Megacorporations like Apple and Meta fought tooth and nail, but ultimately in vain. Online services that dominate the market must now implement the Digital Markets Act. It stipulates a lot, from alternative app stores to interoperability, which also has a direct impact on end customers.
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Upstream regulation
What is the Digital Markets Act?
The Digital Markets Act (DMA) is a regulation (EU-VO 2022/1925) of the European Union, which is officially called the “Digital Markets Act” in German. It applies directly in the member states of the European Economic Area (EEA).
The aim of the law is to limit the market power of large online platforms. From the EU Commission's perspective, it is about dominant, sometimes malicious corporations that seek to undermine competition to the detriment of consumers. The DMA calls these actors “gatekeepers”.
With the DMA, the EU is undergoing a paradigm shift: while it previously had to laboriously identify and sanction every abuse of market power afterwards (“ex post”), there are now concrete rules and bans that set clear guardrails (“ex ante”). Antitrust cases against Amazon and Google, for example, took years. Once the violation was finally discovered, the problems had long since shifted.
The EU Commission presented the draft for the DMA in December 2020. The law was passed in the EU Parliament in July 2022 and came into force in October 2022 when it was published in the Official Journal of the EU. In May 2023, the first DMA regulations took effect. As of March 7, 2024, the DMA applies to 22 designated dominant services (see “Who does the DMA apply to?”)
Who does the DMA apply to?
The DMA only regulates the gatekeepers. A company can be considered a gatekeeper if it consistently exceeds annual sales of 7.5 billion euros in the EU or is worth at least 75 billion euros on the stock exchange. It must also have more than 45 million monthly active private users or more than 10,000 commercial users in the EU. The “core platform services” included include marketplaces and stores for software, search engines, social networks, cloud services, advertising services, voice assistants and web browsers.
If providers presumably meet these criteria, they must actively report this to the EU Commission. This checks and finally announces whether the provider is classified as a gatekeeper. In a first step, on September 6th last year, the commission named 22 offers from the six digital companies Alphabet, Amazon, Apple, ByteDance, Meta and Microsoft as gatekeepers (see picture). After an implementation period of six months, the DMA rules will apply to these 22 services from March 7, 2024.
Is the EU Commission's gatekeeper list exhaustive?
No, the naming of the services is provisional and has met with strong resistance from some companies. Apple, for example, insists that the app stores of the operating systems (iOS, iPadOS, macOS) must be viewed separately and that only the store in iOS falls under the DMA. Meta has lodged an appeal against the designation, but emphasizes that it will still adhere to the DMA rules from March 7th. TikTok is also legally defending itself against being classified as a gatekeeper. The company, which belongs to ByteDance, explained that the requirement of 7.5 billion euros in annual sales in the European Economic Area was not met.
On the other hand, there may also be services added to the list. Although it includes Apple's iOS, it does not include iPadOS because the tablet operating system apparently remains below the thresholds set by the EU. This distinction seems absurd because iOS and iPadOS are practically identical in their structure. Apple ran it as an operating system for a long time; iPadOS has only appeared under its own name since 2019. Apple is also resisting the inclusion of its iMessage chat service as a gatekeeper. Some Microsoft services were also controversial. It currently looks as if the EU Commission is rejecting further audits of Microsoft Advertising, the search engine Bing and the web browser Edge – they are probably out for the time being.
Catalog of duties
How should the DMA work against abuse of market power?
According to the will of the EU, the DMA promotes a fair business environment for all online services, whether large or small. For example, it is intended to prevent start-ups from being deprived of the opportunity to compete with US companies in Europe. The EU hopes to use the DMA to reduce so-called lock-in and network effects and to break down monopolistic data silos. The focus is therefore on sharing data, opening key positions such as the app stores and the interoperability of services.
The pivotal point in the DMA is Articles 5 (prohibitions) and 6 (obligations). In it, the EU has de facto written down a catalog of market abuse in the digital sector that has been observed in the past. It is intended that this list can be adjusted at any time. The following core elements are currently particularly troubling the gatekeepers:
- Personal data from different parts of the group (such as Facebook, Instagram and WhatsApp) must be stored separately. The company needs the user's consent to merge them. (Article 5 paragraph 1)
- Marketplaces such as Amazon's Marketplace may not prevent their business customers from offering lower prices on other platforms (Art. 5 Para. 3).
- Gatekeepers are not allowed to bind their business or private customers to a specific payment service (Art. 5 Para. 7). This applies, for example, to the App Store in Apple's iOS.
- Gatekeepers are prohibited from using internal data of business customers in order to compete with them (Article 6 Paragraph 2).
- Gatekeepers must allow end users to remove pre-installed software and change the default operating system settings for the use of virtual assistants and web browsers (Article 6 (3)). This is likely to be particularly directed against Google's practices in Android.
- Customers must be able to install third-party software and alternative stores from any source in operating systems (Art. 6 Para. 4). This paragraph is specifically intended to enable so-called sideloading in Apple's iOS and thus break the hermetic ecosystem.
- Business customers and end users must be able to transfer their accumulated data to another service at any time (portability, Art. 6 Para. 9).
- Messengers that dominate the market (currently only WhatsApp) must offer interfaces to competing messengers so that users can exchange messages between the platforms (interoperability, Art. 7).
Sharp sword
What sanctions does the DMA provide?
If a gatekeeper violates the DMA regulations, it can be expensive and even endangering the company: the law provides for an initial fine of up to 10 percent of global group sales. If the advance is repeated, it can even become 20 percent. In addition, there is a risk of heavy fines if gatekeepers do not implement imposed orders on time.
If the EU discovers repeated and systematic violations, there is a risk of “structural measures”, i.e. prescribed restructuring within the gatekeeper company. The last resort is even to break it up. Interesting: The EU obliges the gatekeepers in the DMA to separately register planned acquisitions beyond traditional antitrust law and is allowed to prohibit them.
Who monitors the gatekeepers?
The executive power lies solely with the EU Commission, there with the Directorate General for Competition (DG COMP). Authorities in the member states – in Germany the Federal Cartel Office – are called upon by the Commission to investigate themselves and forward the results to the Commission.
The DMA also expressly provides that its provisions are intended to assist in private law enforcement. For Germany, for example, this means that competitors could sue each other for damages. The law against unfair competition (UWG) makes this possible. In addition, associations could initiate model declaratory actions or class actions, which the DMA also expressly encourages (Article 42).
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(hob)