Digital Markets Act Roundup: September 2024

September was a busy month for the European Parliament and Commission, which saw the publication of the long-awaited Draghi report, newly nominated Commissioners, the first specification proceeding under the Digital Markets Act, as well as a number of opinions and rulings from the General Court and the Court of Justice. Below, the roundup highlights the most important developments related to the DMA from September 2024.

Google’s competition policy woes

For Google, September was marked with a deluge of competition-related cases. Back in August, a US federal judge ruled that the company illegally maintained a monopoly in search. At the beginning of the month, a second US antitrust trial against the company, this time focused on its illegal monopoly in digital advertising, kicked off.

Also, early in the month of September, the European Court of Justice threw out an appeal by Google regarding the 2017 Google and Alphabet v Commission (Google Shopping) case. Google had appealed the €2.4 billion fine levied against them for abusing its search market dominance by favoring its own comparison shopping service over competing services. The ruling is a significant win for the Commission as the Shopping case decision has been used “to establish a precedent and that has now been validated.” The Court of Justice has confirmed that self-preferencing can constitute abuse of dominance in itself if the practice restricts competition on the merits.

The Shopping case was significant in formulating the DMA, particularly anti-self-preferencing obligations, as summarized by Prof. Dr. Thomas Höppner.

“Originally identified in the Google Shopping decision, the significant harm of (leveraging through) self-preferencing by dominant platforms has led to several obligations in the DMA that target different forms of preferential treatments. The most central prohibition is Article 6(5) DMA relating to a favorable ranking of own services.”

The ruling was also widely viewed as a vindication of the current head of competition, Margrethe Vestager’s efforts against Big Tech, particularly as she leaves her position.

In addition, Samuel Stolton reported for Bloomberg that Google may be facing more preliminary findings of non-compliance under the DMA. According to Stolton, the Commission plans to “target[...] how the company displays rival product results across its different search services, such as Google Flights and Google Hotels.”

Related reading:

• Digital Markets Act Roundup: August 2024
• Digital Markets Act Roundup: July 2024
• Digital Markets Act Roundup: June 2024

This follows the announcement from the Commission in March that it was investigating parent company Alphabet “to determine whether Alphabet's display of Google search results may lead to self-preferencing in relation to Google's vertical search services (e.g., Google Shopping; Google Flights; Google Hotels) over similar rival services.” The investigation was launched due to concerns from the Commission “that Alphabet's measures implemented to comply with the DMA may not ensure that third-party services featuring on Google's search results page are treated in a fair and non-discriminatory manner in comparison with Alphabet's own services, as required by Article 6(5) of the DMA.”

The Commission has to complete its investigation within 12 months and can issue preliminary findings which seek to remedy the non-compliant behavior. If Google is found to be infringing the law, the Commission can impose fines up to 10% of the company's total worldwide turnover. Such fines can go up to 20% in case of repeated infringement, or in the case of systemic non-compliance, the Commission can order divestment and ban future acquisitions.

Julia Tar reported for Euractiv that the Commission held industry workshops to assess Google’s DMA compliance. In attendance were travel and hospitality businesses, discussing Google’s latest compliance solutions concerning trains and flights on September 10, 2024, and hospitality the following day. Both Stolten and Tar report that Google is working on a new design of its search results to appease complaints that it continues to self-preference.

If the Commission finds Google to be non-compliant, it would be joining Apple and Meta. In June, Apple was the first to be issued a non-compliance warning regarding its App Store rules and fees, which Meta promptly followed over its subscription model for ad-free services on its platforms in July.

Among all the increased scrutiny, Google scored a relatively rare win against the Commission after throwing out a €1.49 billion fine issued in 2019, to which Google successfully appealed on September 18, 2024. The Commission had argued that Google abused its dominance to prevent websites from using ad brokers other than its own AdSense platform. Google imposed several restrictive clauses in contracts with third-party websites, which prevented Google’s competitors from placing their search adverts on these websites.

In the recent ruling, the General Court mostly agreed with the Commission’s assessments of the case but annulled the fine because the Commission had “failed to take into account all the relevant circumstances.” The Court found that the Commission had not established that the clauses constituted an abuse of a dominant position, infringing Article 102 of the Treaty on the Functioning of the European Union.

The Court annulled the Commission’s decision in its entirety because the Commission had not demonstrated that the clauses had been capable of deterring publishers from using competing ad intermediaries or that they had been capable of preventing those competitors from accessing a significant part of the market for online search advertising intermediation.

The Court further found that the Commission had not demonstrated that the clauses “possibly deterred innovation[, ...] helped Google to maintain and strengthen its dominant position on the national markets for online search advertising [... or] that they had possibly harmed consumers.” The Commission now has two months to appeal the decision to the European Court of Justice.

Apple’s interoperability proceedings

On September 19, 2024, the Commission started two specification proceedings to assist Apple in complying with its interoperability obligations under Article 6(7) of the DMA. Under 6(7), Apple needs to allow third parties to have access to its hardware and software, specifically its operating systems. Apple’s iOS and iPadOS are designated core platform services and must comply with the DMA. Business users and alternative providers of services must have effective interoperability with, and access for interoperability to, Apple’s operating system, hardware, or software features, free of charge.

The Commission, under Article 8(2) of the DMA, can adopt a decision specifying the measures a gatekeeper has to implement to ensure effective compliance with substantive DMA obligations, specifically obligations listed in Articles 6 and 7. The first specification proceeding focuses on iOS connectivity features for connected devices such as smartwatches, headphones, and virtual reality headsets. Third-party businesses offering these hardware products “depend on effective interoperability with smartphones and their operating systems, such as iOS.”

Therefore, the Commission will specify how Apple should offer effective interoperability “with functionalities such as notifications, device pairing and connectivity” with non-Apple devices. The second specification proceeding focuses on the process of third-party developers requesting interoperability with Apple’s iOS and iPadOS. The Commission stresses that “it is crucial that the request process is transparent, timely, and fair so that all developers have an effective and predictable path to interoperability and are enabled to innovate.”

The Commission will conclude the proceedings within six months from their opening. In the meantime, the Commission will communicate its preliminary findings to Apple, explaining the changes the gatekeeper should make to effectively comply with Article 6(7). We can expect a non-confidential summary of the preliminary findings and “envisaged measures” to be published for broader stakeholder engagement.

The Commission states that the proceedings “are without prejudice to the powers of the Commission to adopt a decision establishing non-compliance with any of the obligations laid down in the DMA by a gatekeeper, including the possibility to impose fines or periodic penalty payments.” This means the current preliminary findings of non-compliance and its related investigations are a separate matter from these specification proceedings.

As it stands now, Apple articulated in its compliance report that developers can submit requests for additional interoperability through a new dedicated form. Requests are assessed on a case-by-case basis and, if approved, are implemented in future software updates. The civil society organization EDRi, along with nine signatories, published an analysis of Apple’s compliance with the DMA, which was submitted to the Commission. Discussing Apple’s non-compliance with 6(7) they argue that:

“Apple controls how and when to grant interoperability to developers without clear decision-making and timeframes. Serious delays have impacted Free Software projects’ competitiveness on iOS, and arbitrary decisions could lead to discriminatory practices and self-preferencing. Without external audits or an appeal process, Apple’s procedure is burdensome and deliberately complicates access to interoperability.”

Other Updates

ECJ quashes Article 22

The European Court of Justice overturned the Commission’s probe into biotech company Illumina Inc's acquisition of cancer detector provider Grail Inc, stating that the Commission never had the right to review the deal. The Commission had relied on Article 22 of the EU Merger Regulation, where member states can refer merger deals to the Commission which are technically under the threshold normally required. The Court of Justice has ruled that Article 22 cannot be used when the referring Member State authority lacks jurisdiction under its own national rules and rejected the Commission’s argument that Article 22 could be used as a “corrective mechanism” to address mergers that fall below EU and national thresholds. The Court of Justice stresses that businesses must have legal certainty.

Margrethe Vestager said in a statement that the Commission "will consider the next steps to ensure that the Commission is able to review those few cases where a deal would have an impact in Europe but does not otherwise meet the EU notification thresholds." Article 22 had been used to investigate low or no-revenue mergers in the tech sector, where large incumbents buy smaller start-ups in what has been termed killer acquisitions. Vestager pointed out that “the value of mergers that were referred to us by Member States and that did raise concerns was often less than €1 billion. Rather, what this shows is that turnover is not always the right measure to determine whether a transaction is economically significant.” Updating merger thresholds has been on the table for some time and will likely be carried forward in the next Commission.

Under Article 14 of the DMA, gatekeepers must inform the Commission of intended mergers “where the merging entities or the target of concentration provide core platform services or any other services in the digital sector or enable the collection of data, irrespective of whether it is notifiable to the Commission” under the EU Merger Regulation. Dr. Christophe Carugati suggests in the wake of this ruling that “the Commission could amend the DMA to change the current reporting obligation for gatekeepers into a formal notification requirement for all acquisitions.”

Court of Justice opinion on Android

Advocate General Laila Medina at the EU Court of Justice delivered an opinion on a dominant firm’s obligations to deal with competitors under Article 102 Treaty on the Functioning of the European Union regarding a dominant firm's duty to enable interoperability with third-party rival apps.

The opinion was asked by the Italian competition authority, the Autorità Garante della Concorrenza e del Mercato (AGCM), which had previously found Google guilty of abusing its dominance by not allowing Italian electricity provider Enel's electric vehicle charging station locator and booking app on the Android Auto platform, which allows Android phones to connect to car displays. The AGCM ordered Google to ensure interoperability with Android Auto by designing a new template for Enel’s app to connect. Google appealed the ruling twice, leading the Italian appeals court to ask the Court of Justice for a ruling on the refusal to supply under EU competition law.

Dieter Paemen summarizes that “AG Medina argues that an abuse arises where a dominant player provides a platform that is ‘conceived and designed to be nourished by apps’ limits a third party's app's access, where that behavior gives rise to anticompetitive effects to the detriment of consumers and cannot be objectively justified.” This interpretation of abuse of dominance could have consequences for dominant firms' obligations to allow access to proprietary ecosystems if adopted. It remains to be seen if the Court of Justice will adopt the opinion.

In the opinion, AG Medina points out that “this case will be decided in the aftermath of the entry into force of the Digital Markets Act (DMA), which inevitably raises the question, quite common in this legal domain, of whether interoperability would be more legitimately addressed by legislative means instead of by way of sanctions grounded on the competition law provisions of the Treaty, as Google reiteratively submits.” In August the Commission published draft guidelines on abuse of dominance, which introduces the possibility of conduct being in breach of both the DMA and antitrust law.

Messaging interoperability

Meta revealed its “third-party chats” plans on September 6, 2024. In response to the DMA, Meta is allowing users of WhatsApp and Messenger in Europe to connect to interoperable third-party messaging services. Under Article 7 of the DMA, designated core platform services under “number-independent interpersonal communications services” must make the basic functionalities of those services interoperable. Meta’s WhatsApp and Messenger services are the only two core platform services in this category.

To create third-party chats, Meta is building new notifications into WhatsApp and Messenger that inform users about third-party chats. There will be notifications to users each time a new third-party messaging app becomes available.

Meta reports that they have created “a simple onboarding flow for users where they can learn more about third-party chats and turn the feature on. Options include choosing which third-party apps they want to receive messages from, and how they would like to manage their inbox.”

This means users can have all chats, those from within Meta platforms and from third-party apps, in the same interface or have messages from third parties separate. Meta plans to introduce other messaging features such as reactions, direct replies, typing indicators, and read receipts, and in 2025, it will include the option to create groups, and voice/video calling in 2027.

Draghi report

On September 9, 2024, the Commission published Mario Draghi’s European Competitiveness report. The report will have a big impact on the Commission’s future plans for Europe’s “sustainable prosperity and competitiveness.” Generally speaking, Draghi sees strong enforcement of the DMA as promoting “pro-competitive forces” through open access and interoperability. He argues that “new requirements involving open access and interoperability should be enacted when the presence of strong network effects and barriers to entry related to data impede market competition.”

While recommending continued strong enforcement of the DMA, he warns that the EU should “reinforce ex-post versus ex-ante regulation and monitoring” more broadly and that “ex-ante regulation like the DMA should not become the primary tool to foster competition in markets unless special structural impediments to competition, like those present in digital markets, exist.”

DMA-GDPR interplay

The Commission and the European Data Protection Board (EDPB) are in talks to clarify how the DMA and the General Data Protection Regulation (GDPR) interact. This communication is to ensure consistent application of both regulations for designated gatekeepers. A High-Level Group was formed to provide guidance, focusing on data-related and interoperability issues. While not explicitly stated, the focus on “data-related and interoperability issues” may have implications for gatekeepers avoiding implementing interoperability mandates due to data privacy and security concerns, which are difficult to monitor externally.

Ursula von der Leyen reveals new Commissioners

On September 17, 2024, President of the European Commission, Ursula von der Leyen, revealed the portfolios of the nominated Commissioners of the EU. The nominees still need to undergo confirmation hearings at the European Parliament, and if confirmed, the Commissioners will be in their posts for the next five years.

According to the announcement, succeeding the current Commissioner for Competition, Margrethe Vestager, is Teresa Ribera, current Vice President of the government of Spain and Minister for the Ecological Transition and the Demographic Challenge. Ribera now holds the position of the Executive Vice-President for the Clean, Just and Competitive Transition, taking control of DG COMP. She will be in charge of meeting energy goals like meeting the 90% emission-reduction target for 2040 and designing a Clean Industrial Deal, as well as leading competition policy enforcement and will be an important figure in shaping the DMA’s future.

Ribera faces a significant task ahead. Her mission letter expresses an expectation that she will create "a new approach to competition policy – one that is more supportive of companies scaling up in global markets, allows European businesses and consumers to reap all the benefits of effective competition and is better geared to our common goals." She will be tasked with modernizing EU merger control to both encourage investment and ensure that competition concerns are addressed and do not allow for abusive acquisitions.

Other notable figures include Portuguese ex-Minister of Finance Maria Luis Albuquerque, nominated for the Financial Services and the Savings and Investments Union Commissioner role, and MEP Henna Virkkunen nominated as the Executive Vice-President for Tech-Sovereignty, Security, and Democracy. Albuquerque will be tasked with completing the capital markets union and ensuring that private investment powers “productivity and innovation.”

Virkkunen’s role holds similarities to Vestager’s role as Executive Vice President of “A Europe Fit for the Digital Age,” overseeing Europe’s digitalization and development of new technologies like cloud computing, semiconductors, and quantum computing. Virkkunen will also be overseeing the implementation of the Digital Services Act (DSA) and the DMA.

Though Virkkunen “sits atop the pyramid as executive vice-president [...] many of the pieces of the tech puzzle are split between at least five other EVPs and commissioners, leaving even the most experienced EU watchers disoriented”, writes Théophane Hartmann for Euractiv. However, Hartmann reports that, according to MEP Sergey Lagodinsky, “Virkkunen will be ‘one digital face’ for EU policy.”

Lastly, Latvia's Valdis Dombrovskis is tasked with Economy and Productivity as well as Implementation and Simplification portfolios, which involves “the cutting of red tape that von der Leyen has promised to EU companies.” In the Draghi report, he suggests consolidating legislation by policy area by removing “overlap and inconsistencies across the whole legislative chain.” He suggests this be coordinated by a Vice-President for Simplification.

Later that day, Draghi outlined his “blueprint” to boost European competitiveness in a speech, followed by an MEP debate. The debate illustrated that MEPs are split on the report. Some called for the implementation of recommendations, particularly the development of a Capital Markets Union, which received enthusiastic support from some MEPs, while others see the vast increase in public borrowing suggested in the report to be untasteful. Other MEPs rejected the Americanization of European industrial policy, while others applauded deregulation, arguing that regulation is stagnating the economy.

Court of Justice rules against Booking.com

On September 19, 2024, the EU Court of Justice ruled that Booking.com’s price parity restrictions are unnecessary and make it difficult for hotels to differentiate their pricing strategies, thus reducing competition. Booking’s price parity restrictions prohibit accommodation providers from offering their rooms at lower prices via their own websites or sales channels than those offered on Booking.com. The request for the ruling was lodged by a Dutch court, which sought clarity on whether the parity clauses could breach Article 101 TFEU, which concerns fixing price and trading conditions.

Booking, the latest to be designated a DMA gatekeeper, will need to adhere to a ban on parity clauses under Article 5(3) and (4) of DMA. Articles 5(3) and (4) ban gatekeepers from disallowing business users from offering a better price through other sales channels. This ruling, therefore, aligns with the DMA. Booking will need to ensure compliance by November 14, 2024.

Commission policy brief on competition in generative AI and virtual worlds

The Commission published a policy brief on competition in generative artificial intelligence and virtual worlds on September 19, 2024. The brief follows two calls for contributions launched in January 2024, a workshop organized in June 2024 as well as interviews with key stakeholders and parallel market investigations. The aim of the brief is “to better understand the potential impact of these transformative technologies on competition in Europe, to ensure that their potential benefits in terms of prices and innovation can be enjoyed by citizens and businesses alike.”

Regarding the DMA, the brief states that:

“There are two main ways in which the DMA will be relevant for generative AI services. First, a generative AI player may offer a core platform service and meet the gatekeeper requirements of the DMA. Second, generative AI-powered functionalities may be integrated or embedded in existing designated core platform services and therefore be covered by the DMA obligations. Those obligations apply in principle to the entire core platform service as designated, including features that rely on generative AI. For these purposes, DG Competition will continue to reassess the situation as the services evolve, as services that do not fall under the DMA currently may well do so in the future because of the integration of AI-powered services into core platform services. The DMA will not however cover all competition concerns related to generative AI services, in particular for non-designated companies and for conduct which goes beyond the scope of the DMA.”

For example, the brief illustrates the tendency “of established vertically integrated players, typically offering, in addition to proprietary AI foundation models, also cloud or data center services at the upstream level, and AI systems and applications to customers and final consumers at the downstream level. This is the case, for example, of Google, Amazon and Microsoft.” However, the Commission has yet to designate any cloud services or virtual assistants as core platform services despite being listed as possible core platform services under Article 2(2). This gap misses out on regulating AI-integrated cloud services offered by gatekeepers or virtual assistants like Apple’s Siri, Amazon’s Alexa, or Google Assistant, which are increasingly being upgraded due to interest in AI chatbots.

Gatekeepers are also avoiding launching AI-integrated services in the EU, particularly services integrated into current core platform services. For example, AI Overviews in Google Search are limited to India, Brazil, Japan, the U.K., the U.S., Indonesia, and Mexico; Apple Intelligence, which is integrated into iOS will not be available in the EU, nor will Meta release its multimodal Llama AI model in the EU. However, such market gaps may help increase contestability as smaller players could offer AI-powered services.

German competition authority to monitor Microsoft

On September 30, 2024, the German competition authority, the Bundeskartellamt (FCO), added Microsoft to the list of companies deemed to have outstanding cross-market significance for competition. The government’s press release made reference to Microsoft’s comprehensive technical integration of a variety of products from the Microsoft ecosystem, from its productivity software, cloud services, gaming and artificial intelligence. Microsoft’s cloud dominance is an area that commentators have been keen to encourage investigation by the FCO.

The designation means that Microsoft is subject to the extended abuse control under Section 19a of the Act against Restraints of Competition (GWB). It is limited to five years, during which time Microsoft in Germany is subject to special abuse supervision by the FCO, to prohibit companies that hold such entrenched positions of power from engaging in practices that are detrimental to competition.

The GWB came into force in January 2021, with a view to enabling the FCO to intervene early against the problematic behavior of large digital corporations. Before the proceedings against Microsoft, the FCO had already determined that Alphabet, Meta, Amazon, and Apple had outstanding cross-market significance. While the cases of Alphabet, Meta and Amazon are final, Apple has appealed the decision which is pending before the Federal Court of Justice.

Under Section 19a, the Bundeskartellamt may prohibit such firms from self-preferencing when acting as an intermediary, for example, presenting its own offers more favorably or exclusively pre-installing its own services on devices. The authority can also ban dominant firms from impeding other firms in carrying out their business activities in supply or sales markets where the dominant firm's activities are of relevance for accessing such markets; raising barriers to market entry, or impeding other firms’ by processing data relevant for competition; or refusing interoperability or data portability. Many of these obligations and prohibitions are similar or the same as the DMA which is recognized by the competition authority. They explicitly state that they can only “impose further obligations on gatekeepers” which are not covered by the DMA.