Europe’s Digital Markets Act reflects fundamental differences between common and civil law traditions.
Common law, with its roots in English jurisprudence, relies on judicial decisions and precedent, favoring a case-by-case approach to regulation. It values adaptability, evolving with the market and technologies, and providing a nuanced response to the complexities of digital markets.
In contrast, continental European civil law emphasizes codified statutes. Predictable and uniform, it offers a clear, stable framework. The DMA embodies civil law tradition’s preference for preemptive regulation. It sets out explicit dos and don’ts for digital gatekeepers with the goal of preventing anti-competitive behavior before it occurs.
Innovation thrives in an environment where barriers to entry are low, and competitive pressures are high. The DMA endeavors to create such an environment by prohibiting anti-competitive practices such as self-preferencing, data monopolization, and unfair conditions for business users. It aims to open up space for startups and small companies to challenge incumbents, and to offer novel solutions to consumers.
Countries adhering to the common law tradition such as the United States and the United Kingdom often exhibit a dynamic innovation landscape, evidenced by a large number of startups created and patents filed. Common law’s flexible, precedent-based approach allows entrepreneurs the freedom to explore and develop new ideas without being stifled by the immediate constraints of a detailed regulatory framework. This flexibility can accelerate innovation, allowing new technologies and business models to emerge and thrive.
But this same flexibility can lead to delays in addressing potential abuses and scandals. Since common law systems react to problems rather than preempt them, there can be a lag in regulating new technologies or business practices. Companies exploit regulatory loopholes and gray areas. In the US, hands-off regulation facilitated rapid growth and the rise of large US tech firms, while sowing the seeds for many contemporary debates over market power and anti-competitive behavior.
Civil law countries often create a tightly regulated environment that hinders innovation. European entrepreneurs and innovators must navigate a complex and sometimes restrictive set of rules. Although the detailed regulatory framework mitigates abuses and ensures consumer protection by anticipating and addressing potential issues, Europe has been much less innovative than the US in the Internet age.
Since a fundamental trade-off exists between fostering a free-wheeling environment conducive to rapid innovation and ensuring a well-regulated market that minimizes abuses, the most effective approach may lie in blending the strengths of each system. The DMA represents an attempt to build such a bridge.
It sets out clear do and don’t rules, providing the predictability and stability characteristic of civil law. Specific anti-competitive practices are banned to dislodge large digital “gatekeepers” that can stifle innovation. Due to their size, user base, and market power, these gatekeepers can act as private regulators within their ecosystems. The DMA introduces a set of ex-ante regulations that preemptively restrict certain behaviors, aiming to ensure open digital markets, and allowing new and innovative services to compete on a level playing field.
Yet, the DMA also nods to common law by leaving room for interpretation in enforcement. In a fast-moving environment, the gatekeepers of today might not necessarily be the gatekeepers of tomorrow. The DMA attempts to address this phenomenon by creating a dynamic list of gatekeepers that can be updated as the market and customer preferences evolve. Companies that reach thresholds of user number and turnover become gatekeepers.
The DMA recognizes that innovation is not the sole domain of small startups or new market entrants. Large companies often possess the resources for significant R&D investments. Although they met the gatekeeper thresholds, the Commission decided that Microsoft: Bing, Edge, Advertising, and iMessage were challenger platforms and exempt.
The DMA’s implementation and its long-term effects on innovation will depend on the ability to properly define which companies are gatekeepers and which are not. Regulatory bodies must display agility to enforce and to adapt the rules.
It’s a delicate balance. Anti-competitive behavior must be stopped, but regulation must not become a barrier to innovation. In order to regulate complex and fast-evolving digital markets, we need to marry civil law predictability while incorporating common law flexibility.
Enrique Dans is a Non-resident Senior Fellow with the Digital Innovation Initiative at the Center for European Policy Analysis (CEPA) and a Professor of Innovation at IE University in Madrid.
Bandwidth is CEPA’s online journal dedicated to advancing transatlantic cooperation on tech policy. All opinions are those of the author and do not necessarily represent the position or views of the institutions they represent or the Center for European Policy Analysis.
