European Commission Targets US Tech Giants in First Digital Markets Act Probe

European Commission Targets US Tech Giants in First Digital Markets Act Probe
Margrethe Vestager, executive vice president of the European Commission for A Europe Fit for the Digital Age and European Commissioner for Competition, and EU Internal Market Commissioner Thierry Breton, participate in a press conference on the Digital Services Act and the Digital Markets Act in Brussels, Belgium, on Dec. 15, 2020. (Alexandros Michailidis/Shutterstock)
Indrajit Basu

The European Commission—Europe’s antitrust and consumer investigation agency—on Monday launched investigations into Alphabet, Apple, and Meta for potentially breaching a landmark new law designed to prevent Big Tech having an unfair advantage over competitors.

In a statement, the commission said that it “suspects that the measures put in place by these gatekeepers fall short of effective compliance of their obligations under the DMA,” referring to the commission’s Digital Markets Act.

In particular, the commission has started an inquiry into Apple’s recent adjustments to its pricing structure for alternative app stores, as well as Amazon’s methods for ranking products within its marketplace.

In addition, these American tech-giants have been instructed by the commission to maintain specific records to ensure the effective implementation and adherence to their responsibilities.

“We are concerned Alphabet, Apple, and Meta are not meeting their obligations; e.g., Apple and Alphabet still charge recurring fees to app developers [and] Meta offers no real choice for users to opt out of data combination,” Margrethe Vestager, the European Commission’s executive vice president, said in a post on Twitter on Monday.

The commission initiated the probe to assess whether Alphabet and Apple’s actions concerning their app store obligations contravene the DMA, specifically Article 5(4), which stipulates that gatekeepers are obligated to allow app developers to guide users to alternative offerings outside the gatekeepers’ app stores at no cost.

Last year, Brussels identified six corporations as “gatekeepers” under the DMA, signifying their significant size and influence necessitating regulatory scrutiny. These gatekeepers include Alphabet (parent company of Google), Amazon, Apple, Meta (parent of Facebook), Microsoft, and ByteDance (parent of TikTok).

These corporations were granted a six-month period, ended on March 7, to ensure compliance with the DMA, which aims to foster competition on widely used digital platforms and expand consumer choice.

Noncompliance with DMA regulations may result in fines of up to 10 percent of a company’s global annual revenue. The commission expects to end its investigations within a year of the announcement.

New Reality

Enforced since March 7, the DMA targets “gatekeepers,” or mainly major U.S. corporations, over essential online services such as app stores, search engines, and messaging platforms.

Besides enhancing competition, the other primary goal of the DMA is to ensure a level playing field by facilitating greater opportunities for smaller firms to compete against dominant U.S. tech giants.

The legislation mandates that some of the globe’s largest tech enterprises streamline the process for consumers to select services from various providers.

For instance, when users make in-app purchases on iPhones or Android devices—such as ordering food for delivery or upgrading to the premium version of Strava—Apple or Alphabet typically levy a percentage of the transaction fee.

To circumvent this, app developers occasionally guide consumers toward their own websites, prompting them to make payments directly to the developers, thus bypassing the additional charges imposed by major tech companies.

Small European businesses will, consequently, emerge as the winners, gaining increased choices and heightened visibility compared to their larger counterparts.

In another example, Meta is required to ensure that its Facebook Messenger and WhatsApp services are compatible with eligible competitors, provided they adhere to the company’s technical and security criteria.

Consequently, users of alternative messaging platforms like Signal and Telegram—known for their commitment to safeguarding user privacy—might soon have the capability to communicate with contacts on Messenger and WhatsApp without needing to switch between apps.

Likewise, users of Google’s Android phones will have the assurance of selecting their preferred default search engine during the device setup process, presenting a significant opening for alternatives such as privacy-oriented DuckDuckGo and eco-conscious Ecosia.

The opening of the formal investigations by the commission is the first crackdown on tech giants since the DMA’s enforcement, following European businesses and consumers’ demand to quickly enforce the DMA.

“The investigations show them that the commission is listening and ready to enforce, even in complex cases like self-preferencing,” wrote Christophe Carugati in his LinkedIn post on Monday.

According to Dr. Carugati, founder at Brussels-based Digital Competition, the commission’s measure is presumably intended to dissuade European firms and consumers from swiftly filing litigation in national courts.

Such litigation might tax the commission’s limited resources and result in fragmented DMA enforcement, with national judges interpreting its terms differently.

Why These Three?

The commission also said that it is launching additional investigations to gather facts and information from Apple and Amazon.

These measures aim to “clarify” whether Amazon might be prioritizing its own brand products on the Amazon Store, potentially violating Article 6(5) of the DMA.

In addition, the commission is examining whether Apple’s recently implemented fee structure and other terms and conditions for alternative app stores and app distribution from the web (“side-loading”) are undermining the objectives outlined in Article 6(4) of the DMA.

Article 6(5) says that companies can’t mix user data from different platforms, even if those platforms are third-party services, to make profiles of people without getting clear permission from those people to share their data that way.

Part 6(4) of the DMA says that app shops and third-party apps must be able to be installed and used as long as they don’t harm the device or the operating-system software. Gatekeepers can’t use private data, either, to compete with business users who use a core platform service.

The commission has issued five retention orders to Alphabet, Amazon, Apple, Meta, and Microsoft. These orders request the retention of documents that could aid in evaluating their compliance with DMA obligations, thus preserving pertinent evidence to ensure robust enforcement measures.

In addition, Meta has been granted a six-month extension to fulfill the interoperability (i.e., capacity to interface with other operating system software) obligation outlined by the DMA specifically concerning Facebook Messenger, following a request for time from Meta to adhere to all DMA rules, the commission added.

What’s Next?

While Apple, Meta, Google, and Amazon defended their efforts to complying with the DMA, saying they'll continue to cooperate with the commission to resolve its concerns, according to Dr. Carugati, it may be hard to prove the commission’s allegations.

“It might be challenging to start with this case as the burden of proof is resource-intensive and high. The investigations against Apple also make sense, given the criticism. The commission was smart to only open an investigatory step on the new business terms, given the complexity of the assessment,” he wrote.

Meanwhile, even as the European Commission is establishing regulatory measures like the DMA to address concerns about Big Tech, the United States is taking a different route by enforcing existing rules through federal agencies. Despite their diverse methodologies, both initiatives aim to reduce the dominance of large tech businesses and encourage an atmosphere of fair competition.