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EU Steering in Wrong Direction With DMA Investigations

EU Steering in Wrong Direction With DMA Investigations

May 1, 2024

The EU Commission is charting the wrong course by investigating large American technology companies under the Digital Markets Act for competitive behavior like anti-steering rules.

A little over a month ago, the Digital Markets Act (DMA) became enforceable. The six firms designated as gatekeepers (Alphabet, Apple, Meta, Amazon, Microsoft, and ByteDance) under the DMA produced reports outlining substantial changes to their products to comply with the new obligations. The EU also held in-depth compliance workshops to provide interested parties with the possibility to ask for clarifications and to give feedback on the proposed compliance programs. But evidently, these significant and good-faith efforts underwhelmed European regulators, who opened five separate investigations into gatekeepers for DMA noncompliance just a few weeks later. Four of these five investigations focus on just two American companies: Apple and Google.

In response to the DMA, Google has unveiled wide-ranging changes to its key products. First, Google has introduced choice screens for web browsers on Android. The screens will allow European users to opt out of data sharing across its services (such as YouTube, Search, and Google Play). Google has gone so far as to undo key integration features, such as removing Google Maps and Google Flights boxes on its web browser—much to the ire of European watchdogs and business, who have warned about losing traffic to large online intermediaries.

The DMA also introduced sweeping new requirements on Apple’s famous “walled garden” ecosystem, which is designed to place certain restrictions on app developers to ensure better privacy and security, as well as to facilitate inter-brand competition with rivals like Google that offer a more open model. To comply, Apple implemented major modifications to its terms, permitting third-party app stores and introducing choice screens to offer alternative browsers to Safari. Apple also introduced a form for developers to submit requests for interoperability with iPhone and iOS hardware and software features.

Despite the substantial efforts of the gatekeepers to comply with the DMA, the European Commission appears to have already prejudged the outcome. Specifically, in the words of Margarethe Vestager, EU Commissioner for Competition, “[w]e suspect that the proposed solutions put forward by these companies do not fully comply.” Among its investigations, the EU is now examining Apple and Google’s non-steering rules, which prevent developers from doing things like directing users outside of their app to make purchases or subscribe to services. The investigation raises concerns about the alleged anti-competitive nature of these rules, which the Commission claims “constrain, among other things, developers’ ability to freely communicate and promote offers and directly conclude contracts, including by imposing various charges.”

Determining the actual harm caused by Google’s anti-steering policy is elusive, as concrete evidence supporting the Commission’s concerns appears to be lacking. While Google Play uses non-steering rules to maintain control over in-app purchases, Android is already an extremely open platform, suggesting that concerns about anticompetitive harm are at best de minimis. Indeed, because sideloading is already allowed on Android, app developers who disapprove of Google Play’s terms can simply choose an alternative marketplace. On top of its lackluster theory of harm, the EU fails to recognize the benefits of these provisions for Google: namely, a better user experience and recouping the costs of investments in its platform.

In the case of Apple, the Commission stated that “these anti-steering provisions are neither necessary nor proportionate for the protection of Apple’s commercial interests in relation to the App Store on Apple’s smart mobile devices.” But this stance overlooks that restrictions on steering enable Apple to facilitate in-app payments that create a seamless and integrated user experience which goes to the very core of Apple's walled garden business model. For example, non-steering mechanisms make sure that all transactions go through Apple’s payment systems, allowing it to ensure compliance with laws related to money laundering, fraud prevention, and consumer protection. In-app payments also represent an important way for Apple to prevent free-riding and recoup its massive investments into its iPhone ecosystem.

The EU’s rushed investigations come against a troubling backdrop. Just weeks ago, the EU Commission fined Apple a massive €1.8 billion for its anti-steering provisions concerning Spotify. Setting aside the dubious merits of the case, that Apple is already under investigation for the conduct targeted under its recent fine seems to be in tension with the well-established principle of ne bis in idem, or double jeopardy. As such, the EU’s hasty approach casts doubt on whether the DMA investigations are oriented to reach a more open platform, or rather adopt a punitive posture against American businesses that have already made significant strides in the way of DMA compliance.

The implications of the DMA’s fundamental shift in EU competition policy are becoming clearer by the day. While the EU frames the DMA as its attempt to safeguard consumers and tech startups from the abuses of big tech companies, in reality the EU is weaponizing flawed antitrust principles to force America’s technology leaders to give away their creations at little to no cost. Indeed, the EU continuing down this path not only risks invariably overstepping and inserting itself into the boardrooms of America’s tech businesses at the expense of European consumers, but also gives short shrift to the massive efforts of Google and Apple to comply with the DMA. Regardless, these investigations seem to be just the beginning of a long tussle ahead between EU competition enforcers and America’s tech giants.

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