by Six of the biggest tech companies will be forced to make changes to their products and services this week as Europe’s sweeping new technology regulation comes into effect.
The European Union’s Digital Markets Act sets out how platforms minimize self-selection and allow interoperability, meaning how they prioritize their services over competitors and how services work between those run by other companies., among other measures. Companies that do not comply will face heavy fines.
Five of the six companies designated as “gateways” are based in the US: Amazon, Apple, Facebook parent company Meta, Google parent company Alphabet, and Microsoft. The other is Chinese-based ByteDance, which owns TikTok. The gateways are nominated by having an annual turnover equal to or more than 7.5 billion euros in each of the last three years and at least 45 million active users in the EU per month.
The change follows years of global momentum to hold giant tech firms accountable for actions that could undermine their market dominance. But this week marks an important milestone as the landmark regulations restricting practices used by the platforms for years go into effect.
“This is inherently an experimental venture,” said William Kovacic, a former member of the Federal Trade Commission from 2006 to 2011.
“No one involved in the process has absolute confidence that it will have a specific outcome,” he said.
That uncertainty means that European regulators will have to continually assess the impact of the rules and companies’ compliance as they evolve, he said.
Continuous monitoring is at the heart of how the Digital Markets Act is set out.
The gateways have until Thursday to prepare compliance reports on how they will adapt their services to meet the new standards of the rules. Regulators will also review whether new companies fall into the definition, or whether any of the six fall out, as the law takes effect.
Once the reports are in, EU regulators will review them to see if the businesses are complying. Any discrepancies will trigger a review that could take up to a year. Companies found to have breached the rules face fines of up to 10 per cent of the company’s total global annual turnover, or 20 per cent for repeated breaches.
How the companies are changing?
The changes required under the Digital Markets Act will require companies to make critical changes to their platforms and services for EU users.
A key element of the rules restricts companies from favoring their own products and services over those offered by third parties. That could affect how an online marketplace like Amazon places its own Amazon Basics products on its site, or how a search engine like Google places its own tools on the search page.
For example, Google is removing some features from its search results page, such as the Google Flights unit, to comply with the rules, the company said in a blog post.
Apple said that when users first open the company’s Safari web browser using an updated iOS system, a screen will prompt them to select a default browser from a list of options.
The Digital Markets Act also requires dominant app stores to make changes, including allowing options for third-party app stores on devices and allowing businesses to promote their offers to customers beyond gateway platform restrictions.
Apple has for years pushed back strongly on the idea of offering third-party app stores on its devices, arguing that it poses security risks. But the company’s latest mobile operating system, iOS17.4, was released on Tuesday and allows EU users to install apps from other marketplaces.
However, Apple’s app store changes, first announced in January, create another set of business terms for apps to follow, including paying a new set of fees, so they have the capabilities for alternative distribution and other payment processing. Developers can also choose to stay on Apple’s current terms.
Nearly three dozen companies and trade associations, including Spotify and Epic Games, argued in a letter to the European Commission last week that the proposed changes to Apple’s App Store make a “mockery” of the law.
In response, Apple said the changes in the EU give developers a choice.
“Each developer can choose to stay on the same terms that are in place today. And under the new terms, more than 99% of developers would pay Apple the same amount or less,” Apple said in a statement.
Another key requirement of the Digital Markets Act is an interoperability requirement, which will force some technology companies to allow third parties to interoperate with their services in certain cases, including messenger services.
For example, Meta will need to change to allow users on Messenger and WhatsApp to send and receive messages from other third-party messaging services.
The provision of interoperability for messenger services requires that the level of security and encryption offered by the gateway is not reduced. It also only needs to be done if the interoperability function is requested by a third party.
Based on the significant technical changes required for interoperability, the gateways will have between six months and four years to implement them. They spend less time making the changes in text messages between individual users, and more time for audio and video calls.
Companies can also appeal their designations.
ByteDance is challenging the designation of TikTok as a gateway into social networks, arguing that protecting the gateway against newer competitors to its designation risks undermining the sole stated goal of the law. As the appeals process continues, however, TikTok announced changes that would allow the platform to comply with the rules in the meantime.
TikTok said it launched a new data and portability API that allowed registered developers to request a user’s permission to transfer a copy of their TikTok data. The platform will also create a new web form for business accounts that will allow users to provide feedback on aspects of legal compliance and future developments.
How will it affect the US?
Tom Wheeler, former chairman of the Federal Communications Commission (FCC) during the Obama administration, said the Digital Markets Act will be “monumental,” especially given the lack of technology regulation in the US.
“That lack of leadership has left the European Union defining what regulatory policy will look like,” Wheeler said.
A bipartisan push in Congress for reformed antitrust laws emerged in 2021, but failed in the face of massive lobbying from the tech industry.
The Digital Markets Act establishes a “new baseline” for discussions on technology regulation, Wheeler said.
And while the necessary changes are being made for European users, there is a chance that consequences will be released around the world, including in the United States.
The companies that fall under the compliance standards will have to choose between setting a common business practice or keeping changes to the European market only, which could be more expensive, Wheeler said.
Although the United States has been slow to regulatory changes, antitrust regulators in the Biden and Trump administrations have been active in passing laws targeting tech giants, such as Google and Meta.
Kovacic said there is also a “feedback loop” in both directions, meaning that the ongoing cases in the US can provide information to European regulators about the application of the law, and that the implementation of the DMA could provide potential solutions to courts in the United States.
It could also affect how regulators weigh new cases, he said, such as the Justice Department’s reported case against Apple.
“It’s an experiment with a new package of medicines and a new set of rules that could inform what’s going on in some of these other cases,” he said.
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