Is EU's DMA Putting a Straightjacket on Big Techs?


imgThe European Union is bent on changing the way big techs operate in Europe. For example, this law could make iPhones download apps from other app stores or make WhatsApp and iMessenger work in conjunction with other messaging apps. It’s the new antitrust legislation that the EU finalized as the Digital Markets Act (DMA), targeting internet gatekeeper companies to control distribution in their respective markets.

This law could set foot as early as October this year and its enforcement by the spring of 2023. “The DMA will enter into force next spring, and we are getting ready for enforcement as soon as the first notifications come in,” said Margrethe Vestager, executive vice president of the European Commission.

It may not be surprising to find big techs having difficulty stomaching the new rules under the new law since these rules impose dos and don’ts aimed at the core business practices of these companies. Although US policymakers are committed to wielding that aspect of the tech giants, however, it appears that not all are welcoming of the DMA. 

Some of the key rules set up for the internet gatekeepers are.

Make message apps interoperable to make sure that users are not tied to one network

Let users choose a default search engine, web browser, and virtual assistant when they buy a new smartphone

Ensure fair access conditions for app stores

Gain explicit consent to combine personal data to target ads

Ban companies from ranking their own products higher than others

For an initial breach of the law, fine companies as much as 10 percent of their global annual sales, rising to 20 percent for repeat infringements.

Companies that routinely violate the rules will be temporarily banned from conducting mergers and acquisitions.

“This next chapter is exciting. It means a lot of concrete preparations. It’s about setting up new structures within the Commission. It’s about drafting further legal texts on procedures or notification forms. Our teams are currently busy with all these preparations and we’re aiming to come forward with the new structures very soon,” she added.


The Purpose Behind the DMA

The DMA aims to accelerate the slow-moving antitrust investigations often met with remarks such as inadequate from rivals. This tends to extend for years in endless legal proceedings. Therefore, the EU plans to mark a change of philosophy in the fight against the abuses among large platforms through rules that must be respected despite the cost they come.

The goal is to act quickly and effectively before abusive behavior spoils the competition.

The list is yet to be clarified as per existing turnover criteria, market capitalization, and the number of users. Currently, the text targets only the largest entities such as GAFAM, as the Big Five are known, and perhaps a handful of other groups such as the online booking company Booking or the social network TikTok.

Big Techs Could Be Prohibited from using Data Generated on their Site

Even if the data is generated by business customers on the tech giants’ platforms, these companies will be prevented from using the data on their websites. 

This also means a big no in favoring one’s own services—the kind commonly witnessed in search engine results, like Google favoring its online shopping site, ‘Google Shopping.’

For users, these rules promise to safeguard them by enabling users to give their consent over cross-referencing data from several online services for the purpose of advertising profiling. This means it will prevent the pre-installation of software and applications like browser and music applications on phones and computers instead of facilitating the use of alternative products.

The EU is also bringing in operability among messaging services to allow users to communicate with users from different operating software, like apps associated with iOS and Android.

Infringers might face fines up to 10 percent of global sales, and repeat offenders could face fines up to 20 percent.

The EU is putting in place "immediately applicable obligations, short and strict deadlines (for correcting any faults) and dissuasive sanctions," said Internal Market Commissioner Thierry Breton, who presented the plan in December 2020 with his competition counterpart Vestager.

Can the DMA Make Big Techs Undergo Changes?

According to Alec Burnside, a lawyer at legal firm Dechert in Brussels, the DMA is only the first step toward ensuring that tech behemoths play fairly.

"The DMA is not a perfectly formed panacea from the start, and without doubt, gatekeepers will try to navigate around it. Rome was not built in a day, nor was the highway code perfect when first conceived," he said.

"New rules of the road for the digital economy will be shaped over the period ahead, and the DMA is a crucially important first step."

Even still, Thomas Vinje, a lawyer at legal firm Clifford Chance in Brussels who has advised rivals in disputes against Microsoft, Google, and Apple, believes that enforcing the DMA will require a larger team than the modest group envisioned by the European Commission.

"The Commission suggested upon proposing the DMA that it would be enforced by a team of 80 people. This will not be enough to enable effective enforcement," he said.

"Another big question is who in the Commission will enforce it. Only DG COMP (competition officials) has the technical and industry knowledge and experience dealing with such companies to effectively enforce the DMA. If others in the Commission, such as DG Connect (digital officials), are to enforce the DMA, it will be a dead letter".

It seems that big techs fear the new rules could have an impact on innovation. Still, Nicolas Petit, professor of competition law at the European University Institute in Florence, says that the rules may end up stimulating more innovation.

He said that they could, in fact, enhance the business models as well.

"I think the DMA indirectly places a premium on business models based on subscriptions or device level monetization. We might see more (increased) prices, and vertical integration into hardware in the future," Petit said.

Big Techs’ Reactions

Apple stated it was ‘concerned’ about ‘some provisions may create unnecessary privacy and security vulnerabilities for its users, while others will prevent it from charging for the intellectual property in which it invests extensively”, in a statement to the AFP.

A free selection of software application stores will be offered, including an option to bypass Apple's App Store, which has long been a target of the Commission.

Google expressed that it supports most of the DMA’s goals on consumer choice and interoperability. However, the tech giant is concerned about the potential risks that the rules impose on innovation and the variety of choices available to Europeans.