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:
a) “it has a significant impact on the internal market;
b) it provides a CPS which is an important gateway for business users to reach end users; and
c) 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:
a) online intermediation services;
b) online search engines;
c) online social networking services;
d) video-sharing platform services;
e) number-independent interpersonal communications services;
f) operating systems;
g) web browsers;
h) virtual assistants;
i) cloud computing services;
j) 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.
This informational piece, which may be considered advertising under the ethical rules of certain jurisdictions, is provided on the understanding that it does not constitute the rendering of legal advice or other professional advice by Goodwin or its lawyers. Prior results do not guarantee similar outcomes.
