March 28, 2024 10:40 pm | Updated 10:40 pm IST
The European Commission has launched a probe against major players in the digital space for failing to comply with provisions under the Digital Markets Act, 2022.
Image for representation purposes only.
| Photo Credit: Regis Duvignau
The story so far: In a comprehensive slew of measures to ensure “contestable and fair markets in the digital sector” in line with the provisions of the Digital Markets Act (DMA), the European Commission on March 25 initiated ‘non-compliance investigations’ against Apple, Meta and Google’s parent Alphabet. It will also investigate Amazon’s ranking practices on its marketplace.
The Commission reportedly intends to conclude the investigation in 12 months.
Where is the context of these non-compliance investigations?
The non-compliance investigations concern Alphabet’s alleged rules on steering or directing its customers to its in-house services over those of its competitors in Google Play, and self-preferencing on Google Search. Apple will be investigated for allegedly similar practices in its App Store, as well as the way it positions its Safari browser. Lastly, Meta will be investigated for its “pay or consent model” — a subscription service that lets a user get rid of personalised advertising.
The investigations fall in with the primary objective of the DMA to better regulate ‘gatekeepers’ and ensure fairer competitive practices in the digital market space. The idea is to mitigate paradigms that may create a “bottleneck” in the digital economy and fairness in competition and consumer access. For clarity, the Act designates companies with dominance in any of the ‘core platform services,’ such as app stores, online search engines, social networking services, web browsers and operating systems, among other things, as ‘gatekeepers’.
The Digital Markets Act came into force on November 1, 2022. Alphabet, Amazon, Apple, TikTok’s parent company ByteDance, and Microsoft were designated as ‘gatekeepers’ in September 2023. They were expected to fully comply with obligations under the DMA by March 7 this year.
The Commission assessed the mandatory compliance reports submitted by these companies setting out compliance measures, and gathered feedback from stakeholders, including in the context of workshops, before launching the investigation.
“We have been in discussions with gatekeepers for months to help them adapt, and we can already see changes happening in the market,” Margrethe Vestager, Executive Vice-President of the European Commission in charge of competition policy, said in a press statement, adding, “But we are not convinced that the solutions by Alphabet, Apple and Meta respect their obligations for a fairer and more open digital space for European citizens and businesses”.
How are the steering rules non-compliant?
DMA provisions stipulate that app developers be allowed to steer consumers to offers (and services) outside the gatekeeper’s app store, free of charge. This would eliminate exclusivity and dependence on a particular mode of payment, or enable access to an online game with an outside gaming account, among other such services.
The Commission aired its concerns about Alphabet and Apple not being fully compliant “as they impose various restrictions and limitations.” It stated, “These constrain, among other things, developers’ ability to freely communicate and promote offers and directly conclude contracts, including by various charges.”
Apple has maintained that the tight integration associated with its App Store is essential to provide a “uniquely secure and seamless user experience.” In their initial comments in January 2020, the iPhone maker said that the DMA is “too blunt a tool.”
“It equates size with harm, and then imposes a one-list-fits-all set of regulatory obligations without providing an opportunity for the platform to explain, and the regulator to assess, whether – on balance – there are broader benefits to consumers or businesses,” Apple said.
In a blog published this January, Spotify, however, had the following to say: “For years, even in our own app, Apple had these rules where we couldn’t tell you about offers, how much something costs, or even where to buy it.” It added that with the DMA, it would be able to share details about Spotify promotions, deals and better-value payment options with consumers in the EU.
Additionally, Spotify said this would come without the “burden” of the mandatory 30% tax imposed by Apple on in-app purchases.
Back home, the Competition Commission of India (CCI) on March 15 ordered a detailed probe against Google for alleged discriminatory practices on its Play Store pricing policy after having discovered a prima facie violation of competition law. The petitioners had argued that Google’s updated payment policies for their proprietary app store was “impacting several stakeholders, including app developers, payments processors and users alike.”
What about Alphabet engaging in self-preferencing?
The Commission wants to determine whether Google search results are discriminatory; in other words, whether the search giant engages in self-preferencing for its verticals (such as Google Shopping, Google Flights, and Google Hotels) over rival services. It has stated that Alphabet’s measures to comply with the DMA may not have ensured that third-party services featuring on Google’s search results page are treated in a “fair and non-discriminatory manner” in comparison to their own services.
Alphabet has found itself responding to similar allegations in the past as well. In October 2020, the U.S. Department of Justice (DoJ) accused Google of “unlawfully maintaining monopolies through anti-competitive and exclusionary practices in the search and search advertising markets” and directed it “to remedy the competitive harms.” According to the DoJ, the conduct harmed consumers by reducing the quality of their search (including on dimensions such as privacy, data, protection and user of consumer data), lowering choices, and impeding innovation. The case is ongoing.
Amazon too is facing heat for similarly tailoring the listings on its marketplace.
What are the concerns about user choice obligations?
Ecosystem captivity is the main concern. The Commission is looking to assess if Apple enables users to easily uninstall any pre-installed or presently default software applications on iOS, change default settings, and if it prompts users with choice screens that allow them to effectively and easily select alternatives to the default service, such as a browser or search engine on their iPhones.
The investigation emanates from the Commission’s concern that Apple’s measures, including the design of the web browser choice screen, may be preventing users from “truly exercising their choice of services with the Apple ecosystem.” In other words, concerns over ecosystem captivity.
As providers of both app storefronts and browsers, Google and Apple’s ‘walled garden’ ecosystems have also been hit with lawsuits across the Atlantic.
What are the concerns about Meta’s “pay or consent model”?
To align with the DMA provisions, Meta in December last year introduced a subscription model that offered people in countries of the EU, European Economic Area (EEA), and Switzerland the choice to use Facebook and Instagram without any ads. Alternatively, they could continue using these services for free while seeing ads relevant to them; in other words, consenting to personalised advertising.
Meta had argued that the subscription for no ads was the “best compliance solution.” According to them, this was a solution to comply with a “unique combination of connected and sometimes overlapping EU regulatory obligations with differing compliance deadlines.” It added that the option offered its users a “clear choice.”
The model, however, did not convince the Commission. It held that the model’s “binary choice” may not provide “a real alternative in case users do not consent, thereby not attaining the objective of preventing the accumulation of personal data by gatekeepers.”
How will non-compliant companies be penalised?
The companies face the prospect of being fined up to 10% of their global turnover or 20% in case of repeated infringement(s). Additionally, should the investigation come across any “systematic infringement,” the companies may be asked to sell a business or parts of it. A ban from acquiring additional services related to the systemic non-compliance could also be possible.
What were the reactions to the European Commission investigation?
The announcement of the investigation has evidently not enthused participants or stakeholders in the ecosystem. Concerns continue to exist if overlapping prerogatives across the aisle can be addressed.
Daniel Friedlander, Senior Vice President and Head of the Computer & Communications Industry Association (CCIA Europe), stated, “Last week’s DMA workshops highlighted many areas of uncertainty linked to DMA implementation, where different sectors and groups of access seekers expressed diametrically opposed requests that won’t be easily solved.” According to him, with many risks and opportunities still being reviewed, launching an investigation appears “premature.”
An Amazon spokesperson told Reuters that the company was compliant with the DMA and has engaged constructively with the Commission on their plans since the designation of two of their services. “We continue to work hard every day to meet all of our customers’ high standards within Europe’s changing regulatory environment,” the spokesperson said.
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