Technology Gatekeepers and the Regulatory Dilemma

The notion of ‘disruptive technology’ is something which we read about and witness daily in our lives. It has also been the principal force of change through the various industrial revolutions in the past millennia. The term per se, was officially coined by Harvard professor Clayton Christensen in his book The Innovator’s Dilemma, a seminal study chronicling how innovation takes place through disruptive technology. This book identifies ways on how undertakings can mitigate this phenomenon, albeit my main take away for the purpose of this article is on how disruptive technology can disrupt and shape existing markets and players irrespective of their dominance and deep pockets. Powerful incumbents, with dominant market positions and deep pockets, the likes of Kodak, succumbed because, they failed to properly seize the real extent of technological innovation. These outfits did not get blown away by similar competitors competing on the same turf, but by disruptive technology and new forms of competition that they couldn’t have even fathomed.

The internet is one of the best examples of disruptive technology as it shook and replaced legacy industry practices to introduce new players, services, products, and distribution channels. It fueled the presence and reliance on technology giants like Facebook, Google and Amazon in our lives, fundamentally altering and morphing the way that business is conducted, and people interact over this borderless medium. It also served as a catalyst to create a new economical niche, which revolutionized the economic structures of existing businesses from within, supplanting and in certain instances also replacing the old and creating new ones. This, as Schumpeter would have argued, is part of the economic progress, a “creative destruction[1]” or a process by which capitalism delivers new products and services that arise because of competition, which leads to the collapse or change of whole industries and structures over time.

The sheer influence, power and reach of these new technology giants (or better still technology gatekeepers) the likes of Alipay, Alibaba, Tecent, Google, Amazon and Facebook are astounding. These gatekeepers have grown in wealth, reach and sophistication and have gained an extraordinary power over our existence, embedding themselves as a vital component of our daily lives. They have extremely deep pockets, compete in all sorts of different markets and submarkets, control vast amounts of data as well as the disruptive technology which shaped their existence and can shape them in the future. Is it possible to have any form of creative disruption with this prevailing scenario? Is competition possible? Can Competition Law be effective? These are queries which have assailed regulators across the globe for the past years. The US Congress for example had raised concerns about the growing power of these new gatekeepers. Closer to home, the European Commission introduced the Digital Markets Act (DMA), proposed alongside the Digital Services Act (DSA) in December 2020. This article will focus predominately on the DMA.

The DMA acknowledges that Competition Law and its intrinsic ex-post measures on their own are not adequate for these gatekeepers. The DMA provides a rebuttable presumption for identifying gatekeepers based on turnover, market value and user thresholds and that markets effected by such gatekeepers which according to recital 3 of the same DMA “As a result, the likelihood increases that the underlying markets do not function well – or will soon fail to function well.” Other outfits not fulfilling these quantitative thresholds may still be identified as gatekeepers depending on factors such as size, market structure and lock-in effects. Identified gatekeepers will need to comply with a list of ex-ante obligations which are predominately found in Articles 5 and 6, relating to, for example, (i) data access, (ii) across-services use of data, and (iii) platform interoperability.

The intent behind the obligations in the DMA is structured similarly to principles found in Electronic Communications Law in Europe, where we have an infusion of ex-ante regulatory measures subsisting as the lex specialis with the ex-post Competition Law regime where the DMA has no regulatory capture.

The decision to apply an ad hoc ex-ante regime in lieu of the existing ex-post model, neutralises any possibility for assessment and leeway in favor of consumer welfare in line with the Chicago school of thought. This school of thought, prevalent in the USA and its Antitrust laws, also extended to the European Competition Law regime. To elaborate further, the original European Competition Law regime is the offspring of Ordoliberal ideology (a competitive market economy served? human freedom). However, over the 1990s, the European Commission began embracing some principles of the Chicago school where “consumer welfare” and “lower prices” started emerging into competition policy. Thus, potentially non-competitive conduct could be allowed if there were efficiency gains for the consumer and there could be better prices and benefits for them (consumer welfare).

The ad hoc DMA regime implies that for the time being the European Commission does not envisage that market forces, Competition Law and disruptive technology can eventually lead to a competitive landscape where these gatekeepers are concerned, nor does it foresee any new forms of competition or immediate creative disruptions. To this end, the DMA forbids certain actions and tries to stimulate and direct the market to reach these outcomes through a controlled environment, which includes sanctions and administrative measures. Non-compliance with the DMA obligations in turn, may result in fines of up to 10% of the gatekeeper’s worldwide turnover. In addition, the Commission can also impose behavioral as well as structural remedies, including the legal, functional, or structural separation of (all or part of) their business. The same remedies are also prevalent under EU Competition Law as well as the Electronic Communications Law.

These are still early days but there are a lot of unanswered questions on the efficacy of such a regime in this sector. Which markets will be affected? Will it help or stifle innovation? Will it only predominately constrain US platforms, or can it also capture other digital technology firms? Will it be effective?

One thing seems certain - notwithstanding the lack of effective competition identified, the European Commission unlike Peter Thiel, does not think that “Competition is for Losers[2]” and it is not bought by the arguments that creative monopolists should be left to prosper out of their own steam, not hampered by ad hoc regulation merely because they give customers more choices and by adding entirely new categories of abundance to our world.

Dr Ian Gauci is the Managing Partner of GTG Advocates and Afilexion Alliance. He advises multiple government bodies and is one of the local key figures on technology law matters. He is also an international speaker, lecturer and author.

Disclaimer: This article is not intended to impart legal advice and readers are asked to seek verification of statements made before acting on them.

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[1] Creative destruction was popularized by Joseph Alois Schumpeter (1883-1950), prominent Austrian-American economist, Finance Minister in Austria and professor at Harvard University in his book Capitalism, Socialism and Democracy (1942).

[2] Peter Thiel co-founder of Paypal from his piece Competition Is for Losers, Wall Street Journal, 12 September 2014.

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