The Brussels Effect: How the EU’s Digital Markets Act Projects European Influence
The EU’s Digital Markets Act (DMA) is enforceable as of March 7th, and its effects are rippling beyond Europe, sparking similar regulations worldwide and raising questions about its impact on tech giants and innovation. The DMA exemplifies the “Brussels effect” as defined by Columbia Law Professor Anu Bradford, projecting European influence on the world by imposing EU regulations on businesses and governments. The EU’s global reach is twofold: By shaping regulatory standards, it forces corporations to comply, and by publishing regulations in 24 languages, it facilitates the adoption of similar rules by other jurisdictions.
In a nutshell, the DMA restricts personal data use by digital services firms it designates as Internet “gatekeepers” (Alphabet, Amazon, Apple, ByteDance, Meta, and Microsoft) and prohibits them from hindering user choice. It also imposes further obligations, such as refraining from self-preferencing and staying away from anticompetitive data practices, enabling user control over settings and software, and ensuring fair treatment of business users and other service providers. Moreover, it focuses on the interoperability of communication services, mandating gatekeepers to make their platforms work seamlessly with others upon request.
Several concerns have emerged regarding the DMA’s potential impact. First, the DMA shifts from an ex-post regulatory regime to an ex-ante one through a wide range of prohibitions disregarding the nature and nuances of competition, especially because such proactive rules are established before specific anti-competitive actions arise. These pre-established rules might unintentionally affect pro-competitive conduct or fail to address the specific anti-competitive practices they were designed to prevent. Such ex-ante rules might have unintended consequences for innovation and economic growth. Per se bans on otherwise pro-competitive behavior could hinder the dynamism of the market.
Second, the gatekeeper designation is based on a very broad concept. The DMA sets up a legal presumption that an entity has a significant impact on the market when “it provides a core platform service in at least three Member States and where either its group turnover realized in the Union is equal to or exceeds a specific, high threshold, or the market capitalization of the group is equal to or exceeds a certain high absolute value.” While only six corporations have been designated as gatekeepers so far, the grounds for designation seem vague. Moreover, the DMA mainly targets US companies—five out of six gatekeepers are American.
Third, as tech companies invest heavily in research and development leading to new technologies and services, the DMA’s restrictions on data limitations, forced interoperability, or prohibitions on self-preferencing could make these investments less profitable. Self-preferencing, for example, allows companies to integrate their innovations seamlessly within their platforms, which can help promote the platform’s own services to attract more users. It can lead to lower prices and increased innovation for consumers, as companies are incentivized to compete effectively with their products and services alongside third-party offerings on the platform. Precautionary measures harm the EU and the US as well.
Even though the DMA was made for Europe, and despite the concerns and unknown practical impacts of it, more jurisdictions are copying it without considering a wiser “wait and see” approach. Regulatory ripples have surfaced in Brazil, the United Kingdom, and several other countries. For example, the UK’s Digital Markets, Competition and Consumer (DMCC) bill is currently in its final stages. The DMCC is a verbose piece at nearly 400 pages. Its scope covers companies with “Strategic Market Status” and provides a more flexible—and arbitrary—approach for the Competition Markets Authority (CMA) by entitling it to draw company-specific obligations. On the contrary, Brazil’s DMA copycat is very broad, covering more companies than either the DMA or the DMCC does. It encompasses Brazilian companies with annual gross revenues exceeding BRL 70 million. The assumption that all companies reaching the threshold have excessive market power is overly broad and paradoxical. The bill might ensnare not just the large players, but also smaller entities that lack the market influence commensurate with the regulatory burden imposed.
Despite its likely unintended consequences, other jurisdictions are following the EU’s path in implementing regulations equivalent to the DMA worldwide. After March 7, we will see how the European Commission is enforcing the regulation on gatekeepers and how it affects the companies’ willingness to innovate. Other countries should avoid replicating the DMA’s one-size-fits-all approach. But one thing is sure: The EU remains a major global regulatory influencer.
