Digital Markets Act Roundup: June 2024

June was a busy month for DMA enforcement. Two gatekeepers, Apple and Meta, received preliminary findings of non-compliance, though appeals are expected. Apple very much remains in the DMA spotlight as the first gatekeeper to receive such a decision, and the scrutiny is now impacting its product strategy in Europe. Below, the roundup highlights the most important developments related to the DMA from June 2024.

Preliminary findings of non-compliance for Apple and Meta

Apple

On June 24, 2024, the European Commission notified Apple of its preliminary findings into its non-compliance investigation. The Commission found that Apple’s App Store rules breach requirements under the DMA, as app developers cannot freely inform consumers of alternative channels for offers and content. Additionally, the Commission has opened a new non-compliance investigation against Apple over its new EU alternative app store requirements for third-party app developers and app stores, including Apple's controversial “Core Technology Fee,” as the Commission finds it “fall[s] short of ensuring effective compliance with Apple's obligations under the DMA.”

Related reading:

• Digital Markets Act Roundup: May 2024
• Digital Markets Act Roundup: April 2024
• Digital Markets Act Roundup: March 2024

The Commission has found that Apple’s new business terms, such as the Alternative Terms Addendum for Apps in the EU, do not allow developers to steer their customers freely toward better deals or alternative distribution channels. Apple allows steering only through “link-outs” which redirects the customer to a web page. The Commission finds that the “link-out process is subject to several restrictions imposed by Apple that prevent app developers from communicating, promoting offers and concluding contracts through the distribution channel of their choice.” A particular issue with link-outs is the “scare screens” warning users that their security may be at risk when they leave the Apple controlled ecosystem. Apple has maintained that it is necessary to maintain the security of its systems. However, developers still require vetting through Notarization, a process that should have already proved the developer’s service is safe.

The Commission has also found Apple’s fees “go beyond what is strictly necessary for such remuneration. For example, Apple charges developers a fee for every purchase of digital goods or services a user makes within seven days after a link-out from the app.” The DMA, particularly Article 5(4), states that developers must be allowed to communicate, promote offers and conclude contracts with end users “free of charge.” It is questionable whether Apple is abiding by the law with the fees it is demanding.

Apple now has the opportunity to defend its practices in writing or make product changes to comply. If the Commission finds its defense inadequate, it will issue a noncompliance decision, which Apple can then appeal. Apple risks fines of up to 10% of the gatekeeper's total worldwide turnover or 20% in case of repeated infringements.

Further reading: European Commission Targets Apple in Digital Markets Act Enforcement Action

Meta

The European Commission has notified Meta of its preliminary findings in its non-compliance investigation. This investigation concerned Meta’s “pay or consent” advertising model, where EU Meta users are given the option of continuing to use the platforms for free and consent to behavioral advertising or pay a subscription fee of €9.99/month on the web or €12.99/month on iOS and Android. The Commission has found that “this binary choice forces users to consent to the combination of their personal data and fails to provide them a less personalized but equivalent version of Meta's social networks.”

The Commission explains that under Article 5(2), “gatekeepers must seek users' consent for combining their personal data between designated core platform services and other services, and if a user refuses such consent, they should have access to a less personalised but equivalent alternative. Gatekeepers cannot make use of the service or certain functionalities conditional on users' consent.” Therefore, Meta's pay or consent model does not allow users to exercise their right to consent to combining their personal data.

This finding aligns with the European Data Protection Board (EDPB), a member of the High-Level Group for the DMA, which adopted an opinion on pay or consent following a GDPR request. On April 17, 2024, the EDPR concluded that, for the most part, large online platforms are not complying with the GDPR; specifically, they are not obtaining valid consent if they only offer users this binary choice.

The Commission has stated that to comply with the DMA, “users who do not consent should still get access to an equivalent service which uses less of their personal data, in this case for the personalisation of advertising.”

Meta, like Apple, can now defend itself and reply in writing to the EU Commission's preliminary findings. Otherwise, Meta can change the offending pay or consent policy, scrap the subscription fee, or wait for the final noncompliance decision and appeal. If Meta loses the appeal, it risks fines of up to 10% of the gatekeeper's total worldwide turnover or 20% in case of repeated infringements.

Delaying the Release of ‘Apple Intelligence’ in the EU

On June 10, 2024, Apple announced a partnership with OpenAI, of ChatGPT fame, with plans to integrate the large language model into Apple’s iOS, iPadOS, and macOS, as well as Apple’s digital assistant Siri. Dubbed Apple Intelligence, the company is marketing the integration of the large language model’s capabilities as a way to improve productivity through automated writing assistance, call summarization, image generation, and more.

The next day, a European Commission competition spokesperson, Lea Zuber, confirmed in a press release that such an integration would be “reflected in [Apple’s] regulatory obligations.” Apple’s operating systems are a designated core platform service under the DMA and must meet obligations such as allowing third-party developers reasonable access to its technology to increase interoperability. However, Zuber also recognized that artificial intelligence is not a core platform service. Therefore, initial speculation as to whether OpenAI may end up under the purview of the DMA was up for debate, with Zuber stating that more would be known after the integration was complete and the Commission had made an assessment.

Things changed again on June 21, 2024, when Samuel Stolton and Mark Gurman reported for Bloomberg that Apple decided not to introduce Apple Intelligence in the European market because of the DMA. Other products that won't make it to the EU are Apple’s iPhone Mirroring and SharePlay Screen Sharing. Stolton and Gurman report that Apple is “concerned that the interoperability requirements of the DMA could force us to compromise the integrity of our products in ways that risk user privacy and data security.”

Executive Vice President of the European Commission, Margrethe Vestager, stated at Forum Europa that this is an anti-competitive move as Apple seeks to deploy AI in its technology and block it from competition. This is because, under the DMA, Apple would need to allow third parties to be interoperable with its operating system, which, in theory, would mean competition to OpenAI’s product offerings on iOS. Javier Espinoza and Michael Acton write for the Financial Times that “Apple said it needs clarity from the European Commission over the level of access that it would need to grant to third parties to its Apple Intelligence features, as well as device-sharing.” Beyond the competition concerns, it may also be that OpenAI wants to avoid the regulatory scrutiny of the DMA and has refused to launch in the EU.

ECN-DMA Conference Highlights

On June 24, 2024, the European Competition Network (ECN) held a conference on the DMA in Amsterdam. The meeting was organized by the Austrian, Belgian, Estonian, German, Portuguese, Spanish, Swedish, and Netherlands competition authorities, as well as the EU Commission. The conference was largely for businesses, exploring the potential of the DMA to increase fairness and contestability in digital markets.

Some highlights from the day:

Margrethe Vestager keynote. Kicking off the day, Vestager held a keynote speech looking at the journey of the DMA and what the future may hold. Vestager noted that small-to-medium enterprises (SMEs) are involved in DMA compliance. She urged the audience that “we need your input” to check the DMA is working for the benefit of SMEs. In the day's closing session, this point was picked back up again, as businesses were encouraged to form coalitions to collectively identify and notify the anti-competitive behavior of large firms.

She noted her surprise that there are already non-compliance cases, as she believes “compliance should be a badge of honor” rather than something to avoid. It should be seen as an opportunity to earn consumer trust rather than a burden to bear.

On the subject of Apple Intelligence and Meta Threads being withheld from the EU market, as well as complaints that Google Maps is degraded thanks to the DMA’s data de-linking requirements, Vestager stated that it merely shows that gatekeepers do not care if their products are anticompetitive in countries where they do not face regulatory intervention.

One of the final points of her speech also appeared to be the most controversial of the day and was hotly debated. Vestager clarified that it is not up to the Commission to develop compliance plans, and gatekeepers are responsible for modifying their products and services to comply with the law. In response to a question from the audience regarding this point, where the audience member stated that in traditional antitrust, the offender would receive specific instruction on how to solve the anticompetitive behavior, Vestager defended the position that “we are a regulator, we are not developers.” Cristina Caffarra, Honorary Professor at University College London and Co-Founder of the Competition Research Policy Network at the Centre for Economic Policy Research, who spoke later that day, disagreed and made it clear that we cannot expect effective compliance with the DMA if we do not inform companies on how to do this.

Access and Interoperability. The first plenary session of the day on access and interoperability illustrated the struggles faced by SMEs in challenging incumbent gatekeepers. Amandine Le Pape, co-founder and COO of Element, commended the DMA for changing the precedent of interoperability. Pre-DMA, her business relied on maintaining unstable and expensive Application Program Interfaces, whereas now there are official channels for interoperability.

A big challenge for Le Pape and the other panelists is the lack of Apple iMessage interoperability requirements. Several panelists raised the issue as a significant business problem, closing access to a messaging service used by iPhone users worldwide. Apple’s iMessage, though meeting gatekeeper thresholds, ended up not being designated as a gatekeeper and does not need to meet interoperability mandates.

Francesco Versace, Associate Director of Government Affairs for Spotify, and Johannes Reck, CEO of GetYourGuide, both feel that DMA compliance is far off. While Versace alluded to Apple’s “malicious compliance,” which Spotify has been a loud voice against, Reck discussed how Google “truly believes they are the government.” With his business in the travel agency market, he commended that the DMA killed off Google Travel, which risked encroaching on SMEs. However, Google has now integrated travel products into general search results. This workaround points to the difficulty of the DMA in tackling the problems of vertical control of an ecosystem.

Breakout session on App Stores. In a breakout session, various grievances toward Apple, for the most part, were aired. At issue in this session was the alternative terms offered by Apple. None of the panelists representing businesses have adopted the new terms, noting that Apple sees this rejection as solidarity in rejecting the DMA. Instead, the panelists said that Apple is merely moving fees around and delaying compliance.

One question posed was whether Apple was moving from one extractive business model to another, putting the entire DMA at risk of not solving the problems of fairness and contestability. Jeremie Jourdan, Senior Competition Counsel at Schibsted ASA, acknowledged that while the new terms are worse for businesses, how much blame can be placed on the DMA?

All the panelists agreed that Apple's link-out option was not a good compliance solution. Jourdan states that one should be able to provide an app as an autonomous app on phones without having to pay fees or be mandated to display an app in a particular way. He explains that in Apple’s eyes, they have every right to ask for a commission and dictate app design. If you are a monopolist, the app seller has no choice.

The session ended with an audience member posing the question yet again as to whether the EU Commission should specifically tell a company what to do, as opposed to Vestager’s view that it is not up to the Commission to spoon-feed trillion-dollar companies on how to obey the law. Time will tell whether the outcome of Apple’s noncompliance investigations can answer this question.

Generative AI. One of the final breakout sessions was on Generative AI and the DMA. While AI is not a core platform service, a company would have to ensure compliance if integrated into a core platform service. Beyond that, AI has the potential to concentrate digital markets, a problem the DMA is attempting to solve. This was one of the few panels in which a gatekeeper firm was represented. Carel Maske, legal advisor for Microsoft, discussed what Microsoft saw as their societal responsibility as a provider of cloud infrastructure.

Maske maintained that Microsoft was approaching this competitively, as the company offers Copilot, a free chatbot that can be integrated into Microsoft 365 for a subscription fee, Azure cloud computing, and Azure AI, where users can develop their own custom Copilot. The technology enables differing levels of customization and access to the technology regardless of IT skill level. Though large AI company partnerships have raised the eyebrows of regulators across the globe, Maske stated that Microsoft partnerships seek to increase the players within the ecosystem and provide customers access to technology.

Meanwhile, competition authorities such as the UK Competition and Markets Authority are actively monitoring current and emerging AI partnerships and strategic agreements to assess whether they meet merger control or negatively distort the market. The Federal Trade Commission has launched an inquiry into AI investments and partnerships in the US.

Thibault Schrepel, Associate Professor of Law at Vrije Universiteit Amsterdam and a Faculty Affiliate at Stanford University posed several questions in this session, for example, what will the direct impact of AI be on the DMA? Could gatekeepers see non-compliance investigations into self-preferencing for favoring their own foundation models integrated within a core platform service? He also pointed out that gatekeepers cannot use personal data across their services, which could slow down their ability to leverage their market power. He asked whether slowing down gatekeepers opens the door to new players in AI markets. However, he appeared skeptical of this because, for example, if Apple does not launch Apple Intelligence in the EU, it is unlikely a competitor would be able to offer an alternative.

In a final note on this session, a worrying trend toward network effects may already be taking place. It was pointed out that OpenAI’s ChatGPT is not necessarily the “best” on the market, but due to network effects and the huge success of marketing ChatGPT, developers are ensuring compatibility with this system, knowing that end users will be more likely to use it. In this way, an incumbent firm is developing standards.

Final thought. One commenter from the crowd made the point that we should move away from using the concept of a digital ecosystem when it is more useful to consider them a “digital plantation.” While an “ecosystem is an open, self-regulating, moving environment, like in a rainforest,” gatekeepers “have created a far more organized, limited, and controlled system of agriculture, which is really more like a plantation than a rainforest.”

Other Updates

Italy’s public consultation. The L'Autorità Garante della Concorrenza e del Mercato (AGCM), the Italian competition authority, has published a public consultation on the draft of the collaboration and cooperation envisaged for the implementation of the DMA. The consultation invites comments on the rules concerning the use of the authority’s investigatory powers to implement the DMA. Under Article 38, national competition authorities and the Commission are expected to exchange information on competition enforcement. The AGCM, thus, has the power to launch an investigation into a violation of Articles 5, 6, and 7 of the DMA and send the Commission the results of an investigation.

Europe's Publishers call out Apple and Google for flouting new EU rules on App Stores: The European Publishers Council (EPC) submitted a Memorandum to the European Commission, claiming that Apple and Google are circumventing the DMA. The EPC highlights critical shortcomings in how Apple and Google are implementing app store provisions with a focus on Europe’s press publishers. In summary, the EPC demands that Apple and Google must illustrate how their fees comply with the DMA; should not charge different fees for digital content apps versus apps selling physical goods unless objectively justified; must ensure necessary fees are reasonable and consistent across all payment methods and app categories; should employ non-discriminatory practices, e.g. making sure that exclusive deals for certain app developers should be available to all; scrap Apple’s Core Technology Fee; and remove unnecessary friction such as scare screens or app UX design mandates.

A Belgian guide for tech challengers. On June 24, 2024, the Belgian Competition Authority (BCA) launched a public consultation regarding the draft brochure entitled “The Digital Markets Act – a short guide for tech challengers.” The concept of the guide is to illustrate to businesses what opportunities the DMA offers. It first provides an overview of the DMA and then highlights parts of the DMA that are of interest to businesses. For example, the guide discusses how choice screens offer an opportunity for browsers and search engines. The guide consultation closes on July 19, 2024.

Call for tenders for a study of interoperability tools in the digital single market. The European Commission is launching a call for tenders for a study into interoperability tools in the digital single market in the context of the DMA. The Commission is hoping that the contractor will illustrate “the technical challenges and solutions for ensuring horizontal interoperability between number-independent interpersonal communication services with a particular focus on evaluating the merits of a potential extension of this obligation to online social networking services.”

The Commission explains that Article 7 mandates that gatekeepers that provide number-independent interpersonal communication services should offer interoperability to other providers of these services. Article 53(2) states that the Commission can evaluate whether the scope of Article 7 may be extended to cover online social networking services as well. Thus, the “study should therefore offer practical recommendations based on the latest developments in horizontal interoperability within the context of the implementation of the DMA.” The call is open until July 31, 2024.

French Competition Authority Opinion on AI. The French Competition Authority, Autorité de la concurrence, has advocated that the Commission seriously consider “whether platforms that incorporate artificial intelligence models into their wider ecosystems should be policed under the Digital Markets Act,” writes Alex Bagley for Global Competition Review. The authority published an opinion explaining that in February 2024, it started “inquiries ex officio into the competitive functioning of the generative AI sector and to launch a public consultation. As part of this consultation, views from around 40 parties and 10 stakeholder associations were collected.”

The inquiry considered access to cloud infrastructure, computing power, data, and talent, as well as investments and partnerships. In addition to advocating for greater access to computing power and “greater transparency on investments by digital giants,” the recommendations included “with no change to existing legislation, make the regulatory framework applicable to the sector more effective” and “in the event of harm to competition, use the rapid and effective tools of competition law and the law on restrictive competitive practices.” The authority appears concerned that incumbent firms, comprised of DMA gatekeepers, can leverage their current position to integrate AI services, giving them unfair advantages.