About the Digital Markets Act: paving the way for startups and scaleups, by Inês F. Neves

About the Digital Markets Act: paving the way for startups and scaleups

Written by Inês F. Neves, Faculty of Law, University of Porto | CIJ – Centre for Interdisciplinary Research on Justice | Morais Leitão – European and Competition team, ESG and ML digital clusters

The Digital Markets Act (DMA) is an act of the European Union that is directly applicable in all Member States (including Portugal). It seeks to ensure the contestability and fairness of markets in the digital sector.

How does this translate into practice and how does it affect, benefit or protect startups and scaleups?

The DMA establishes and imposes a number of obligations and prohibitions on a group of large companies with the status of gatekeepers. In September 2023, the Commission designated a first block of six companies – Alphabet, Amazon, Apple, ByteDance, Meta and Microsoft – by reference to 22 essential platform services, a notion that includes online intermediation services, social networking services, video-sharing platform services, as well as web browsers, virtual assistants or cloud computing services (among others…).

These are companies that act as real gateways for professional users (other companies) to reach end users. This is not only because they offer services that are truly essential to our daily lives, but also because of their turnover, the number of Member States in which they operate and/or the number of users of their services.

Aware that these incumbents could take advantage of their undisputed position on the market and abuse it, not only because of the advantages derived from the data (which newcomers don’t have access to), but also because of the huge economies of scale and the considerable network effects that characterize digital markets, the European Union is acting in a preventive logic, through rules that dispense with investigations to ascertain the illegality or the damage caused by the practice.

In other words, the prohibitions and obligations apply in a general and abstract manner to the companies designated as gatekeepers (and to all those that may become such), prohibiting any defense of efficiency, and severely limiting exceptions that contend with the protection of the integrity, security and privacy of services.

What are these obligations?

The DMA organizes the obligations around “lists”: a black list and two gray lists. The black list contains obligations that cannot be specified, i.e. clarified in terms of the specific measures to be adopted. It contains obligations relating to the advantages in terms of data accumulation, such as the prohibitions on i) combining end user personal data collected from a core platform service with data collected from other services; ii) cross-using personal data from a core platform service in other services provided separately by the gatekeeper; or iii) signing-in end users to different services of gatekeepers in order to combine personal data. In addition, there is a prohibition on limiting payment options to the payment method of the gatekeeper, or a prohibition on making the use of or access to a core platform service conditional on the subscription to other services (in a manner that is close to bundling or tying). Among many others!

As for the obligations that can be specified, there are concerns, for example, about i) the guarantee of easy uninstallation of software applications on the gatekeeper’s operating system; ii) the technical possibility of uninstalling and effectively using third-party software applications or software application stores that run on, or interoperate with the gatekeeper’s operating system, iii) prohibitions on self-preferencing, and iv) obligations specifically relating to interpersonal communication services.

The openness and fairness that the DMA seeks to achieve through these and other rules is of clear benefit to startups and scaleups, which, despite their disruptive offerings, face multiple barriers to entry and expansion and are often subject to unfair commercial practices.

The DMA recognises their particular position by providing for the possibility for any third party (including, therefore, professional users and competitors of one or more gatekeepers) to inform the national authorities or the European Commission of any practice or behavior that violates the DMA. Although the authorities are not obliged to act on the information received (which is debatable!), this is an explicit recognition of the leading role of startups and scaleups in the enforcement of the Act. Moreover, the possibility for startups and scaleups to invoke the DMA rules before national courts in support of compensation claims against one or more gatekeepers is not ruled out. If private enforcement fails, there is always the possibility of fines of up to 10% of the gatekeeper’s total worldwide turnover in the preceding financial year.

So that is the message of the Digital Markets Act – startups and scaleups must be able to access the market. The new rules are, if not a guarantee, certainly an opportunity for them to get there, to differentiate themselves through the quantity, quality, diversity, and innovation of their products and services. In short, to be able to compete effectively and grow without being killed at birth.