The new EU digital regime: already in court

1. Overview

The European Commission (the "Commission") has recently published the list of companies designated as gatekeepers operating one or more core platform services ("CPSs") under the new EU Digital Markets Act (the "DMA").¹  Six gatekeepers, and 22 CPS operated by the gatekeepers, have now been formally designated as being within the scope of the DMA. So by 7 March 2024, they will have to comply with a significant list of dos and don'ts. The Commission has also said that it is looking into whether to designate additional CPSs under the DMA.

News of the DMA designations follows on from the designations of Very Large Online Platform Services ("VLOPs") under the Digital Services Act ("DSA") – the DMA's sister legislation which focuses on online content.²

These designations are potentially the most practically significant step to date in the new rules kicking in. Importantly though, they have also triggered the start of a new era of litigation related to the world's largest tech firms. This brings with it opportunities and potential risks for the tech firms and their users, including:

• designation decisions, or decisions not to designate can be challenged given their questionable legal basis and uncertainty in how the relevant quantitative and or qualitative thresholds should apply;
• compliance mechanisms under the new rules lend themselves to litigation given the ambiguity of how key concepts are to be interpreted;
• the discretion afforded to the Commission under the new rules is limited and the European Courts will ensure the new rules are being properly applied particularly in line with fundamental rights;³
• there seems to be a greater willingness to accept applications for interim measures to urgently prevent alleged "serious and irreparable damage" given the nature of the markets in question;
• options for third party involvement, whether by way of private actions in national courts or intervening before EU Courts, should not be underestimated; and
• since the DMA complements and potentially applies alongside the traditional EU competition rules, the prospect of dual-based investigations gives rise to a lack of legal certainty ripe for litigation.

Although the regime contains several opportunities for the relevant players to engage with the Commission on how the new rules should apply, and indeed, such discussions should reduce the need to resort to court based action, the ability to challenge the Commission's actions in this area is already proving to be very relevant.

2. Designation Appeals to date

Amazon and Zalando have both requested the Court to annul the Commission's decisions designating their platforms as "VLOPs", while also challenging certain provisions of the DSA.

2.1 Amazon

Amazon's appeal is based on the principle of equal treatment. Essentially, Amazon alleges that by being designated as a VLOP, it faces discrimination in comparison to the other largest retailers in the EU such that Amazon is being unfairly singled out.

Amazon primarily seeks the annulment of its VLOP designation based on the argument that the vast majority of its revenue comes from its retail business, not advertising. Alternatively, Amazon aims to obtain a declaration of inapplicability in respect of two provisions of the DSA:

• Article 38, which imposes on Amazon the obligation to provide users with an option for each recommender system that is not based on profiling; and
• Article 39, which imposes on Amazon an obligation to compile and make publicly available an advertisement repository.

In parallel, Amazon applied for a suspension of the VLOP designation or other interim measures. Following this application, one aspect of the DSA – namely Article 39 which imposes an obligation to compile and make publicly available a repository containing information on advertisements – was suspended shortly after the request for interim measures in our understanding, on the basis of Article 157, paragraph 2 of the Rule of Procedure of the General Court. This type of suspension ordered by the President of the General Court can happen extremely rapidly – within about 24 hours, and come much more quickly than the normal 2 to 4 month window for the formal reasoned order on interim measures ordered by the President of the General Court under Article 158 of the Rule of Procedure of the General Court. To our knowledge, the suspension only applies to Amazon.⁴

2.2 Zalando

In its action before the General Court, the online retailer Zalando claims that the Commission decision designating it as a VLOP should be annulled because to do otherwise would infringe fundamental principles such as the principle of legal certainty, the principle of proportionality, and the duty to state reasons. In particular it seems that:

• the DSA should not be applicable to Zalando – it is not an intermediary service, hence neither a hosting service nor an online platform within the meaning of the DSA.  It only provides its own content, as opposed to third-party content.  Further, it does not reach the threshold of 45 million monthly active recipients of the service required by the DSA;
• the imprecise specifications related to the calculation of that threshold infringe the principle of legal certainty.  Zalando refers to the DMA as a point of comparison on this issue – the latter has an annex which specifies the calculation criteria – but still emphasizes that the DMA "also lacks sufficiently concrete calculatory specifications"; and
• the DSA infringes the principle of equal treatment due to the lack of clarity of the calculation method.  Zalando argues that inconsistent and non-transparent methods are used by providers and that calculation methods are not mandatorily controlled under the DSA.

These points highlight the importance of fundamental rights in litigation in front of the European Courts. Many recent cases in the competition space have been won on the basis of pleas based on fundamental rights.⁵ Moreover, the plea regarding the allegedly imprecise nature of the specifications related to the calculation of the number of monthly active recipients of the service will be followed closely by all businesses that are in the same ballpark as this threshold. The Court's response will be eagerly anticipated and should shed light on how the number of monthly active recipients of the service should be calculated in practice. This question is also highly debated with respect to the DMA.

3. Potential next steps

The recent designation decisions and appeals home in on the companies and behaviour which we are likely to see come under increasing litigation scrutiny over the next few years.

Already, we are able to identify striking differences between the new digital regime and the traditional kind of competition law proceedings and regulation to which we are accustomed. Indeed, the new regime has been identified by the Commission itself as a 'new kind of beast'.  Much has been made of the nimbleness of the new rules. In line with this, the recent designation decisions have been made rapidly by the Commission - assessing whether companies are dominant under competition law would certainly take longer than establishing whether the thresholds set down in the DSA/DMA are met, which is all it takes to trigger the presumption of designation and then the substantive obligations.

The litigation which has begun over the past few days is really just the start of a new dawn in digital related regulatory ligation in Europe. Whilst the focus of all responsible businesses will be on compliance, where this becomes technically or economically disproportionate or impossible, the ability to move to the courts is vital.

The Mayer Brown team offers a distinctive combination of in-depth experience in complex risk assessment and compliance audits at EU and national levels and has a recent track record of victories before the EU Courts.