General Court’s reasoning also sheds light on the level of detail to be provided to the relevant authorities to get the deadline running. The General Court confirmed that for a deal to have been made known to an NCA, the NCA must have received a minimum amount of information to enable it to assess whether the conditions for a referral are satisfied. The General Court concluded that mere knowledge of the existence of a deal does not allow a member state to carry out such a preliminary assessment.

The EC’s arguments ultimately accepted by the General Court are somewhat at odds with the Commission’s Article 22 Guidance, which provides specific guidelines for cases where the deal has closed, including that referrals would generally not be considered appropriate where more than six months have passed after the implementation of the concentration.

The Commission’s Article 22 Guidance further notes that ‘if the implementation of the concentration was not in the public domain, this period of six months would run from the moment when material facts about the concentration have been made public in the EU.’ Unlike for deals that have not yet been implemented, the language in the Article 22 Guidance seems to imply that making information about the closing of the transaction publicly available in the EU (including via a press release) would be sufficient to engage the six-month time limit.

Notes