On 4 October, ACT | The App Association continued its App Makers Tour of Europe in Italy. Our webinar on the impact of the Digital Markets Act (DMA) brought together app developers, policymakers, and academics. The panellists discussed the realities of the Italian digital ecosystem and the particular implications of the DMA on small and medium-sized enterprises (SMEs). The panel was composed of:

If you missed the event, you can read this recap or watch the 6-minute summary below.

 

How does regulation impact app developers in Italy, and how can we avoid unintended consequences in the DMA?

Opening the discussion, MEP Brando Benifei provided an overview of the current state of negotiations on the DMA and other upcoming policies at the European level that will affect the online environment. MEP Benifei stressed that the DMA is necessary to tackle the current imbalances in the digital sector such as the fair distribution of access to data between different actors in the online economy. He reminded participants that the DMA is only one of several pieces of legislation that aim to address these imbalances. Other proposals that intend to resolve these asymmetries include the Data Governance Act, the Artificial Intelligence Act, and the upcoming Data Act.

MEP Benifei went on to state that the general objective of the Socialists and Democrats (S&D), his political group in the European Parliament, is to support small and medium-sized enterprises (SMEs) and startups, as well as consumers. Reflecting on the possible unforeseen consequences and trickle-down effects of the DMA that could affect SMEs, he voiced serious concerns. Certain mechanisms that ensure SME participation, such as the creation of an effective regulatory dialogue, could limit these unintended consequences. MEP Benifei concluded that political groups have set high ambitions on this regulation ahead of the negotiations for a compromise text with the Member States.

’It’s essential for app makers and policymakers to interact. […] Our objective is to favour the small operators – the SMEs and startups. […] We don’t want to create an extra burden for those we aim to help to be able to grow, thrive and be part of a competitive and innovative environment’. – Brando Benifei

Francesco Ronchi, CEO and founder of Synesthesia, noted that the Italian digital ecosystem is lagging somewhat behind its European counterparts, largely attributing the issue to a lack of digital skills and human resources. Mr Ronchi called for enhanced governmental support of the app ecosystem in Italy and pointed out France’s recent successfull introduced favourable policies to encourage growth in this sector. Although he welcomed the DMA’s overall objective to ensure fairness in digital markets, Mr Ronchi expressed concern that the changes the regulation mandates may harm the currently well-functioning app ecosystem. Smaller actors in the app ecosystem rely, to some extent, on the innovation of larger players to enter digital markets and reach consumers, he stressed. Therefore, Mr Ronchi called on policymakers to carefully balance the obligations of the DMA to avoid hindering smaller businesses from entering and thriving in new markets.

‘The idea behind the DMA is the right one. Our concern is that [the DMA] will change an ecosystem that works well into something that doesn’t. […] We need to be careful not to hurt small businesses that are entering the market by using platforms’. – Francesco Ronchi

Mario Siragusa, partner at Cleary Gottlieb Steen & Hamilton LLP and visiting professor at the College of Europe, differentiated between two types of smaller actors that the DMA could impact. On one hand, there are smaller online platforms, and on the other hand there are business users of larger platforms, including small app developers. Mr Siragusa noted that even if the DMA only affects smaller platforms marginally because they will not qualify as gatekeepers, the law will, nevertheless, directly change the relationship between business users and larger platforms.

Opposing the popular view that the DMA is a necessary tool because current antitrust rules are deemed insufficient to deal with digital markets, Mr Siragusa pointed to several cases tackled by competition authorities in this sector in recent years. He underlined that antitrust rules are flexible enough to adapt to digital markets and that real efforts to improve the enforcement of those rules already exist. Moreover, most of the behaviours the DMA seeks to prohibit, particularly in Article 5, already constitute abuses of market power under existing antitrust rules. Mr Siragusa added that the provisions of the DMA that target behaviours current antitrust rules do not yet address, such as some of the obligations on gatekeepers included in Article 6, are far too vast and unprecise for regulators and companies to apply easily. Additionally, Mr Siragusa dismissed the other traditional argument that the DMA will prevent fragmentation of the internal market. Instead, he argued such fragmentation is already inevitable due to national legislative efforts to strengthen local competition rules, an issue that the DMA cannot address as it will remain only complementary to antitrust law.

‘Most of the provisions of DMA, certainly those of Article 5, seek to address behaviours that have already been deemed to constitute abuses under competition rules. […] Article 6, on the other hand, has a problem, because the definitions of those obligations are so vast, so unprecise, that it will be very difficult apply’. – Mario Siragusa

What is the impact of the DMA on smaller app developers?

One of the DMA’s obligations mandates the possibility of third-party application and app store installations. Mr Ronchi, however, emphasised that most businesses and end-users generally prefer to use the ‘official’ app stores because consumers see them as a safe environment to download apps. While some developers may think of sideloading as a good option, it comes at the expense of security, which makes it necessary to implement appropriate and technically practical safeguards before such a practice becomes mandatory. Mr Ronchi added that the multiplication of app stores could also cause additional costs for app developers, who would need to place their product on several app stores to reach the same audience. He called on policymakers to consider the implications for the entire ecosystem and strike the right balance.

‘When you open up an ecosystem, you open the door to more security problems and issues. […] Another problem is fragmentation, as multiple stores lead to more confusion and additional costs for app developers’. – Francesco Ronchi

In response, MEP Benifei stressed the importance of the regulatory dialogue procedure the DMA foresees. He stated policymakers in the European Parliament have no intention to add additional burdens on small operators and emphasised that their voices will remain necessary and valuable throughout the DMA’s application.

‘The reporting possibility during the regulatory dialogue will be important […]. None of the Parliamentarians working on the DMA have the intention to impose additional burdens on small operators, nor to stop listening to them during the application of the regulation’. – Brando Benifei

Considering the DMA’s current approach and structure, Mr Siragusa agreed that app developers should have a say in how the European Commission applies its obligations. Moreover, Mr Siragusa worried that an ex-ante specification of rules by the Commission would result in a too rigid application of the text and, in turn, lead to unforeseen consequences. Current antitrust procedures allow all interested parties to participate, try to justify certain behaviours, and make recommendations on how to improve the situation. Regulators need to enshrine similar procedural guarantees in the DMA, according to Mr Siragusa.

‘The specification of obligations […] should be done pursuant to a real procedure in which all interested parties shall be able to participate to make their views known. […] If we remain always with this sort of ex-ante specification of rules by the Commission […] it will create all the dangers of a too rigid application of the text’. – Mario Siragusa

Concluding his remarks, Mr Ronchi stressed that small businesses already face numerous compliance issues. For example, data protection rules can undergo substantial changes through case law, as demonstrated by the Court of Justice of the European Union’s Schrems II decision, which invalidated the EU-U.S. Privacy Shield. Small businesses often need to hire legal experts and seek external support to comply with applicable rules, which depletes their already limited resources further. To strike the right balance in the DMA, policymakers should take this and other associated costs for SMEs into account.

Ultimately, all speakers agreed that the DMA could be valuable for SMEs and startups in the digital sector, but only if regulators develop it thoughtfully. With the appropriate safeguards and a comprehensive understanding of the interdependencies and nuances of the platform economy and the app ecosystem, the DMA can become a successful tool.