EU’s landmark Digital Act

Source: By Shruti Dhapola: The Indian Express

The European Union (EU) on 24 March 2022 finalised details of its Digital Markets Acts (DMA), a sweeping new legislation that could dramatically change the way big tech firms such as Apple, Google, Meta, and Amazon operate in Europe, and have ramifications for the rest of the world as well. The European Council said the law aimed to make the “digital sector fairer and more competitive”.

Who are the targets of the Digital Markets Acts?

The DMA’s focus is on companies termed as ‘gatekeepers’, which include Apple, Facebook, Google, etc. These companies will have to comply with the new rules.

Violators can be fined up to 10 percent of the company’s global annual sales for an initial breach of the law, rising to 20 per cent for repeated infringements. In worst case scenarios, they could even be banned from any further acquisitions, according to the Council’s press statement.

The reason the law refers to these companies as gatekeepers is that they often control distribution, whether it is for apps or ads on the platform, or even communication. Also, gatekeepers may have a dual role as developers of operating systems and device manufacturers. Examples here would be Apple, Google, even Amazon.

According to the proposal, the provisions of the act will be “limited to a number of ‘core platform services’ where the identified problems are most evident and prominent”.

A company will be termed as a gatekeeper if it has an annual turnover of at least €7.5 billion within the EU in the past three years, or a market valuation of at least €75 billion. Any player with over 45 million monthly end-users, and at least 10,000 business users established in the EU, also qualifies as a gatekeeper. Small and medium enterprises are exempt from being identified as gatekeepers.

The platform must also control one or more core platform services in at least three EU states. These services include marketplaces and app stores, search engines, social networking, cloud services, advertising services, voice assistants, and web browsers.

A category of ‘emerging gatekeeper’ has been identified, aimed at “companies whose competitive position is proven but not yet sustainable”.

What are the DMA’s proposals?

The rules state that users will have the right to choose and install their apps. They also crack down on pre-installed apps, common in Apple, Google and others. The press statement indicates that users will not be forced to use this software by default when installing the OS, and mentions web browsers. But it could extend to every other pre-installed app. So, future iPhones might not come with Safari, or even iMessage or Siri, pre-loaded. The same could happen with Android phones as well.

The EU wants “interoperability” between the basic functionalities of messaging services. This could mean that a user on WhatsApp and one on iMessage should be able to talk to each other. How interoperability is to be achieved is not clear, and will require major technical work from the companies.

The rules also call for fair access conditions to app stores owned by the gatekeepers. They note that gatekeepers must “allow the installation and effective use of third party software applications or software application stores”, even while they can take “proportionate measures” for security.

Companies like Apple have for long opposed allowing users to download from third-party app stores. Apple claims they pose a serious security threat to iOS. On Google, the Play Store dominates — and while third-party stores exist, they do not have the reach and influence of the official store.

Also, gatekeepers cannot establish unfair conditions for business users or require app developers to use certain services (e.g. payment systems or identity providers) in order to be listed in app stores. App developers such as Epic Games, Spotify, etc. have long accused Google and Apple of holding them hostage to their payment systems.

Interestingly, Google is testing a new agreement with Spotify, where the latter is allowed to give access to its own in-app payment system on Android, instead of using Google’s Play Store billing system.

The EU wants app developers to get fair access to supplementary functionalities of smartphones, for example the Near Field Communications chip. Also, gatekeepers will have to give sellers access to their marketing or ad performance data on the platform.

The gatekeepers will have to inform the European Commission of their acquisitions and mergers. This is significant because big players tend to buy out some of their upcoming competition. Meta (formerly Facebook) has done this with Instagram and WhatsApp.

The new rules also forbid the gatekeepers from ranking their own products or services higher than others, and from reusing private data collected during a service for the purposes of another service.

Why do these new rules matter?

The new rules come at a time when big tech is under immense scrutiny and, as before, the EU is taking the first set of steps to “rectify” what it thinks are core problems plaguing the industry. The EU already has one of the most comprehensive user data protection laws under the General Data Protection Regulation (GDPR).

The issue of in-app payments, third-party app stores, fairness in ranking, and pre-loaded apps have been raised across the world. In the US, Epic has sued Apple over in-app payments and won, although Apple has managed to get an injunction on implementing the changes.

In South Korea, a law was passed, which specifically banned Apple and Google from forcing developers to use their own in-app payments system. The US is deliberating on these questions. In India too, app developers have raised the issue of control, in-app payments, and third-party app stores.

Once the EU’s new rules come into effect, they could set an important legal precedent for other countries to follow.