Demystifying Europe’s Digital Markets Act
Tech is bracing for a regulatory reckoning. On March 7, the largest online platforms will roll out changes mandated by the Digital Markets Act, the most sweeping tech legislation since the European Union passed the GDPR privacy law in 2018. In this special series, Bandwidth looks at the DMA legislation, its motivation, its implications, and its challenges.
The post Demystifying Europe’s Digital Markets Act appeared first on CEPA.
The DMA’s goal is to spark competition in markets dominated by Silicon Valley giants. It targets six of the globe’s largest tech companies, Alphabet, Amazon, Apple, Byte Dance, Meta, and Microsoft, aiming to reshape app stores, online advertising, e-commerce, messaging services, and other digital tools.
A less stated, potential objective is to assert what Europeans call “digital sovereignty” from American dominance. Although the new rules apply only within the 27-member EU, other democracies could follow suit and write the next chapter of the vaunted “Brussels effect,” turning the DMA into a global standard.
In the view of European regulators, a few giant Internet firms have brought generated enormous growth and innovation – but they dominate digital markets and squeeze competition. The DMA calls them “gatekeepers.” These large platforms benefit from “network effects,” leading consumers to flock to their services favored by other consumers. Rivals are shut out.
Although antitrust law would traditionally tackle such market concentration, European trustbusters have found it too slow and weak. Over the past two decades, they have launched cases and imposed large fines against, among others, Microsoft’s Windows operating system and Explorer browser, Google’s shopping service, and its Android app store. However, the impact in the marketplace remained limited. The gatekeepers continue to grow and leverage their size and scale.
Under the DMA, gatekeepers need to make significant changes to their core services. Apple and Google must allow companies to use alternatives to their mobile phone app store. Amazon must stop using data collected from outside sellers on its services. Meta must allow rival messaging services to send and receive messages to somebody using WhatsApp. Amazon, Meta, and Google must set new limits for offering targeted ads without consent.
Although the Biden Administration shares at least some of the European concerns about digital markets, US political gridlock has blocked DMA-style legislation. Instead, US trustbusters have unleashed a series of high-profile cases, targeting Google’s search engine and app stores, Apple’s app stores, Amazon’s self-preferencing of its products on its marketplace, Meta’s acquisition of a virtual reality startup, and Microsoft’s purchase of game maker Blizzard Activision.
A slew of often contradictory judgments has followed, failing to offer clarity. A US judge ruled Apple’s app store legal, only to have a jury rule in a separate case that Google’s app store broke the law. Microsoft overturned a decision that would have prevented it from acquiring Blizzard. Many other cases remain tied up in court.
Europe’s DMA goes far beyond traditional antitrust enforcement. It does not require traditional measures of present market share or evidence of concrete market failure. The burden of proof shifts to the gatekeepers. They must present compliance plans for the prohibited or restricted platforms. Regulators then will judge whether the changes are sufficient. While gatekeepers can challenge the decisions in court, the potential penalties are huge, up to 20% of global revenue for repeat infringers.
Even so, expect litigation. Cases already loom over who and what services should be designated in scope. The DMA defines gatekeepers by a variety of criteria, including a market value of more than €75 billion and “if they provide an important gateway between businesses and consumers in relation to core platform services.” Five of the six designated firms are American. An exception is China’s Byte Dance, owner of TikTok. It has filed suit against its gatekeeper designation, suggesting its designation was politically motivated and arguing that it is a challenger social media platform to Meta’s Facebook. Gatekeepers also could face litigation from unhappy competitors in national courts of the EU’s 27 member states.
Despite including TikTok, the DMA targets American success stories and US critics have expressed serious concerns about anti-American protectionism. Yet the gatekeepers themselves see opportunities to win concessions from rivals. Microsoft and Meta, for instance, argue that Apple’s plans to open up its IOS mobile software are insufficient and harm their ability to target advertising. Apple says it is protecting privacy. Microsoft and Google are considering whether to make their own messaging services Skype and Google Meet interoperate with Meta’s WhatsApp.
Other American companies, from lobbying European regulators against the gatekeepers, Both Epic Games and the originally Swedish, but largely US-based Spotify. criticize Apple’s compliance plans for its App Store as insufficient to level the digital playing field. Will the regulators agree or disagree with the gatekeeper compliance plans? That’s the subject of our next article in this series.
Bill Echikson is a CEPA Senior Fellow and editor of Bandwidth.
Bandwidth is CEPA’s online journal dedicated to advancing transatlantic cooperation on tech policy. All opinions are those of the author and do not necessarily represent the position or views of the institutions they represent or the Center for European Policy Analysis.
The post Demystifying Europe’s Digital Markets Act appeared first on CEPA.