Apple vs. Europe—the $38 Billion Battle Over the DMA

In his Short History of Progress, Canadian author Ronald Wright notes that “each time history repeats itself, the price goes up.” Indeed, as the EU multiplies antitrust actions against Apple under the guise of protecting fair competition, such as through the Digital Markets Act (DMA), the price has been burgeoning. The EU’s adversarial approach to Apple is longstanding and includes previous competition investigations into alleged state aid violations in Ireland (under Article 107 of the TFEU) and potential breaches of Article 102 involving Apple Pay and Apple Music. With the DMA formalizing the status of Apple and other large American technology firms as perpetual antitrust targets, the EU appears to have opened the floodgates for even more actions, with Apple already facing more investigations under the DMA (three in total) than any other gatekeeper.

These DMA investigations will do little to make markets fairer, as ITIF has pointed out. Rather, they will significantly stifle innovation from both Apple and third parties. One DMA investigation involves Apple’s restrictions on app developers steering users to external purchasing options, which the European Commission (Commission) denounced as a breach of the DMA’s rules. A second concerns Apple’s design of the web browser choice screen, which the Commission has claimed prevents users from freely selecting their preferred browsers. The third involves Apple’s fee structure and terms for sideloading and alternative app store distribution, which the Commission also feels are non-compliant with the DMA. Beyond the three ongoing investigations, the EU has now issued draconian preliminary findings in two separate proceedings regarding Apple’s interoperability obligations under the DMA, which would effectively require Apple to share any innovative connected device integrations with third parties.

In pursuing a rapid-fire series of DMA attacks against Apple, the Commission largely overlooks Apple’s significant good-faith efforts to comply with the DMA. As part of its compliance, Apple implemented major modifications to its terms, such as permitting third-party app stores, introducing choice screens to offer alternative browsers to Safari, and creating avenues for in-app purchases through alternative payment service providers. Apple has even integrated stakeholders directly into an ongoing reform process, introducing a form for developers to submit requests for interoperability with hardware and software features. By initiating these investigations so soon after Apple’s reforms were implemented, the Commission appears unwilling to allow the full effects of these modifications to surface, instead prematurely concluding that Apple is guilty of non-compliance.

What's more, the Commission seems determined to press forward with its investigations regardless of the privacy, safety, and security risks that the Commission’s demands pose to the quality of Apple products. For example, legislating a more open app ecosystem significantly increases the threat of malware and other harmful content on Apple devices. And of course, when Apple introduces innovative features to creatively align its signature security standards with the EU’s sideloading requirements, such as the new notarization requirement for third-party apps, the EU responds by threatening new investigations into “the checks and reviews put in place by Apple to validate apps and alternative app stores to be sideloaded.” This all begs the question of whether the EU is truly committed to promoting ‘fairness’ and ‘contestability’ or if it is intent on obstructing Apple from monetizing its services and dismantling its business model of simplicity and security—which has made Apple a successful company and benefited consumers.

The saying “nothing happens in a vacuum” well applies to Apple’s current woes with the DMA in Europe, as its contentious relationship with the Commission stretches back before the DMA took effect. Indeed, just weeks before initiating its DMA investigation into Apple’s broader non-steering practices, the Commission, after a yearslong probe, imposed a €1.8 billion fine on Apple (its third-largest competition penalty to date) for anti-steering behavior in the music streaming market that fell under the scope of the broader DMA investigation. But perhaps Apple’s biggest battle in the EU centered on the preferential tax regime it allegedly received in Ireland. This dispute recently culminated in the September 2024 European Court of Justice ruling that Ireland had granted unlawful state aid to Apple, requiring Ireland to recover €13 billion—a flawed decision that incorrectly suggests that Apple’s profits are not subject to tax. All things considered, there is a clear pattern of the EU enforcing whatever competition rules it can against Apple to put billions in its coffers.

President-elect Donald Trump has made it clear that trade policy will be a priority in his second term and has already threatened a number of countries with significant tariffs. Without question, the incoming administration is likely to oppose the EU’s aggressive competition actions against Apple and other U.S. tech firms. It may even threaten retaliatory trade measures if the EU, which enjoyed a $131 billion trade surplus with the United States in 2022, escalates its use of competition policy through the DMA. After all, the stakes could not be higher: Under the DMA, Apple faces potential penalties as high as $38 billion, which is roughly equal to the entire GDP of Estonia. As European Central Bank President Christine Lagarde warned, the best path for the EU may thus be “not to retaliate, but to negotiate” when faced with Trump’s trade threats. One way to do that might be to commit to substantially lowering the ceiling for DMA fines.

It has been nearly two decades since the EU started investigating Apple for antitrust violations. And as the Commission continues its competition crusade against Apple, it appears no less determined to fundamentally change the company's business model and obtain hefty fines, whatever the costs. Is the ongoing attack about consumer fairness, app developer interests, promoting a European smartphone competitor, or something else? Whatever the reason, the new U.S. administration is unlikely to continue ignoring the EU's highly aggressive approach toward America's most successful companies. This crusade is a huge, unforced error toward fostering transatlantic cooperation, which could not be more important in the face of the West's existential techno-economic competition with China.