GRAEME WICKINS: Large online marketplaces could be forced to comply with EU-style law to limit dominance

The Digital Markets Act is an EU law targeting enormous tech groups that operate platforms serving as a gateway between business users and end users and establishes a range of obligations for gatekeepers, prohibiting anticompetitive behaviour.

The act’s primary objective is to dismantle the gatekeeper status major tech companies held for the past decade. It grants the European Commission the authority to conduct market investigations and develop remedies if these companies violate the rules. These laws aim to foster increased competition, allowing start-ups to compete on a more level playing field against existing industry giants.

The act imposes relatively heavy regulations such as prohibiting tech companies from monetising data collected from phone users, preventing them from leveraging this data to create detailed profiles of individual consumer behaviour. Another example is prohibiting gatekeepers from cross-using personal data sourced from a core platform service in separate services provided by the gatekeeper. Google, for example, will be barred from interchanging data from Gmail to customise its Google Pay services to compete with companies such as PayPal or MasterCard.

Initially, the big six tech corporations — Alphabet (parent company of Google), Amazon, Apple, ByteDance (owner of TikTok), Meta (comprising Facebook, Instagram and WhatsApp), and Microsoft — will be subjected to these regulations. They will have six months, concluding on March 6, to adhere to a comprehensive set of guidelines under the new law. Failure to comply could result in fines of up to 10% of their annual revenue. 

The act sets out classification thresholds to identify “gatekeepers”, comprising a turnover and user test applicable within the European economic area. According to these criteria certain companies and services, such as Samsung and Outlook, successfully contested their mandate to be bound to these regulations based on their having fallen short of the criteria.

Gaining traction

This July, SA’s Competition Commission released the results of its Online Intermediation Platforms Market Inquiry, which ordered Takealot to make significant changes to its online trading platform to resolve issues of perceived anticompetitive behaviour. Binding recommendations imposed on Takealot require it to segregate its retail division from its marketplace operations, amend its display of highlighted products, boost previously disadvantaged businesses on its online trading platform and stop forced pricing limits on retailers making use of its online trading platform. 

Concern surrounding the commission’s recommendations against Takealot arises partly from other online platforms not having been investigated or subjected to the same behavioural restrictions. Several online competitors not mentioned in the report, such as Shein, Wish and AliExpress, are gaining substantial traction in the SA market. It is expected that Amazon, the world’s largest online retailer, is about to establish a presence in SA.

To address this concern the commission confirmed that it will be issuing regulations to deal with future market conduct in digital markets that were not considered during the online market inquiry. In a statement published on the commission’s website, this is noteworthy: “However, the provisional [online market inquiry] report also recognised that this inquiry happens at a point in time, and its decisions on specific platform categories are based on the current market features and landscape. The report recognised that conduct that has not yet emerged in some of the categories may do so in future, other intermediation categories will gain traction in the market exhibiting similar market features and, if the remedial action is effective, new leading platforms may emerge.

Strengthen enforcement

“The provisional report recommended commission guidelines or Section 78 regulations in terms of the act, which sought to prohibit certain conduct of leading platforms and permit the identification and review of such platforms. This was to complement the immediate remedial actions by providing better long-term oversight.

“After considering the submissions on the provisional report recommendations with these factors in respect of future enforcement, the inquiry is currently of the view that section 78 regulations are desirable as they can strengthen enforcement going forward.”

It is evident that large online platforms and marketplaces operating in SA may need to be prepared to comply with more rigorous regulations, which could mimic those in the act.

It will be interesting to note the thresholds at which the commission will require these proposed regulations to be applicable to the large online platforms and marketplaces that operate in SA, and whether it will limit application to a handful of large entities such as Google, Amazon and Meta or expand to have wider application within digital markets in SA. 

There is no clear indication of when the commission will publish draft regulations for comment, but given the rapid expansion of tech companies globally and the significant barriers to entry that can be created if left unregulated, the sooner the better.

• Wickins is director: competition law at Werksmans Attorneys.