TikTok remains accountable under the Digital Markets Act (DMA)

The DMA aims to ensure fair competition and to safeguard the contestability of the markets for digital services by regulating so-called gatekeepers. The European Commission (“Commission“) had designated Bytedance as a gatekeeper for its online social networking platform TikTok on 5 September 2023 since it met the relevant quantitative thresholds of the DMA.

Bytedance challenged TikTok’s designation before the EU’s General Court (“Court”). The basis of its action is that the DMA sets out a rebuttal-mechanism for companies meeting the quantitative thresholds. To avoid “false positives” – i.e. incorrect designations – a company can challenge the designation presumption which is based on quantitative criteria if it presents sufficiently substantiated arguments.

Since Bytedance is the first company to trigger legal review of a Commission’s DMA decision, the decision is of major relevance for the application of the DMA. It clarifies important issues relating to the interpretation of the designation and rebuttal-mechanism which are at the core of the new legislation. Therefore, this decision is also relevant for the other pending legal actions against the Commission’s (non-)designation decisions or potential future challenges.

Judgment

The Court dismissed Bytedance’s action in its entirety. While the Court found that the Commission had made some errors in its assessment, these had no decisive effect on the outcome. Therefore, the judgment confirms Bytedance’s designation as a gatekeeper pursuant to the DMA.

The Court took the opportunity to clarify important issues of a general nature relating to the interpretation of the gatekeeper designation and rebuttal-mechanism:

• Standard of proof: The Court recalled and underscored the high standard of proof required to call into question the presumptions set by reaching the quantitative thresholds. It is not sufficient for the gatekeeper to prove the existence of doubts but to call those presumptions into question with a high degree of plausibility.
• Type of argument and evidence that may be used for the rebuttal: Only justification on economic grounds seeking to enter into market definition or to demonstrate efficiencies should be discarded, as it is not relevant to the designation of a gatekeeper. The Court explained that arguments and evidence of a qualitative nature may directly relate to the DMA’s quantitative criteria and must be taken into consideration depending on the circumstances, as it is the case with quantitative arguments and evidence. Therefore, the Court considered it artificial to separate one from the other and noted that the list of elements that may be taken into account in Recital 23 of the DMA is non-exhaustive.
• Principle of equal treatment: The rebuttal must take account of the circumstances in which the relevant CPS operates. If the gatekeeper refers to other Commission decisions under the principle of equal treatment, it is necessary to explain why the situation is comparable, in particular if other CPS categories are concerned.

On the substance of the case, the judges considered that the arguments submitted by Bytedance were not sufficiently substantiated to manifestly call into question the presumptions set out by reaching the quantitative thresholds:

• No rebuttal of the presumption that Bytedance had a significant impact on the European internal market: A significant impact on the European internal market does not necessarily require a high EU turnover which is apparent from the alternative, and not cumulative, global market value threshold. Bytedance largely exceeded the global market value threshold which together with its large number of users in the EU reflects its expected future position and effect on the European internal market. Bytedance would have the financial capacity and potential to monetise those users. While a lower EU turnover is not in itself sufficient to rebut the presumption, it remains a relevant argument which must be considered by the Commission in its assessment.
• No rebuttal of the presumption that TikTok was an important gateway for business users to reach end users: The existence of an ecosystem, multi-homing, network and lock-in effects, the relative scale, as well as advertising revenues (or other engagement of business users depending on the business model) can constitute relevant factors for characterising a CPS as an important gateway. However, the lack of any of these factors is not in itself sufficient to rebut the presumption established by the quantitative criteria and the gatekeeper bears the burden of proof. Irrespective whether Bytedance had an ecosystem, TikTok generated significant network effects and user lock-in, in particular considering the higher engagement rates with young users. The relevance of the criteria also depends on the circumstances in which the relevant CPS operates. It is generally not necessary that business users depend on a CPS as the only channel to reach end users and for social networking services multi-homing is common practice. In terms of relative scale, TikTok increased its user numbers rapidly and exponentially since its launch in the EU in 2018 reaching half the size of Facebook and Instagram.
• No rebuttal of the presumption that Bytedance enjoyed an entrenched and durable position: The concept of an “entrenched and durable position” does not necessarily overlap with that of a “dominant position” and does not require the position to be “unassailable”. It means that contestability is limited, whereby contestability is understood by the Court to relate especially to the ability of non-gatekeepers to challenge the position. TikTok is now an established operator in the EU given its user numbers. It has strengthened its position over the last few years despite the launch of competing features such as Reels and Shorts by its competitors and can therefore no longer be seen as challenger.

Comment

After only eight months of litigation, this first real litmus test for the DMA’s effectiveness and the Commission’s ability to act has therefore been unequivocally positive. In particular, the Court has now firmly clarified the legal standard to be applied by the Commission when assessing arguments presented to rebut the gatekeeper presumptions. The Court’s judgment thus serves as a definitive signal to other potential gatekeepers: meeting the DMA’s quantitative thresholds will make it exceedingly challenging to contest the Commission’s designation as gatekeepers. Moreover, the Court’s ruling is particularly interesting for the other ongoing and future legal proceedings involving gatekeepers (e.g. Meta and Apple) and further underscores the DMA’s effectiveness in terms of its overarching goal of ensuring contestability and fairness in digital markets.

Background

Who are the gatekeepers and which CPS have already been designated?

The DMA aims to ensure fair competition and to safeguard the contestability of the markets for digital services by regulating so-called gatekeepers. Gatekeepers are companies providing core platform services (“CPS”) defined in the DMA. These services can be considered an important gateway between a large number of business users and consumers.

For the time being, a total of seven gatekeepers and 24 CPSs have been designated (for further details see our Noerr News article):

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How are gatekeepers designated and how can they defend themselves against that designation?

Only companies that have a significant impact on the European internal market, provide CPS which serve as an important gateway for business users to reach end users, and enjoy an entrenched and durable position in their operations, or will enjoy such position in the foreseeable future, shall be designated as gatekeepers. To assess these conditions, the regulation relies primarily on quantitative thresholds – a combination of EU turnover or global market value, and the CPS’ monthly active EU end and business users in each of the last three financial years – which, if met, lead to the presumption that a gatekeeper position exists. Companies are obliged to monitor the thresholds themselves and notify the Commission if they are met.

To avoid “false positives” – i.e. incorrect designations – the DMA sets out a rebuttal-mechanism for companies meeting the quantitative thresholds (Article 3(5) DMA). If the gatekeepers present sufficiently substantiated arguments that demonstrate that they do not have a significant impact on the European internal market or represent an important gateway for business users to reach end users over a stable period of time, the Commission can exceptionally refrain from a designation – as was the case with Gmail, Outlook.com, Samsung Internet Browser, X Ads and TikTok Ads. If the arguments are sufficiently substantiated to manifestly calling into question the presumption of the thresholds but do not clearly rebut it, the Commission can open a market investigation, which it should conclude within five months – as it was the case with Microsoft Advertising, Bing, Edge, and iMessage and is currently being considered for the online social networking service X.

Recital 23 DMA explains in this respect that “[i]n its assessment of the evidence and arguments produced, the Commission should take into account only those elements which directly relate to the quantitative criteria” and, more specifically, that “[a]ny justification on economic grounds seeking to enter into market definition or to demonstrate efficiencies deriving from a specific type of behaviour by the undertaking providing core platform services should be discarded”.

On the contrary, to avoid “false negatives” – i.e. incorrect non-designations – the DMA also sets out the option for the Commission to designate a CPS even if the quantitative thresholds are not met (Article 3(8) DMA). Here, the Commission may explicitly consider a list of criteria, including such of a qualitative nature. The list includes e.g. the existence of network and lock-in effects, data driven advantages, the degree of multi-homing as well as the conglomerate structure / level of vertical integration. The Commission has used this tool for the first time to designate Apple as a gatekeeper for its operating system iPadOS despite not meeting the quantitative thresholds.

Legal review of the Commission’s (non-)designation decisions

Gatekeepers who disagree with their designation by the Commission can bring an action for annulment before the Court. Bytedance lodged its appeal against TikTok’s designation on 16 November 2023 (T-1077/23). In addition, Bytedance made an application for interim measures on 20 November 2023 (T-1077/23 R) which was dismissed by the President of the Court on 9 February 2024 since Bytedance failed to prove the condition of urgency. The Court, however, granted Bytedance’s request to rule on the case under the expedited procedure and delivered the judgment eight months after the action was brought.

Other gatekeepers’ actions for annulment against their designation regarding certain CPS are still pending. Meta’s action lodged on 15 November 2023 (T-1078/23) relates to the designation of Facebook Messenger and Facebook Marketplace as CPS. Apple’s action lodged on 16 November 2023 (T-1080/23) relates to the designation of iOS and the AppStore as CPS.

Notably, not only gatekeepers can seek legal review of the Commission’s DMA decisions. Third parties may, under certain conditions, take legal action as well. For instance, Opera has publicly announced that it has appealed the Commission’s decision not to designate Microsoft Edge as CPS despite meeting the quantitative thresholds.

The book “New Digital Markets Act – A Practitioner’s Guide” recently published by Jens Peter Schmidt and Fabian Hübener is our take on the background, implementation and compliance with the DMA. For further advice and individual solutions concerning the DMA and related competition matters, do not hesitate to contact us.