EU confirms six (mostly US) tech giants are subject to Digital Markets Act


Image Credits: Chukrut Budrul/SOPA Images/LightRocket / Getty Images

The European Union has named six tech giants whose market power it hopes to be able to rein in by applying a new set of up-front rules on how these gatekeepers can operate so called core platform services. The six so-called gatekeepers are: Alphabet, Amazon, Apple, ByteDance, Meta, Microsoft.

The Digital Markets Act (DMA) takes a proactive approach to competition concern once a certain threshold of market power is achieved — including giants having 45 million+ active local users.

Other gatekeeper criteria include a turnover of €7.5BN+ in the last three financial years and a market capitalization that exceeds €75BN, although the Commission has a degree of discretion in making designations to ensure the law is able to target platforms that look set to gain an “entrenched and durable” position in the “near future”.

The Commission says a total of 22 core platform services operated by the six gatekeepers have been designated.

Here’s the full breakdown: Four social networks (TikTok, Facebook, Instagram, LinkedIn); six “intermediation” services (Google Maps, Google Play, Google Shopping, Amazon Marketplace, iOS App Store, Meta Marketplace); three ADS (Google, Amazon and Meta); two browsers (Chrome, Safari); three operating systems (Google Android, iOS, Windows PC OS); two N-IICS (WhatsApp, Facebook Messenger); one search engine (Google) and one video sharing platform (YouTube).

The DMA started to apply in May after the final details of the regulation were agreed by EU lawmakers earlier this year, following lengthy negotiations between the European Parliament and Council on the Commission’s late 2020 proposal to reform its approach to digital competition.

Seven tech giants — Alphabet/Google, Apple, Amazon, ByeDance/TikTok, Meta/Facebook, Microsoft and Samsung — had said they expected to be subject to the regime. But Samsung isn’t on today’s official list.

In a couple of other surprising omissions, also not listed as core platform services are Gmail and Outlook.com.

“[T]he Commission has concluded that, although Gmail, Outlook.com and Samsung Internet Browser meet the thresholds under the DMA to qualify as a gatekeeper, Alphabet, Microsoft and Samsung provided sufficiently justified arguments showing that these services do not qualify as gateways for the respective core platform services,” the EU wrote. “Therefore, the Commission decided not to designate Gmail, Outlook.com and Samsung Internet Browser as core platform services. It follows that Samsung is not designated as gatekeeper with respect to any core platform service.”

Giving a speech at a digital conference in Estonia yesterday, the EU’s internal market commissioner, Thierry Breton, summarized the bloc’s aims for the regulation. “We know that some tech giants have used their market power to give their own products and services an unfair advantage and hold back competitors from doing business and creating added value and jobs. These practices distort competition, undermine free consumer choice and hold back SMEs’ innovation potential notably arising from Web 4.0 and virtual worlds,” he said.

“It was high time that Europe sets its rules of the game upfront, providing a clear enforceable legal framework to foster innovation, competitiveness and the resilience of the Single Market, rather than having to rely on lengthy and not always effective antitrust investigations. The DMA does just that.”

Key provisions the DMA applies to core platform services include a ban on self-preferencing or gatekeepers requiring business users to make use of their own services and a ban on gatekeeping app stores preventing the installation of rival stores. Gatekeepers also cannot ban business users from offering and promoting competing services and they have an obligation to share with them information that their platform usage generates.

There are also data portability and service interoperability requirements, including specific interoperability obligations for messaging giants and choice screens-style obligations for OSes, browsers, search engines and virtual assistants. Plus there’s a ban on gatekeepers tracking and profiling users for ad targeting unless they obtain their consent; a ban on stopping users from un-installing gatekeeper preloads; and a requirement to apply FRAND terms for general access (and avoid discriminatory T&Cs) for fair dealing with business users.

Penalties for breaching the regime can scale up to 10% of global annual turnover — or even 20% for severe repeat offences.

The new rules are expected to create new opportunities for competition on major platforms — such as from independent app stores, alternative payment services and upstart search engines — while simultaneously cracking down on directly abusive behavior by gatekeepers, such as arbitrary enforcement of T&Cs.

And early out the gate with a statement welcoming the official designation of gatekeepers was payment unicorn Paddle. CEO Jimmy Fitzgerald dubbed today’s announcement as “as a step towards fair competition, increased consumer choice, and true business innovation.” “Asking large industry players to introduce third-party app stores and third-party payments systems, without the ‘self-preference’ of their own products, will be extremely beneficial for software developers, allowing them to choose where and how to sell their products without losing a percentage on every sale,” he added.

The new regime could also encourage the development of less exploitative business models, as consumers should have more wiggle room to slip the noose of platform giants’ lock-ins. Although how effective the pan-EU regime will be at rebalancing a digital playing field that Big Tech not only still firmly dominates but has essentially defined and configured in its interest over decades remains to be seen.

Diluting the influence of powerful network effects is also likely to take time as consumers are probably going to continue to view the biggest names as the most trusted brands for some time to come. Yet innovative and determined startups should expect to have better odds than ever at breaking GAFAM’s grip on tech users. Or at least that’s the newly disruptive regulated reality for entrepreneurs launching services in the EU.

There’s also still some time until the DMA’s compliance deadline bites: Designated gatekeepers have six months to ensure they meet all the legal requirements — so early March 2024 is when the real EU vs Big Tech reckoning starts.

The Commission is the sole enforcer of the DMA so gearing up to take on such a massive extra oversight role in short order is also no small ask for the EU’s executive.

The bloc’s competition unit has been ruling over tech giants for many years, of course. Including, most notably, a string of major enforcements against Google, as well as a number of investigations into Apple, Amazon, Meta and Microsoft. But the DMA represents a step change from just doing traditional ex post antitrust investigation and after-the-fact enforcement — to bolting on ongoing ex ante surveillance and coming up with preventative measures too. So EU regulators are also having to step up several gears. Albeit, at least in theory, the DMA may reduce the volume of competition investigations the EU undertakes on Big Tech — assuming it proves effective at proactively curbing a broad range of unfair tactics.

There are early signs that designated gatekeepers may not quietly submit to the EU’s new playbook — and formal challenges certainly seem likely as the new rules bed in. Yesterday the FT reported that Apple and Microsoft were fighting the Commission’s designation of iMessage and Bing, respectively, as core platform services in scope of the DMA — with the pair claiming the services are insufficiently popular to qualify.

Bing has a very small regional marketshare (of just 3%), as Google’s search engine continues to massively dominate in Europe. While, per the FT’s reporting, Apple has argued iMessage does not meet the 45M+ user threshold to qualify as a core platform service — which would obligate it to interoperate with rival messaging services. And the newspaper reported that the Commission was still deliberating over the inclusion of Bing and iMessage.

The Commission looks to be taking a cautious approach to this early pushback as Bing and iMessage are not on the initial list of 22 core platform services.

However it has also announced it’s opened four market investigations to further assess Microsoft’s and Apple’s submissions arguing that, despite meeting the thresholds, the following core platform services do not qualify as gateways:

  • Microsoft: Bing, Edge and Microsoft Advertising
  • Apple: iMessage

Legal challenges to today’s official designations could certainly follow as tech giants accustomed to setting their own rules and terms of service seek to test the robustness of the EU’s countervailing rule making.

The bloc can also continue to designate (more) gatekeepers, as market conditions evolve. It is also required to review existing designations at least every three years to check whether platforms still qualify.

Some of the gatekeepers that have been designated today are already expected to have aligned with the DMA’s sister regulation, the Digital Services Act, as they have previously been designated as either VLOPs or VLOSE under that wider pan-EU digital governance regime (and the DSA’s compliance deadline for larger platforms was late last month). So in-house policy teams at the world’s most valuable tech companies are certainly being kept busy.





Read More: EU confirms six (mostly US) tech giants are subject to Digital Markets Act

2023-09-06 10:18:45

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