EU confirms Digital Markets Act jurisdiction over six (mainly US) IT giants

The European Union hopes to rein in the market power of six tech giants by applying a new set of proactive, pro-competition rules on how these gatekeepers can operate designated core platform services. Alphabet, Amazon, Apple, ByteDance, Meta, and Microsoft are the six so-called “gatekeepers.”

The Commission has designated 22 core platform services operated by the six gatekeepers under the Digital Markets Act (DMA).

I will provide the full breakdown: TikTok, Facebook, Instagram, and LinkedIn are four social networks. Google Maps, Google Play, Google Shopping, Amazon Marketplace, iOS App Store, and Meta Marketplace are six “intermediation” services. Google, Amazon, and Meta are three ad delivery systems. Chrome and Safari are two browsers. Google Android, iOS, and Windows PC OS are three operating systems. WhatsApp and Facebook Messenger are two N-IICS. Google is one search engine. YouTube is one video-sharing platform.

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Once a certain threshold of market power is achieved, including giants having 45 million+ active local users, the DMA proactively addresses competition concerns. The Commission has the discretion to designate platforms that are expected to gain an “entrenched and durable” position in the “near future” as gatekeepers. Other gatekeeper criteria include a turnover of €7.5BN+ in the last three financial years and a market capitalization exceeding €75BN.

EU lawmakers agreed on the final details earlier this year, and the regulation technically started to apply in May. The European Parliament and Council negotiated the accord following the Commission’s late 2020 proposal to reform its approach to digital competition.

The regime is expected to subject seven tech giants — Alphabet/Google, Apple, Amazon, ByeDance/TikTok, Meta/Facebook, Microsoft, and Samsung. However, today’s official list does not include Samsung, so TikTok’s parent company, ByteDance, is the only non-US tech giant listed.

Google’s web-based email service, Gmail, and Microsoft’s rival webmail offering, Outlook.com, are also surprising omissions as they are not listed as core platform services.

The EU wrote that Alphabet, Microsoft, and Samsung provided sufficiently justified arguments showing that Gmail, Outlook.com, and Samsung Internet Browser do not qualify as gateways for the respective core platform services. However, they meet the thresholds under the DMA to be eligible as a gatekeeper. Therefore, the Commission decided not to designate Gmail, Outlook.com, and Samsung Internet Browser as core platform services. Samsung is not set as a gatekeeper concerning any core platform service.

Yesterday, Thierry Breton, the EU’s internal market commissioner, summarized the bloc’s aims for the regulation while giving a speech at a digital conference in Estonia. Some tech giants have used their market power to provide their products and services an unfair advantage and hold back competitors from doing business and creating added value and jobs. He said these practices distort competition, undermine free consumer choice, and hold back SMEs’ innovation potential, notably arising from Web 4.0 and virtual worlds.

Europe needed to set 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 relying on lengthy and not consistently effective antitrust investigations. The DMA does just that.

The DMA applies key provisions to core platform services, including banning self-preferencing or gatekeepers from requiring business users to use their services and banning gatekeeping app stores from preventing the installation of rival stores. Gatekeepers cannot prohibit business users from offering and promoting competing services, and porters must share information generated by their platform usage with them.

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Messaging giants and OSes, browsers, search engines, and virtual assistants have specific interoperability obligations, including data portability and service interoperability requirements, as well as choice screens-style duties. Additionally, gatekeepers are banned from tracking and profiling users for ad targeting without consent. Users cannot be prevented from uninstalling concierge preloads. Porters must also apply FRAND terms for general access and avoid discriminatory terms and conditions when dealing with business users.

The regime can impose up to 10% of global annual turnover penalties — or even 20% for severe repeat offenses.

In addition, the Commission can also exercise its power to impose additional remedies, such as mandating that a gatekeeper sells a business or its parts or prohibiting them from acquiring other services related to “systemic non-compliance.” And, on that front, the EU’s competition division, which has been investigating Google’s ad tech business since 2021, warned this summer that breaking up Google would be the only effective remedy if its concerns are confirmed.

Experts anticipate the new rules will generate fresh competition opportunities on major platforms. These opportunities will come from independent app stores, alternative payment services, and upstart search engines. At the same time, the rules will also address directly abusive behavior by gatekeepers, such as cracking down on arbitrary enforcement of terms and conditions.

Paddle, the payment unicorn, welcomed the official designation of gatekeepers early out of the gate with a statement. CEO Jimmy Fitzgerald declared today’s announcement “a step towards fair competition, increased consumer choice, and true business innovation.” He added that prominent industry players should introduce third-party app stores and payment systems without the ‘self-preference’ of their products. This will significantly benefit software developers, allowing them to choose where and how to sell their products without losing a percentage on every sale.

The new regime could also encourage businesses to develop less exploitative business models, as consumers will have more wiggle room to escape the control of platform giants. It remains to be seen how effective the pan-EU regime will be in rebalancing a digital playing field that Big Tech firmly dominates and has essentially defined and configured in its interest over decades.

Consumers will likely continue viewing the most prominent names as the most trusted brands for some time, which means diluting the influence of powerful network effects will also take time. Yet innovative and determined startups can break GAFAM’s grip on tech users, who should expect to have better odds than ever. Or at least, entrepreneurs launching services in the EU are now facing a newly disruptive regulated reality.

The bulk of the DMA compliance deadline still has some time before it takes effect. The designated gatekeepers must meet all the legal requirements within six months, so the real EU vs. Big Tech reckoning starts in early March 2024. The Commission acknowledges that some obligations apply from designation, including informing it of any “intended concentration” (also known as M&A).

The designated companies are responsible for ensuring and demonstrating effective compliance. They have six months to submit a detailed compliance report outlining how they comply with each of the obligations of the DMA.

The EU’s executive faces a significant challenge in gearing up to take on such a massive extra oversight role in short order, as the Commission is the sole enforcer of the DMA.

Of course, the bloc’s competition unit has ruled over tech giants for many years. Most notably, Google faced a string of significant enforcements, while Apple, Amazon, Meta, and Microsoft underwent investigations. The DMA changed from conducting traditional ex-post antitrust studies and enforcing them afterward — to adding ongoing ex-ante surveillance and devising preventative measures. EU regulators are also stepping up several gears. Assuming it effectively curbs a broad range of unfair tactics, the DMA may reduce the volume of (classic) competition investigations the EU undertakes on Big Tech, at least theoretically.

At the same time, early signs suggest that designated gatekeepers may not quietly submit to the EU’s new playbook. And formal challenges will likely arise as the new rules are implemented.

Yesterday, the FT reported that Apple and Microsoft fought against the Commission’s designation of iMessage and Bing as core platform services in the scope of the DMA. The pair claimed that the services need more popularity to qualify. Google’s search engine massively dominates Europe, leaving Bing with a tiny regional market share of just 3%. According to the FT’s reporting, Apple argued that iMessage does not meet the 45M+ user threshold to qualify as a core platform service, which would obligate Apple to interoperate with rival messaging services. The newspaper reported that the Commission was still debating whether to include Bing and iMessage.

The EU is taking a cautious approach to this early pushback since, as noted above, the initial list of 22 core platform services does not include Bing and iMessage. However, the Commission has also announced that it has opened four market investigations to “further assess” submissions from Microsoft and Apple. Despite meeting the DMA thresholds, Microsoft and Apple have argued that the following four core platform services – Bing, Edge, Microsoft Advertising, and iMessage – do not qualify as “gateways.”

The DMA aims to ascertain whether the companies’ sufficiently substantiated rebuttal demonstrates that the services should not be designated under it. The Commission added that they should complete the investigation within five months.

Apple has dodged a bullet by omitting iMessage, as it will not, at least for now, have to comply with an interoperability obligation imposed by the DMA on designated messaging platforms. This obligation could have forced Apple to allow users of WhatsApp and Messenger to send messages to iMessage users.

Microsoft warned that forcing Bing to comply with the DMA and show choice screens to users could lead to an increase in Google’s regional share as the dominant search engine.

Tech giants, who are accustomed to setting their own rules and terms of service, may also face legal challenges to today’s official designations as they seek to test the robustness of the EU’s countervailing rule-making.

As market conditions evolve, the bloc can also continue designating (more) gatekeepers. We may add more tech giants and platform services to the list in the coming months and years. The Commission must review existing designations at least every three years to check whether platforms qualify.

Today, some gatekeepers are expected to have aligned with the DMA’s sister regulation, the Digital Services Act. They were previously designated as either VLOPs or VLOSE under that broader pan-EU digital governance regime, and the compliance deadline for larger platforms under the DSA was late last month. Indeed, the world’s most valuable tech companies are keeping their in-house policy teams busy.

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I'm Tim Smith, a tech blogger with a penchant for simplifying complex concepts. Dedicated to keeping my readers abreast of the latest in technology, I aim to provide accessible insights into the ever-evolving digital landscape.

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