[Nardeep and Rudrani are students at Maharashtra National Law University.]
Within a year of its implementation across Europe, the European Commission’s (EC) Digital Markets Act (DMA) has brought increased compliance obligations for tech giants. The EC has started formal investigations against Apple, Alphabet (Google), and Meta, over concerns that their policies may not comply with the DMA, the bloc’s ex-ante digital competition rulebook, and is also investigating some of Amazon’s policies. Just as it pioneered data protection for end users with the General Data Protection Regulation, the European Commission aims to lead in ensuring fair digital markets and promoting healthy competition. This is the European Union’s (EU) second legislation that governs the digital markets, the first being the Digital Services Act, which sought to regulate and criminalize online hateful content. It is one of the first regulatory tools that seek to regulate and where needed curb the power of the largest digital companies. The ‘Brussels Effect’ of this is seen worldwide, with nations hurrying to introduce legislations to regulate the digital marketplace.
In this article, authors analyze the subject of investigations against Apple with the larger aim of understanding the impact of the enforcement of this law and what it means for Apple.
Unpacking DMA’s First Target
Apple's troubles begin: The story behind the DMA investigation
The first company under the scope of this legislation is Apple, with preliminary findings in one of the investigations against it showing evidence of non–compliance with the obligations of DMA post the expiry of the statutorily implemented deadline for compliance. Apple is the first company found to be in breach of DMA, whereas other companies have ongoing investigations with suspicions of probable non – compliance. Under the DMA, EC has the authority to identify digital platforms as "gatekeepers”, when: (i) they provide any of the pre-defined set of Core Platform Services (CPS) such as online search engines, app stores, and messenger services; (ii) they hold a strong and deep - rooted market position with the ability to significantly impact markets in Europe; and (iii) they hold a strong intermediate position linking a large base of end users to business users.
Apple was designated as a gatekeeper under Article 3 of the DMA on 6th September 2023. A total of 4 CPS provided by Apple have been designated, namely iOS App Store, web browser Safari, Operating System iOS, and iPad OS. Currently, three investigations are underway against Apple; the first concerned the Steering Policy of Apple for its App Store which initially did not allow third-party app developers to steer customers to better offers and discounts without any fees paid to Apple, the second concerns the policy of Apple to allow the end users to change the default browsers they use in their phones to any browser of their choice apart from using the default browser Safari and the third and newly opened investigation is about the new business terms introduced by Apple to govern the relation of Apple and business developers and the acceptance of these terms is a pre-requisite to avail the benefit of Apple’s new changed policy allowing steering of customers. The EC’s preliminary findings in the app store steering investigation have found Apple in breach of the DMA and called for its defense. If confirmed, Apple could face fines of up to 10% of its global revenue (or 20% for repeat offenses). In extreme cases, the EC may even consider divestiture of some parts of Apple’s business.
The impact of these investigations against Apple, and the other platforms, also sets a precedent for the broader tech industry. It signals an assertive stance by the EC against anti-competitive practices promoted by these companies. The DMA is compelling gatekeepers to change their anticompetitive practices.
A perfect example of the change this legislation can bring, is the recent decision of Apple to stop the rollout of its AI model, due to the strict obligations under this statute. It has forced gatekeepers to reevaluate their policies and ensure compliance. Through this, the EU can foster and sustain innovation and healthy competition in the bloc, by lowering barriers for smaller market participants. It however imposes additional burdens on tech companies too. It increases significant financial and legal compliance costs for them. At the same time, precisely in the context of Apple’s ecosystem, as stated by Apple, users risk losing the most important selling point of iOS, the security of their information. In 2022, Apple CEO Tim Cook warned that competition laws allowing other app stores on the iPhone could undermine the company’s efforts to safeguard user data. Cook stated that this could enable data-hungry companies to bypass Apple's privacy rules and track users without their consent. It leads users to the dilemma between ‘choice’ and ‘security’.
Cost of compliance: Unfolding Apple’s policies for developers
Steering into trouble
Apple's new EU App Store policy allows third-party apps to steer users to external purchases via "link-outs." However, Apple charges a commission on transactions made within 7 days of using these link-outs, which direct users to the developer's website. App developers can process transactions only through these external links still and not within their apps. This commission charged by Apple again doesn’t allow apps to freely steer consumers to other platforms for better or cheaper offers. This makes the revamp of its policies to comply with DMA highly susceptible to investigation due to conditions, which ultimately turn onerous for end users and business users.
Price of entry
A connected issue to the policy provision (explained above) is the commission fee charged by Apple and the Core Technology Fee (CTF) which it would now charge under Apple’s Developer Program License Agreement (DPLA) (explained below). Apple's new policy introduces a complex fee structure: a 10-17% commission on digital transactions, a 3% payment processing fee, and a new Core Technology Fee of 0.5 Euros per install over 1 million annual installs. Unlike competitors like Google Play Store, Apple applies these rates uniformly, potentially harming small developers who constitute the majority of its ecosystem. This uniform approach contrasts with other platforms' differential rates, which are more supportive of smaller developers. With small developers making up the bulk of its ecosystem, Apple’s policy points towards a detrimental impact on them. On the other hand, other players in this market like Google Play Store have a fairly similar policy, but with differential commission rates for small and large developers, which instead acts in their favor.
Strings attached
Apple's new DPLA is a mandatory prerequisite for EU app developers to benefit from the new steering policy. The controversial terms include:
A 0.50-euro CTF per install (over 1 million annual installs) for third-party apps
A multi-step process for installing alternative apps and stores
Strict eligibility requirements
These terms have sparked outrage among developers, who view them as Apple exploiting it's dominant position by imposing excessive fees and burdensome processes. The policy potentially undermines the DMA's intended benefits and deters developers from adopting the new policy updates. Apple's power to unilaterally terminate memberships of app developers to its App Developer Program further increases risks for developers. Many, including Spotify and other EU companies, have criticized Apple's move as a 'mockery' of the DMA and 'bad faith compliance'. Spotify, and other companies have called for swift action against Apple through a letter to the EC.
Choice beyond ‘Safari’
Apple currently sets Safari as the default browser on iOS, and while alternative options are available to users in settings, it’s not made obvious. Under the DMA, Apple is required to display a choice screen for users to select a default browser when first using the device. Additionally, now Apple will allow developers to submit browsers that do not use its WebKit engine. Initially, the mandate to use it had limited competition and the delivery of new features on other browsers. This change may reduce security and privacy controls, as per Apple. However, balancing user security concerns, which can be addressed with a disclaimer warning users of potential risks, against the broader need for competition, is a trade-off worth making.
Rocky Road Ahead: The Future of Tech Companies under the DMA
After a thorough analysis of Apple’s controversial changes to its policies, a reader can reasonably conclude that Apple may not easily bend to EU regulations. It continues to introduce policies that can potentially harm competition. However, it might need to ultimately accept defeat as it already faces a fine of USD 2 billion for hindering competition in the music streaming sector. Additionally, back at home, it faces an anti-trust proceeding, highlighting how antitrust regulators are probing digital markets and their participants to ensure competitiveness and reduce anti-competitive, unilateral practices. That being said, the implementation of the DMA still marks a turning point for how tech companies operate in the EU. The legislation aims to bring a level playing field by curbing the dominance of the tech giants and supporting small developers. As the EC enforces these rules, tech companies will be compelled to adapt to the new order and give priority to fairness in their market policies, which hold the potential to fundamentally transform the way digital markets operate and engage with users.
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