Towards a ban of discriminatory rankings by digital gatekeepers? Reflections on the proposal for a Digital Markets Act

December 2020 may mark a fundamental change in the regulation of market power of digital platforms in both the EU and the US. The US Federal Trade Commission (FTC) sued Facebook for illegal monopolisation of the personal social networking market and requested a district court to order Facebook to break-off Instagram and WhatsApp. On 15 December 2020, the European Commission published the long awaited and ambitious proposals for a Digital Services Act (DSA) and a Digital Markets Act (DMA), which lay down a new EU regulatory framework for digital platforms. The DSA deals with transparency and liability of digital platforms, while the DMA seeks to address the economic imbalances and unfair practices of powerful digital platforms. This commentary gives several first reflections on the goals of the proposed DMA and its prohibition of discriminatory rankings.

The proposal for the DMA imposes a wide range of obligations on digital platforms (“providers of core platform services” 1) that the European Commission designates as “gatekeeper” under the DMA. 2 One of these obligations is a prohibition of discriminatory rankings by digital gatekeepers. Based on parallels with the European Union’s Open Internet Access Regulation, my research paper from December 2020 (Brouwer, 2020) gives recommendations for the way that the Commission can apply this prohibition to app stores when implementing and enforcing the DMA.

Will the DMA make enforcement against digital gatekeepers more effective?

The proposal for the DMA contains a critical note about the functioning of EU competition law in the digital economy. It acknowledges that EU competition law does not allow the Commission to intervene timely and effectively against a number of harmful practices of digital gatekeepers (Explanatory Memorandum DMA, p. 3, 8). For example, the investigation by the Commission in the Google Search (Shopping) case took more than six years. 3 In other cases, the high legal standards of competition law may even prevent the Commission from intervening at all. This is for example the case when a dominant platform excludes from the market a digital start-up that is not yet as efficient as the dominant platform. The reason is that EU competition law seeks to safeguard effective competition and not a level playing field for all firms (e.g. De Graef, 2019, p. 480). The DMA complements EU competition law and aims to protect the “contestability and fairness of digital markets” (Proposal DMA, Article 1(1), recital 10). This includes that the DMA seeks to level the playing field between digital gatekeepers and other online businesses such as digital start-ups (Explanatory Memorandum DMA, p. 10).

The proposal for the DMA seems to give the European Commission several “legal shortcuts” to make interventions against harmful practices of digital gatekeepers more effective than under EU competition law. The proposed DMA does not require the Commission to define a relevant market, establish dominance, and formulate a theory of harm, which is very complex in digital markets (Crémer et al., 2019). Instead, the obligations in the DMA apply to digital platforms that the Commission designates “gatekeeper”. This designation process can start from the moment that the DMA enters into force (Proposal DMA, recital 16).

The proposed DMA considers digital platforms a “gatekeeper” if they meet three cumulative criteria: 1) they have a significant impact on the internal market, 2) operate one or more important gateways to end users, and 3) enjoy or are expected to enjoy an entrenched and durable position in their operations (Proposal DMA, Article 3(1)). When digital platforms provide a core platform service in at least three member states and fulfil specified quantitative metrics based on e.g. turnovers and number of active users during the last three years, this leads to the rebuttable presumption of a gatekeeper position under the DMA (Proposal DMA, Article 3(2) in conjunction with Article 3(4)). 4 If a digital platform is a designated “gatekeeper”, a list of unfair practices is presumed to be harmful for the contestability of digital markets (Proposal DMA, Article 5, Article 6 in conjunction with recital 15). Contrary to EU competition law, the proposed DMA gives the Commission the power to intervene against these listed practices without the need to prove the actual, likely or presumed effects on competition of these practices (Proposal DMA, recital 10). It must be noted that the DMA does not limit the ability of the Commission to intervene under the EU competition rules (Proposal DMA, Article 1(6)).

What will be the scope of the ban of discriminatory rankings under the DMA?

One of the presumably harmful practices of digital gatekeepers are discriminatory rankings. Article 6(1), under d, of the proposed DMA prescribes that digital platforms, designated as gatekeepers, must “refrain from treating more favourably in ranking services and products offered by the gatekeeper itself (...) compared to similar services or products of third party and apply fair and non-discriminatory conditions to such ranking”. The aim behind this proposed prohibition is to prevent digital gatekeepers from undermining the contestability for services provided through their platforms (Proposal DMA, recital 48).

Several observations can be made in relation to this prohibition of discriminatory rankings in the proposal for the DMA. Firstly, the provision seems to introduce a categorical ban of “any form of differentiated or preferential treatment in ranking (…) whether through legal, commercial or technical means, in favour of products or services it offers itself (…)” (Proposal DMA, recital 49). My research paper proposes to limit such a prohibition to those differential rankings for which the digital platform cannot provide an objective justification based on e.g. differences on quality or price (Brouwer, 2020, p. 15). For example, Apple has reportedly not applied consumer ratings and reviews to its own pre-installed apps, whereas these variables do determine the rankings of competitors’ apps (Mickle, 2019, p. 6). When Apple cannot provide an objective justification for this reported practice, then this would constitute a discriminatory ranking practice under my proposed framework.

Secondly, Article 6(1), under d, proposed DMA in addition obliges digital gatekeepers to “apply fair and non-discriminatory conditions to such ranking”. In my view, this obligation should be read in conjunction with the provisions of the Platform-to-Business Regulation (Regulation (EU) 2019/1150, P2B Regulation). 5 The P2B Regulation aims to ensure fairness in the commercial relationship between digital platforms and businesses that provide services on these platforms. To that end, the P2B Regulation prescribes that digital platforms must, inter alia, be transparent in their terms and conditions about their main ranking parameters and any differential treatment between their own services and those of competitors (P2B Regulation, Article 5, Article 7). Ranking conditions should be considered “unfair” when these do not comply with the transparency requirements in the P2B Regulation.

Thirdly, the obligation for digital platforms to apply “non-discriminatory” conditions to rankings must also be interpreted in accordance with EU law. Under EU law, non-discrimination means that “comparable situations should not be treated differently and different situations should not be treated in the same way unless such treatment is objectively justified” (see Open Internet Access Regulation, recital 8). Amazon’s alleged practice of giving a lower ranking on its e-commerce platform to sellers that do not pay for its logistic services “Fulfilment by Amazon” (see e.g. AGCM, 2019) could potentially be considered a discriminatory ranking condition under the DMA. It remains the question whether, as proposed in my research paper, this provision would forbid the use of the popularity ranking rationale (e.g. number of clicks and downloads) when this results in a systematic advantage for large over small and new businesses (Brouwer, 2020, p. 17) and therefore undermines the contestability of digital markets. 6

The detection of discriminatory rankings under the DMA

The prohibition of discriminatory rankings is one of the obligations that is “susceptible of being further specified” (Proposal DMA, Article 6). This means that the European Commission has the possibility to engage in a “regulatory dialogue” with the gatekeeper to ensure an effective implementation of the prohibition of discriminatory rankings (Proposal DMA, recital 58). My research paper identifies potential circumventions of the prohibition of discriminatory rankings 7, which may be difficult to detect for the Commission (Brouwer, 2020, p. 20). For example, a gatekeeper could use “proxies for profit” (Mattioli, 2019, p. 6), or tweak the weights of ranking variables (Brouwer, 2020, p. 18), with the aim of giving their own services a higher position in the rankings. During a regulatory dialogue, the Commission can use its power to access documents about the design of the algorithms, or get access to and explanations about the algorithms, to ensure that the digital gatekeeper does not circumvent the prohibition of discriminatory rankings in the DMA (Proposal DMA, Article 19 in conjunction with recital 29).

If the Commission finds in a market investigation that the digital gatekeeper has “systematically infringed” 8 the prohibition of discriminatory rankings (or other obligations in the DMA), the DMA gives the Commission the power to impose “any behavioural or structural remedies which are proportionate to the infringement committed and necessary to ensure compliance” with the DMA (Proposal DMA, Article 16(1)). If a number of strict conditions are met, 9 the remedy could even require the digital gatekeeper to divest a part of its business (Proposal DMA, Article 16(1) in conjunction with recital 64). The future will show whether this will result in comparable legal actions as the FTC has recently taken against Facebook in the US. In any case, if adopted, the proposal for the DMA will mark a fundamental change in the regulation of market power exercised by digital gatekeepers.