Summaries of judgments: Bytedance v Commission

Summaries of judgments made in collaboration with the Portuguese judges and référendaire of the General Court (Maria José Costeira, Ricardo Silva Passos and Esperança Mealha)

Judgment of the General Court (Eighth Chamber, Extended Composition), 17 July 2024, Case T-1077/23 Bytedance/Commission

Digital services – Regulation (EU) 2022/1925 – Designation of gatekeepers – Online social networking service – Requirements – Presumptions – Rebuttal of the presumptions – Rights of the defence – Equal treatment.

Facts

The General Court (“GC”), interpreted for the first time the Digital Markets Act[1] (“DMA”), rejecting the action of annulment, brought by the Bytedance group (hereinafter, taken together, « Bytedance ») against the decision by the European Commission to designate Bytedance and the undertakings directly or indirectly controlled by it, as gatekeepers within the meaning of the DMA.

The DMA aims to contribute to the good functioning of the internal market by establishing rules that ensure the contestability and equity of the digital markets. According to the DMA, the Commission designates an undertaking as a “gatekeeper” when certain cumulative qualitative criteria are met, namely: (i) it has a significant weight on the internal market; (ii) it provides a core platform service (“CPS”) that is an important gateway that allows business users to reach end users; and (iii) enjoys a solid and long lasting position in its activities, or it will, in all likelihood, enjoy such position in the near future.

Additionally an undertaking is also presumed to be a gatekeeper when certain quantitative thresholds established based on its turnover, market value and number of users are met. However, if an undertaking meets these quantitative thresholds, it may still rebut its designation as a gatekeeper by presenting sufficiently substantiated arguments to demonstrate that, exceptionally, it does not meet the cumulative qualitative criteria required to be designated as a gatekeeper.

In the matter on dispute Bytedance, a company founded in China in 2012, which operates, the digital platform TikTok that launched in the European Union, in August 2018 and allows its users to search, watch and broadcast videos, as well as to interact, communicate and share content with other users.

In application of the DMA, the Commission informed Bytedance of its preliminary views that both the qualitative criteria and quantitative thresholds were met and as such Bytedance was to be designated a gatekeeper. In response, Bytedance argued that even if it met all the quantitative thresholds based on turnover, market value and number of users, it did not meet the qualitative criteria to be designated as a gatekeeper, requesting that the Commission open a market investigation under article 17 of the DMA to obtain further evidence.

On 5 September 2023, the Commission adopted a final decision (“the contested decision”) concluding that Bytedance had not sufficiently proven that it did not meet the qualitative criteria and rejecting the request to open a market investigation thus designating Bytedance a “gatekeeper” within the meaning of the DMA.

Decision

The applicant, Bytedance, brought an action for annulment under article 263 of the Treaty on the functioning of the European Union (“TFEU”) against the contested decision. In this action, the applicant raised a first plea of law concerning a breach of article 3, paragraphs 1 and 5 of the DMA, and a second plea alleging a breach of the rights of the defence.

In its first plea, Bytedance firstly argued that the Commission applied an incorrect legal standard when assessing the arguments presented to rebut the presumptions laid down in Article 3(2) of the DMA.

The applicant criticizes the Commission for having rejected certain “qualitative” arguments and evidence. Additionally, Bytedance claimed that the Comission imposed too high a standard of proof, requiring “convincing” evidence, arguing that that the existence of “doubts” or “prima facie” evidence as to whether the undertaking concerned meets the requirements of Article 3(2) of the DMA should be sufficient to open a market investigation.

Concerning the use of “qualitative evidences” to rebut the presumptions laid down in Article 3(2) of the DMA the General Court noted that it is difficult, if not impossible, to distinguish between “quantitative” and “qualitative” arguments or evidence. An argument of a “qualitative” nature is often supported by figures.  The GC thus concluded that Article 3(5) of the DMA, must be interpreted as allowing the undertaking concerned to submit, in order to rebut the presumptions laid down in Article 3(2) of the DMA, arguments and evidence, whether or not they are expressed in figures, provided that they relate directly to one or more of those presumptions.

Concerning the standard of proof required to call into question the presumptions laid down in Article 3(2) of the DMA the General Court ruled that Article 3(5) of the DMA imposed a high standard of proof. As a result, Bytedance should have been capable of showing “with a high degree of plausibility”, that the presumptions laid down in Article 3(2) of the DMA were called into question.

The GC thus concluded that mere “doubts” or “prima facie” evidence, as proposed by Bytedance, were an insufficient lower standard than that required by the DMA and rejected this argument as unfounded.

Secondly, the company contended that the Commission infringed Article 3(1) and (5) of the DMA by rejecting the arguments presented to rebut the presumption that it fulfilled the qualitative criteria to be designated as a gatekeeper.

Regarding the first qualitative criteria, Bytedance argued that it did not have a significant impact on the internal market since its turnover in the EU was low. The General Court found that the Commission had erred by not considering the low turnover as a relevant factor of analysis. Nevertheless, the GC concluded that Bytedance did not sufficiently substantiate its arguments to rebut the presumption that its operations had a significant impact on the internal market.

Regarding the second qualitative criteria, Bytedance claimed that TikTok was not an “important gateway” within the meaning of the DMA, arguing, in substance, that TikTok was not an ecosystem and that its scale was limited when compared with competing social networks. The GC ruled that the Commission was right in concluding that the arguments put forward by Bytedance were insufficient and that neither the size of competitors nor the absence of an ecosystem are determining criteria to assess the existence of an “important gateway”.

Finally, regarding the third qualitative criteria, Bytedance maintained it did not enjoy “an entrenched and durable position in the market”, as its competitors, namely Google and Facebook, have successfully contested its market position causing it to lose, advertisers and users.

The General Court ruled that the fact that Bytedance’s market position is challenged by other large platforms, does not prevent the Commission from concluding that it has an “an entrenched and durable position in the market”. The GC emphasized that evidence showed that TikTok had grown rapidly since its entry into the European market, quickly reaching a high number of users. The General Court thus rejected this argument as unfounded, ruling that Bytedance had not successfully reversed the presumption concerning the qualitative criteria to be designated as a “gatekeeper”.

In the second plea, Bytedance argued that the Commission infringed the rights of the defence, namely, the right to be heard, as enshrined in Article 41 of the Charter of Fundamental Rights of the European Union (“the Charter”). According to Bytedance the Commission relied on matters of fact and law in relation to which it had not had the opportunity to submit its observations during the administrative procedure.

The GC recognized that Bytedance did not have the opportunity to submit its views, regarding the fact of whether or not it had its own ecosystem and the intensity of use of TikTok. As a result, the General Court found that right to be heard had been infringed.

Nevertheless, the General Court recalled that, according to its settled case law, an infringement of the right to be heard does not automatically entail the annulment of the contested act being necessary for the applicant to demonstrate, that the decision would have been different in the absence of the procedural irregularity. The GC concluded that, in the present case, Bytedance had failed to show that, in the absence of the irregularity, it could not be entirely ruled out that the Commission’s decision would have been different and as such rejected the second plea as unfounded.

In light of these findings, the General Court thus rejected all pleas in law raised by the applicant dismissing the appeal in its entirety and upholding the contested decision designating Bytedance as a gatekeeper within the meaning of the DMA.

[1] Regulation (EU) 2022/1925 of the European Parliament and the Council, of 14 September of 2022, concerning contestable and equitable markets in the digital sector and modifying the Directives (EU) 2019/1937 and (EU) 2020/1828 (regulation on the digital markets).