On 17 July 2024 the EU General Court (the Court) delivered the first substantive EU ruling concerning the application of the Digital Markets Act (DMA).
The ruling – which confirms the designation of ByteDance as a gatekeeper in respect of its popular social media platform TikTok – endorses the European Commission's approach to the application of the gatekeeper criteria and also provides additional clarity on the relevance of key concepts such as ecosystems, multi-homing, and network effects under the DMA.
Background
The DMA is a landmark regulation that aims to curb the power of large online platforms in the EU and foster fair competition in digital markets. It specifically targets large online platforms – in particular, designated "gatekeepers" operating "core platform services" (CPS) which serve as important gateways for business users to reach end users.
ByteDance was designated as a gatekeeper in respect of its social media platform TikTok on 5 September 2023 (the Decision), after it notified the Commission that it met the quantitative thresholds set out in the DMA (thereby creating a rebuttable presumption that it met the criteria for designation)1. ByteDance was the only gatekeeper not to meet the EU revenue test of €7.5bn under the first of those thresholds, instead being designated based on its market capitalisation of over €75bn globally (in combination with it meeting the other two quantitative thresholds). In deciding to designate ByteDance, the Commission rejected numerous rebuttal arguments submitted by the former as to why it should not be viewed as a gatekeeper.
Against this background, on 16 November 2023 ByteDance appealed the Decision and applied for interim measures to suspend the application of the DMA's obligations, on the basis that they would cause serious and irreparable harm to its business and hinder its innovation efforts. The General Court was unconvinced by these arguments and on 9 February 2024 dismissed ByteDance's application. However, the Court granted an expedited trial in respect of the appeal of the Decision, noting that the case raised complex and novel legal issues that were of general interest for the application and interpretation of the DMA, and that the case was urgent in view of the alleged harm to ByteDance's business and the need for legal certainty in the digital sector.
The Court's judgment
The Court examined the three pleas in law raised by ByteDance.
First plea: The Commission erred in its assessment of ByteDance's arguments and evidence to rebut the gatekeeper presumptions
This plea was divided into five parts:
- First, ByteDance argued that the Commission applied the
incorrect legal standard when assessing the arguments presented to
rebut the presumptions. ByteDance argued that the
Commission wrongly excluded its qualitative arguments and evidence,
and applied too high a standard of proof by requiring
'convincing' evidence to rebut the presumptions.As to the
alleged exclusion of ByteDance's arguments and evidence, the
Court clarified that both quantitative (i.e. expressed in figures)
and non-quantitative rebuttal arguments are acceptable, provided
they directly relate to the DMA's quantitative thresholds.
Further, the list of arguments that may be submitted to rebut the
presumptions is not exhaustive (and not limited to those specified
in recital 23 to the DMA). That being the case, the Court noted
that all ByteDance's qualitative arguments had been considered
by the Commission, except for the "additional" arguments
included with ByteDance's notification. These additional
arguments referred to the DMA's policy objectives rather than
the quantitative thresholds, and the Commission had been right to
disregard them. As to the standard of proof applied by the
Commission, the Court held that it was clear from the Decision as a
whole that the Commission had, in respect of each argument raised
by ByteDance, correctly considered whether it manifestly called
into question the presumption of gatekeeper status. This is a high
standard of proof and the Court dismissed ByteDance's arguments
that mere 'doubts' or 'prima facie' evidence
questioning the presumption of gatekeeper status should be enough
for the Commission to open a market investigation into that
status.
- Second, ByteDance challenged the presumption that it
had a significant impact on the internal market. ByteDance
argued that the Commission had superficially and incorrectly
assessed its arguments and evidence as to the significance of its
impact in the EU. ByteDance particularly emphasised its low EU
turnover, the recent launch of TikTok in the EU, and the fact that
its global market value was largely derived from its activities in
China, not the EU.The Court found that the Commission had not erred
in its Decision regarding ByteDance's significant impact on the
internal market. The Court held that the Commission correctly
applied the DMA's thresholds, which provide two alternative
tests to establish a significant impact on the internal market, one
of which (global market value) was met by ByteDance. Whilst the
Court held that the Commission had erred in law by dismissing
ByteDance's low EU turnover as irrelevant to the question of
significant impact, it also found that this mistake did not alter
the overall Decision. The Decision pointed to various other factors
– such as ByteDance's vast global market presence and the
growth of TikTok users in the EU – in concluding that
ByteDance had a significant impact on the internal market, and
ByteDance had failed to provide adequate evidence to counter
these.
- Third, ByteDance argued that the
Commission erred by rejecting the arguments presented to rebut the
presumption that TikTok was an important gateway.
ByteDance's arguments were structured into four main strands:
its lack of an ecosystem and significant network effects; the
prevalence of multi-homing (i.e. using multiple social networking
services in parallel) among TikTok users; TikTok's smaller
scale compared to competitors like Facebook and Instagram; and the
minimal engagement of advertisers and business users on TikTok. The
Court found that each of ByteDance's arguments were unfounded,
for the following reasons respectively:
- despite references to ecosystems in certain parts of the DMA, a CPS does not need to have an ecosystem to be designated a gatekeeper. A CPS such as a social networking service can on its own enjoy network effects and constitute an important gateway for business users to reach end users. The alleged lack of an ecosystem (which ByteDance had, in any event, failed to substantiate) had not prevented ByteDance from growing TikTok's user numbers exponentially, reaching half the size of Facebook and Instagram in a limited period of time;
- the prevalence of multi-homing amongst TikTok users did not necessarily indicate that it was not an important gateway. The impact of multi-homing may vary, and the Commission must take into account the particular circumstances in which a CPS operates when determining whether its prevalence, as well as the existence or absence of lock-in effects, calls into question the presumption of acting as an important gateway. With respect to social networking services, lock-in effects can exist even in the presence of multi-homing, due to network effects, user engagement, and potential switching costs. Social networks also generally display a high prevalence of multi-homing – this cannot mean that none are important gateways;
- despite TikTok's smaller scale relative to other platforms and the presence of strong competitors, its user numbers significantly exceeded the thresholds set by the DMA, and had continuously increased in the past few years. Whilst ByteDance sought to rely on new data showing TikTok had a low (5-10%) share of users of all social networking and video sharing platforms, the Court held it was inadmissible, as ByteDance did not provide the data during the administrative procedure and the DMA necessarily sets strict procedural requirements for rebutting presumptions in light of the short time the Commission has for designating gatekeepers. This is in contrast to antitrust and State aid procedures, in respect of which arguments raised before the courts for the first time may be admissible; and
- ByteDance's arguments in relation to advertising revenue
and the level of engagement of business users on TikTok were not
sufficiently substantiated to challenge the presumption. TikTok was
an important service for business users outside of online
advertising, and its advertising revenue was high in absolute
terms.
- Fourth, ByteDance alleged that the Commission erred by
rejecting the arguments presented to rebut the presumption that
ByteDance enjoyed an entrenched and durable position. The
Court supported the Commission's conclusion in finding that
ByteDance enjoys an entrenched and durable position in its
operations. In doing so, the Court clarified the definition of that
concept, concluding that "the position of an undertaking
is considered to be "entrenched and durable" if the
contestability of that position is limited. That is likely to be
the case where that undertaking has provided a CPS in at least
three Member States to a very high number of business users and end
users over a period of at least three years". This does
not require an undertaking's position to be unassailable.
ByteDance's argument that its position was contested by
competitors like Meta and Alphabet, and that it faced significant
user churn, was insufficient to overturn the presumption of limited
contestability. The Court noted that despite some users leaving
TikTok, the platform continued to grow, with increasing numbers of
users and revenue, indicating the strength and durability of its
market position.Further, the Court stated that the DMA's
purpose is to ensure market contestability – not just by
other gatekeepers, but also by non-gatekeeper entities. Competition
among gatekeepers does not necessarily imply that a market is
contestable. The Court also dismissed ByteDance's argument that
being a challenger is mutually exclusive with being a gatekeeper,
noting that a company can transition from one to the other as it
grows, as TikTok had done.
- Fifth, ByteDance argued that the Commission took a piecemeal and siloed approach by failing to carry out a holistic assessment of the evidence it had submitted to rebut the presumptions. In ByteDance's view, the evidence it submitted showed it was not a gatekeeper or, at the very least, the Commission should have opened a market investigation to determine whether that was the case. The Court dismissed this argument as unfounded, as ByteDance had failed to present any specific argument that could alter the Commission's conclusion when considering the evidence as a whole.
Second plea: Infringement of ByteDance's rights of the defence
The Court found that, overall, ByteDance had ample opportunity to present its views during the administrative process. Whilst the Court did find that ByteDance was not consulted on certain specific findings – in particular as to whether it had an ecosystem, and TikTok's usage intensity – these findings were not determinative, and ByteDance had failed to show how a right of response on these specific points could have altered the Commission's conclusions. A breach of the right to be heard does not require the annulment of a decision unless the applicant can prove that the outcome could have been different without the procedural error, which ByteDance had not done.
Third plea: Infringement of the principle of equal treatment
According to ByteDance, the Commission dismissed its qualitative arguments while accepting similar ones in other cases in which the Commission had accepted rebuttal arguments in respect of certain other CPSs. The Court, however, underscored the Commission's duty to evaluate each situation on its individual merits, without being bound by other decisions. The principle of equal treatment requires only that comparable situations are not treated differently, and the DMA requires rebuttal arguments to be assessed in light of the circumstances in which the relevant CPS operates. ByteDance had failed to explain why the circumstances in which the other CPSs operate were comparable to those in which TikTok operates, such that its argument in this regard had to be rejected.
Commentary
Despite finding that the Commission had committed some (non-material) errors of law in its treatment of ByteDance's arguments, the Court has provided a strong endorsement of the Commission's approach in interpreting and applying key aspects of the DMA.
The ruling also confirms the difficulties faced by undertakings seeking to counter the presumption of gatekeeper status once the DMA's quantitative thresholds are met (notwithstanding the success some other gatekeepers have had to date in doing so in respect of other CPSs). Not only does the "manifestly call into question" test imply a high standard of proof, but the undertaking must be in a position to submit all the arguments and evidence on which it intends to rely at the time it notifies the Commission of its potential gatekeeper status. It will not be able to supplement those later on by way of appeal to the Court. Moreover, it appears unlikely many such undertakings will be successful in rebutting the presumption that their position is "entrenched and dominant", given the Court's suggestion that low contestability will be presumed where a CPS enjoys "very high" user numbers in at least three Member States for at least three years (which arguably is the case for all CPS meeting the DMA thresholds), and that competition amongst gatekeepers does not to amount to true contestability for the purposes of the DMA.
No doubt there will be appeals in the future that present challenges for the Commission. (This might the case in respect of its ongoing non-compliance proceedings, for example.) For now, however, the Commission should have confidence going forward when designating additional gatekeepers or CPS.
Footnote
1 See our previous article for more information: The European Commission designates six gatekeepers under the Digital Markets Act
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