The EU last night agreed the terms of its Digital Markets Act, a new proactive approach to regulating competition in the digital economy. The Act is expected to force tech giants including Google, Meta, Apple and Amazon to change how they integrate their digital services and handle customer data.
“Large gatekeeper platforms have prevented businesses and consumers from the benefits of competitive digital markets,” said competition commissioner Margrethe Vestager. “The gatekeepers will now have to comply with a well-defined set of obligations and prohibitions. This regulation, together with strong competition law enforcement, will bring fairer conditions to consumers and businesses for many digital services across the EU.”
Last night, the three bodies of the European Union – the Commission, Parliament and Council – negotiated an agreement on the terms of the DMA. First proposed by the Commission in December 2020, the Parliament and Council have since suggested amendments to its scope and provisions.
In the final negotiations, or ‘trilogue’, the three bodies agreed that the DMA’s rules will apply to digital platform providers (or ‘gatekeepers’) with a market capitalisation greater than €75bn or sales in Europe over €7.5bn, according to a report by Politico. This is a higher threshold than the Commission’s original proposal, and is likely to include travel website Booking.com and China’s Alibaba, as well as the Big Tech giants.
Private chat apps such as WhatsApp and Facebook Messenger will be required to interoperate, another amendment from the original proposal. Companies that break the rules can be fined up to 10% of global sales for their first offence, and 20% thereafter.
According to regulatory news service MLex, Vestager expects the DMA to enter force in October and that companies will have to comply by February 2024.
How will the Digital Markets Act affect Big Tech?
Achieving political agreement on the DMA “is an important inflection point in the history of containing Big Tech, which until now has been fought with antitrust rules, which apply after the event,” says Alec Burnside, a competition lawyer at Dechert who represents companies with competition complaints against Big Tech.
Instead, the DMA introduces new ‘ex ante’ rules and obligations for ‘gatekeepers’ that operate ‘core platform services’, such as search, operating systems, cloud computing and others. These rules prohibit certain behaviours, such as self-preferencing and using data collected through one service to optimise another. The DMA introduces new requirements, such as allowing interoperability between competing services.
“Big Tech companies will look to continue what they like to do within the rules,” says Burnside, “but it is fundamentally a new regime.”
Although it was heavily lobbied by tech giants, the majority of EU lawmakers supported the DMA’s aims and broad approach. However, its likely impact is a matter of debate.
Burnside believes that by constraining Big Tech, the DMA will benefit smaller tech companies. “If the Big Tech companies are constrained in any way, then smaller companies – the ones who’ve been held up at the gates – will have the opportunity to flourish,” he says.
Gareth Shier, principal at economics consultancy Oxera, disagrees. “The overarching assumption behind the Digital Markets Act is that if it increases the amount of competition between platforms… then it’s going to automatically benefit European small businesses and consumers,” says Shier, who examined the impact of the latest amendments in a study for Computer and Communications Industry Association. “I think the management economic literature doesn’t support that assumption.”
Instead, Shier says, there is evidence to show that consumers and small businesses benefit from large platforms that can impose rules on the markets they operate. “I think some of the measures in the DMA are breaking down their ability to do that.”
What happens next?
When the DMA becomes law later this year, there will be a process of negotiation about which products and services fall within the scope of the DMA and how they can be made compliant, says Shier.
One question to be resolved is how the regulation, which is generic across product categories, will be applied in each specific circumstance. “How those generic rules apply for different companies, and how far they’re adapted, is going to be a question” of debate and negotiation, says Burnside.
Shier argues that applying generic rules without tailoring them to individual circumstances could have unintended consequences. Android and iOS are both smartphone operating systems, he observes, but they have substantially different business models. An intervention that promotes competition on one platform may harm it on the other.
How the regulations will be implemented under the new agreed formula is also not yet clear, says Burnside. “One thing that’s important to me is the question of whether the Commission is going to apply the regulation alone, or jointly with the national competition authorities of member states,” he says. “The advantage of national competition authorities having parallel power is that they bring lots of additional resource. The risk is of fragmentation and inconsistent decisions.”
“It’s also important which arm of European Commission is going to be applying the DMA, whether it’s going to be DG Comp [Directorate-General for Competition] or DG Connect,” he says. “The big advantage of DG Comp owning it is consistent application with existing competition law, because competition law will continue to apply. But DG COM hasn’t really had any experience of running ex ante regulation. DG Connect has that experience, in particular from running telecoms regulation.”
Will Big Tech comply with the Digital Markets Act?
Another question is the extent to which the tech giants will comply with the rules. “There might be significant differences amongst the companies with respect to how compliant they are,” says Thomas Vinje, a partner at law firm Clifford Chance who specialises in European antitrust.
Vinje points to the example of Apple, which has been fined three times by the Dutch competition authority for failing to comply with a ruling on in-app payments. “Apple, at least, has shown itself not to be willing to comply in the eyes of the Dutch court, specifically with respect to conduct that will be regulated by the DMA.” The EU will be able to levy larger fines than the Dutch authority, Vinje observes.
But the reputational risk of non-compliance might prove more persuasive. Vinje represented the Computer and Communications Industry Association in its successful antitrust case against Microsoft in the early 2000s, which led the software giant unbundling its media player from Windows.
“People who were inside [Microsoft] at the time told me the fines were a cost of doing business,” he says. “It was the terrible reputational consequences – year after year of headlines in the papers about Microsoft engaging in abusive conduct,” that made the company change its ways.
The size of the EU market means the tech giants are less likely to withdraw their services to avoid making them compliant. In 2014, Google shut down its Google News service in Spain after the government introduced a law requiring the company to pay publishers for content. “What Google chose to do then in Spain, frankly, is not plausible in relation to the whole of the European Union,” says Burnside.
Will the Digital Markets Act influence other jurisdictions?
The EU is highly influential among regulators around the world. “GDPR is an example of the soft power of the EU in setting an example that other [jurisdictions] might align to,” says Burnside. “And it’s not the only example: the EU gave itself the power to review mergers in 1989, and it has become a significant template around the world.
The Digital Markets Act may embolden regulators in smaller jurisdictions that may not have been able to take on Big Tech alone. It is not the only influence, however. In the UK, the Competition and Markets Authority’s Digital Markets Unit is developing its own approach to regulating digital markets, in which specific requirements will be applied to companies with ‘strategic market status’, and the US is developing its own approaches.
It remains to be seen whether the Big Tech giants create EU specific versions of their services to comply with the Digital Markets Act, or update their services for everyone. In 2018, Meta (then Facebook) applied privacy controls required by GDPR to all of its global operations.
However, it’s not impossible for the tech giants to offer locally specific offerings, says Shier. “People don’t realise how locally tailored some of these global services already are.”