ByteDance, Ltd., TikTok’s parent company, joins the ranks of Apple, Meta, and other tech giants on the European Commission’s list of “gatekeepers” subject to regulation under its Digital Markets Act.
In pursuit of its goal “to make this Europe’s ‘Digital Decade,’” the European Commission has taken strides to improve its digital strategy by adopting a series of regulations aimed at “strengthen[ing] its digital sovereignty.”[2] Among the first of these regulations was the Digital Markets Act (DMA), which took effect November 1, 2022.[3]
Digital Marketing Act
The DMA seeks to improve fairness in online markets by requiring large digital platforms qualifying as so-called “gatekeepers” to engage in practices aimed at promoting competition.[4] The term “gatekeepers” refers to any undertaking (1) with “a significant impact on the internal market”; (2) that “provides a core platform service” offering “an important gateway for business users to reach end users”; and (3) that “enjoys an entrenched and durable position, in its operations, or it is foreseeable that it will enjoy such a position in the near future.”[5]
To satisfy the “significant impact” requirement, a company must either achieve an annual Union turnover of at least €7.5 billion ($8.2 billion) in each of the three preceding financial years or have a fair market value of at least €75 billion ($82 billion) while having provided the same core platform service in at least three EU Member States.[6] A company’s “core platform service” qualifies as an “important gateway for business users” where the service has had at least 45 million active end users established or located in the Union, in the last financial year, and has at least 10,000 yearly active business users established in the Union.[7] This position as an “important gateway” becomes sufficiently “entrenched and durable” when a company surpasses the active user thresholds in each of the three preceding financial years.[8]
In September 2023, the European Commission identified six companies, comprising 22 different platforms, as the first gatekeepers subject to the DMA’s restrictions.[9] The six companies include Alphabet (parent to Google), Amazon, Apple, ByteDance (parent to TikTok), Meta (parent to Facebook and Instagram, among others), and Microsoft.[10]
The Commission identified Alphabet, Amazon, Apply, ByteDance, Meta, and Microsoft as the first six gatekeepers based on the core services they provide across various types of platforms.[11]
Upon classification as a gatekeeper, companies must adhere to the DMA’s required practices, which include a number of “do’s” and “don’ts” aimed at eliminating anti-competitive behavior by gatekeepers.[12] For example, DMA requires gatekeepers to:
permit third parties, in certain situations, to inter-operate with the company’s own services;
grant business users access to data they generate while using gatekeeper platforms;
provide tools and information necessary for business users advertising on company platforms to carry out their own independent verification of their advertisements; and
allow business users to promote offers and contract with customers outside company platforms.[13]
The DMA prohibits gatekeepers from:
ranking their own products and services more favorably than those of third parties offered on company platforms;
preventing end users from engaging with unaffiliated businesses outside company platforms;
preventing the un-installing of any pre-installed software or app; and
tracking end users outside company platforms without obtaining user consent.[14]
If found in violation of the DMA’s various “do’s” and “don’ts,” gatekeepers may face fines of up to ten percent of their total global turnover.[15] These fines may increase to twenty percent of total global turnover in the event of repeat infringements.[16] Penalties may extend beyond fines where gatekeepers systematically fail to comply.[17]
ByteDance–Gatekeeper or Challenger? Or Both?
In response to its initial inclusion among this list of companies required to adhere to the DMA’s mandates, ByteDance brought a legal action challenging its designation as a gatekeeper in the European Union's General Court.[18] ByteDance argued that, by including ByteDance in its list of gatekeepers, the Commission “risk[ed] undermining the DMA’s stated goal.”[19] Claiming TikTok to be a “newer competitor[]” and “arguably the most capable challenger to more entrenched platform businesses,” ByteDance urged that its designation as a gatekeeper would effectively insulate “actual gatekeepers” against any competition from TikTok—thereby encouraging rather than preventing anti-competitive behavior by other major digital platforms.[20]
Despite being present in the European market for over five years, ByteDance noted that TikTok’s operation in the European Economic Area did not generate annual revenue in excess of the €7.5 billion threshold necessary for the platform to achieve gatekeeper status.[21] The court found differently, however, looking beyond TikTok’s annual returns to ByteDance’s €206 billion market capitalization and the platform’s 134 million monthly users—which together demonstrate TikTok’s potential to have a “significant impact on the internal market” and serve as an “important gateway” for users.[22]
ByteDance further contested its status as a gatekeeper by underscoring the competition TikTok faced from companies like Meta and Alphabet, both of which released video-sharing services imitating TikTok’s. Despite this competition, the court highlighted TikTok’s rapid and exponential growth in usership following the roll-out of these competing services as evidence of ByteDance’s “entrenched and durable” position as a leader in the digital market.[23]
Rejecting each of the company’s arguments contesting its designation, the General Court denied ByteDance’s appeal, finding the company’s satisfaction of the DMA’s threshold requirements sufficient to certify its status as a gatekeeper and require its compliance with the DMA’s regulations.[24]
The General Court’s decision emphasizes the strength of the EU’s recent efforts to combat anti-competitive practices under the DMA.[25]In the weeks following the DMA’s enactment, the Commission launched investigations into several of the identified gatekeepers and has since brought preliminary charges against Apple and Meta for alleged violations of DMA regulations.[26]Although the success of the DMA’s new regulatory framework remains to be seen, the Commission’s commitment to its enforcement poses a significant risk for both existing and prospective gatekeepers who could face revenue losses in the millions if found in violation of its requirements.[27]
[1] Alexandre Lallemand, Photograph of European Union Flag with TikTok Logo, in Chris Stokel-Walker, The EU Just Showed Us Another Way of Reigning in TikTok, Fast Company (Apr. 25, 2024), https://www.fastcompany.com/91113106/eu-digital-services-act-tiktok-lite.
[2] A Europe Fit for the Digital Age, Eur. Comm'n, https://commission.europa.eu/strategy-and-policy/priorities-2019-2024/europe-fit-digital-age_en (last visited Sept. 29, 2024).
[3] Id. (providing a timeline of the actions taken by the Commission in connection with its digital strategy).
[4] The Digital Markets Act: Ensuring Fair and Open Digital Markets, Eur. Comm'n, https://commission.europa.eu/strategy-and-policy/priorities-2019-2024/europe-fit-digital-age/digital-markets-act-ensuring-fair-and-open-digital-markets_en (last visited Aug. 20, 2024).
[5] Council Regulation 2022/1925, 2022 O.J. (L 265) 30.
[6] Id.
[7] Id.
[8] Id.
[9] European Commission Press Release IP/23/4328, Digital Markets Act: Commission Designates Six Gatekeepers (Sept. 6, 2023), https://ec.europa.eu/commission/presscorner/detail/en/ip_23_4328.
[10] Id.
[11] Id.
[12] The Digital Markets Act: Ensuring Fair and Open Digital Markets, supra note 4 (listing gatekeepers’ obligations under the DMA).
[13] Id.
[14] Id.
[15] As used in the DMA, “turnover” encompasses “the total revenue that a company generates through its normal business activities.” Turnover Simply Explained, Munich Bus. Sch., https://www.munich-business-school.de/en/l/business-studies-dictionary/financial-knowledge/turnover (last visited Sept. 29, 2024).
[16] European Commission Press Release, supra note 9.
[17] Id.
[18] Linda A. Thompson, TikTok Owner ByteDance Loses Legal Challenge Against the EU DMA, Law.com (July 14, 2024, 3:36 PM), https://www.law.com/2024/07/17/tiktok-owner-bytedance-loses-legal-challenge-against-the-eu-dma-292-187399/; Eddie Beaver, TikTok Loses First Challenge Against EU Big Tech Law, Lexis (July 17, 2024, 4:04 PM), https://plus.lexis.com/newsstand/law360-uk/article/1858960/?crid=fb317c08-bca2-495f-8e92-7e109d73d1cc.
[19] Cynthia Kroet, TikTok Must Comply with EU Digital Markets Act: EU Court, Euronews (July 17, 2024, 11:20 PM), https://www.euronews.com/next/2024/07/17/tiktok-must-comply-with-eu-digital-markets-act-eu-court.
[20] Reuters, TikTok Joins Meta in Appealing Against EU Gatekeeper Status, Euronews (Nov. 16, 2023, 11:42 AM), https://www.euronews.com/next/2023/11/16/tiktok-joins-meta-in-appealing-against-eu-gatekeeper-status.
[21] Id.
[22] Id.
[23] European Union Court Says TikTok Owner Can’t Avoid Bloc’s Law Cracking Down on Digital Giants, AP News (July 17, 2024, 7:53 AM), https://apnews.com/article/tiktok-european-union-digital-markets-act-e6f8d49a93de38453de43802f342b7ce.
[24] Kroet, supra note 19.
[25] Thompson, supra note 18.
[26] Id.
[27] European Commission Press Release IP/23/4328, supra note 9; Cynthia Kroet, Booking.com Gatekeeper Under EU's Online Competition Rules, Euronews (May 15, 2024, 12:11 PM) (reporting the EU’s recent addition of Booking.com to its list of gatekeepers under the DMA), https://www.euronews.com/next/2024/05/13/bookingcom-gatekeeper-under-eus-online-competition-rules; The Digital Markets Act: Ensuring Fair and Open Digital Markets, supra note 4 (highlighting the consequences of repeated and systematic infringements); Kelvin Chan, Europe’s Digital Markets Act is Forcing Tech Giants to Make Changes. Here’s What That Will Look Like, AP News (Mar. 7, 2024, 6:49 AM) (discussing the global effect the DMA is likely to have on the technology industry), https://apnews.com/article/digital-markets-act-european-union-rules-apple-5162872791b985e794df9b3a7b46aed1.
Comments