Six of the biggest tech companies will be forced to make changes to their products and services this week as Europe’s new sweeping technology regulation largely comes into effect.
The European Union’s Digital Markets Act determines how platforms minimize self-selection and allow for interoperability, that is, how their services are prioritized over competitors and how services operate among those run by other companies., among other measures. Companies that do not comply with these rules will face heavy penalties.
Five of the six companies identified as “gatekeepers” are US-based: Amazon, Apple, Facebook parent Meta, Google parent Alphabet, and Microsoft. The other is China-based ByteDance, which owns TikTok. Gatekeepers are determined by individuals with an annual turnover equal to or greater than €7.5 billion in each of the last three years and at least 45 million monthly active EU users.
This change comes after years of global momentum to hold major tech firms accountable for actions that could lead to market dominance. But this week marks a major turning point, with major regulations coming into force that restrict the apps platforms have been using for years.
“This is inherently an experimental endeavor,” said William Kovacic, a former Federal Trade Commission member from 2006 to 2011.
“No one involved in the process has absolute confidence that this will produce any particular outcome,” he added.
This uncertainty means European regulators will have to constantly evaluate the impact of the rules and companies’ compliance, he said.
Continuous monitoring forms the basis of how the Digital Markets Act is regulated.
Wardens must prepare compliance reports by Thursday on how they will adapt their services to meet the code’s new standards. Regulators will also examine whether new companies are included in the definition or whether any of the six companies fall within the scope of the law once it takes effect.
Once the reports arrive, they will be reviewed by EU regulators to see if the firms are complying with the rules. Any discrepancies will trigger a review that could last up to a year. Companies found to have violated the rules will face fines of up to 10 percent of the company’s total annual worldwide turnover, and up to 20 percent for repeated violations.
How are companies changing??
The changes required under the Digital Markets Act will require companies to make critical changes to their platforms and services for users in the EU.
A key feature of the rules limits companies from favoring their own products and services over those offered by third parties. This may affect how an online marketplace like Amazon embeds its Amazon Basics products on its site, or how a search engine such as Google embeds its tools on its search page.
For example, Google is removing some features, such as the Google Flights unit, from the search results page to comply with the rules, according to a blog post.
Apple said that when users open the company’s Safari web browser for the first time using an updated iOS system, a screen prompts them to choose the 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 offerings to customers beyond the restrictions of the gatekeeper’s platform.
Apple has been strongly pushing back against the idea of offering third-party app stores on its devices for years, citing security risks. But the company’s latest mobile operating system, iOS17.4, was released on Tuesday and allows EU users to install apps from alternative markets.
However, Apple’s app store changes, first announced in January, create a set of alternative business terms that apps must comply with, including paying new fees, in order to have alternative distribution and alternative payment processing capabilities. Developers can also choose to stick with Apple’s existing terms.
Nearly three dozen companies and trade associations, including Spotify and Epic Games, argued in a letter to the European Commission last week that Apple’s proposed App Store changes “make a mockery” of the law.
In response, Apple said the EU changes give developers choice.
“Any developer can choose to stay on the same terms today. And under the new terms, more than 99 percent of developers will pay Apple the same or less,” Apple said.
Another key requirement of the Digital Markets Act is the interoperability requirement, which will force some technology companies to allow third parties to interoperate with their services in certain cases, including messaging services.
For example, Meta will need to change to give users the option to send and receive messages from other third-party messaging services in Messenger and WhatsApp.
The interoperability provision for messenger services requires that the level of security and encryption offered by the gateway controller is not reduced. Additionally, it will only need to be done if a third party requests the interoperability functionality.
Based on the significant technical changes required for interoperability, gate controllers will have between six months and four years to implement them. They have less time to make changes to text messages between individual users and more time for voice and video calls.
Companies may also object to their appointment.
ByteDance opposes TikTok’s appointment as gatekeeper to social networks, arguing that the appointment risks undermining the law’s sole stated purpose of protecting gatekeepers from new competitors. While the appeal process continues, TikTok announced changes that will ensure the platform complies with the rules in the meantime.
TikTok said it has launched a new data and portability API that allows registered developers to ask the user for 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 compliance-related features and future developments.
What impact will it have in the US?
Tom Wheeler, the former Federal Communications Commission (FCC) chairman during the Obama administration, said the Digital Markets Act would be “tremendous,” especially given the lack of technology regulations in the United States.
“The absence of leadership has left the European Union dictating what regulatory policy will look like,” Wheeler said.
A bipartisan push to revamp antitrust laws in Congress gained momentum in 2021 but failed in the face of intense lobbying from the tech industry.
Wheeler said the Digital Markets Act provides a “new basis” for discussions on technology regulation.
Although changes are being made for European users, there is a possibility that the effects will spread globally, including the US
Companies covered by the compliance standards will have to choose between creating a common business practice or keeping changes to the European market only, which could be more costly, Wheeler said.
Although the US has been slow to make regulatory changes, antitrust regulators in the Biden and Trump administrations are taking an active role in filing lawsuits targeting tech giants such as Google and Meta.
Kovacic said there is a “feedback loop” in both directions, meaning ongoing litigation in the US could inform European regulators about enforcement of the law, and enforcement of the DMA could provide potential solutions to courts in the US.
He said it could also affect how regulators evaluate new cases, such as the Justice Department reportedly weighing in against Apple.
“This is an experiment with a new suite of solutions and a new set of rules that could inform what happens in some of the other cases,” he said.
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