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On October 16, the European Commission determined that X’s online social networking service does not qualify as a core platform service (CPS) under the Digital Markets Act (DMA).
European Union
Finance and Banking
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On October 16, the European Commission determined that X’s
online social networking service does not qualify as a core
platform service (CPS) under the Digital Markets Act (DMA). This
conclusion follows a detailed market investigation initiated on May
13, 2024, after X notified its potential status as a gatekeeper.
Along with the notification, X presented counterarguments,
asserting that its social networking service should not be
considered a key gateway between businesses and consumers, even
though X meets the quantitative thresholds outlined in the DMA.
After thoroughly evaluating all arguments, including feedback
from relevant stakeholders and consulting the Digital Markets
Advisory Committee, the European Commission concluded that X’s
social networking service does not function as a significant
gateway for businesses to reach end users; therefore, X is not
classified as a gatekeeper in this context.
DMA is a legislative framework established by the European Union
aimed at ensuring fair competition in the digital marketplace. It
targets large online platforms, known as gatekeepers, that have a
significant impact on the digital economy and consumers. Under the
DMA, it is crucial to determine whether a service is considered a
CPS because this qualification determines the specific obligations
imposed on gatekeepers. A gatekeeper is defined as “an
undertaking providing core platform services” on Article 2 of
the DMA. The DMA aims to regulate large digital platforms that have
considerable market influence and ensure fair competition in the
digital sector.
According to Article 3(1) of the DMA, the European Commission is
the European body responsible for the qualification of an
undertaking (such as X) as a gatekeeper. The latter article states
that a gatekeeper is an undertaking that fulfils three cumulative
requirements, namely:
- “it has a significant impact on the internal market;
- it provides a CPS which is an important gateway for business
users to reach end users; and - it enjoys an entrenched and durable position, in its
operations, or it is foreseeable that it will enjoy such a position
in the near future.”
There is a presumption in Article 3(2) that those requirements
are satisfied when certain quantitative thresholds are met, namely
the company’s turnover or market capitalization, as well as the
numbers of end users and business users of a particular CPS in each
of the past three financial years. It is crucial to identify the
gatekeepers because they have more obligations than other
services.
Identification of Gatekeepers
Core platform services are at the heart of the DMA, and only
companies providing these services can be designated as
gatekeepers. According to Article 2(2), “services considered
as core platform services include:
- online intermediation services;
- online search engines;
- online social networking services;
- video-sharing platform services;
- number-independent interpersonal communications services;
- operating systems;
- web browsers;
- virtual assistants;
- cloud computing services;
- online advertising services, including any advertising
networks, advertising exchanges and any other advertising
intermediation services, provided by an undertaking that provides
any of the core platform services listed in points (a) to
(i)”
Companies offering these services are assessed based on their
size, role in the digital ecosystem, and ability to influence
market conditions. If a company exceeds certain defined thresholds
(such as revenue or number of active users), it may be designated
as a gatekeeper, triggering strict regulatory obligations.
Specific Obligations of Gatekeepers
Once a company is designated as a gatekeeper, it is subject to
specific rules, including:
- Prohibition of anti-competitive practices: Gatekeepers cannot
favor their own services on their platforms to the detriment of
competitors. - Data portability: They must allow users to transfer their data
to other services. - Interoperability: Gatekeepers must make their services
compatible with third-party services, facilitating access for
competing companies. - Prohibition of combining personal data from different services
without the explicit consent of users: to protect users’
privacy and give them greater control over how their data is used
across the different platforms and services offered by
gatekeepers.
These obligations aim to prevent the abuse of dominant positions
and to maintain healthy competition by ensuring smaller players
have market access.
Sanctions and Consequences
If a service is qualified as a core platform under the DMA and
the company is recognized as a gatekeeper, it faces stricter
oversight from European regulators. Failure to comply with these
obligations may result in:
- Significant fines of up to 10% of the company’s global
annual turnover - Additional sanctions in case of repeat violations, such as
restructuring or mandatory interoperability
Impact on the Digital Ecosystem
The status of a core platform service under the DMA is
significant because it can transform how these companies interact
with users and other market players. It directly affects:
- End users, by offering them more choices and a more competitive
environment - Competitors, who benefit from fair access to dominant
platforms - Innovation, because dominant companies must allow new entrants
and foster growth within their ecosystem
To sum up, determining whether a service qualifies as a core
platform service under the DMA is essential, because it dictates
the application of market control obligations imposed on
gatekeepers. This distinction aims to ensure fair competition,
limit anti-competitive practices, and protect consumers within the
European digital ecosystem.
For X, avoiding the designation of gatekeeper under the DMA
offers significant strategic advantages. It allows the company to
sidestep stringent regulatory obligations that, if imposed, would
limit its management freedom and market power. By not being
subjected to strict rules such as mandatory interoperability, data
portability, or the prohibition of anti-competitive practices, X
can maintain flexibility in its business strategies, particularly
in terms of data monetization and the development of new services.
Additionally, avoiding this designation significantly reduces the
financial risks associated with severe penalties that the DMA could
impose on companies that fail to comply with its obligations. By
steering clear of gatekeeper status, X also retains a greater
capacity for innovation and can adjust its business model without
the burden of additional regulatory requirements that could hinder
its competitiveness in the digital market.
It is important to note that the European Commission will
continue to monitor market developments related to this service in
case any significant changes occur.
At Goodwin, we are committed to helping companies navigate the
intricate framework of the DMA and the strategic implications it
brings. Our team of legal experts specializes in EU competition law
and works closely with regulators across member states to ensure
that businesses can optimize their market position without being
constrained by unnecessary regulatory burdens, including avoiding
designation as a gatekeeper.
The DMA imposes strict obligations on large digital platforms
classified as gatekeepers, which can significantly affect their
business operations and strategic flexibility. Companies that
provide core platform services such as social networking, online
intermediation, or advertising services may face complex
requirements such as ensuring interoperability, enabling data
portability, and avoiding self-preferencing. However, if your
business can demonstrate that it does not act as a crucial gateway
between businesses and consumers, there are significant advantages
to avoiding gatekeeper status.
At Goodwin, we understand the value of maintaining strategic
autonomy in this evolving regulatory environment. Our team provides
tailored advice to help companies avoid gatekeeper designation
under the DMA, allowing you to continue innovating and scaling
without the heavy regulatory oversight associated with this status.
We help businesses carefully assess their services, market
influence, and regulatory thresholds, offering guidance on how to
position themselves in a way that maximizes operational flexibility
while minimizing compliance risks.
By partnering with us, we ensure that your business is fully
aligned with EU standards while preserving your ability to grow
without the constraints of gatekeeper obligations. Let us help you
turn the challenge of regulatory scrutiny into an opportunity for
strategic advantage and continued innovation.
We would like to thank Lise Madray for her assistance with
this alert.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
