Today, the European Commission issued its first fines under the controversial Digital Markets Act. The fines targeted American companies Apple and Meta. According to the European watchdog, Apple was fined 500 million euros for technical and commercial restrictions regarding requirements to use alternative distribution channels outside the App Store and Meta was fined 200 million euros for its “pay-or-consent model.” This follows the Commission’s recent regulatory measures setting out specific technical and technology approaches Apple will be forced to use to meet the DMA’s regulatory requirements for interoperability with connected devices and specified functions.
As we have written about extensively here, the DMA attempts to restructure the technology marketplace in the EU through ex ante regulation, skipping the fact-and -economic effects analysis of antitrust law. That regulatory approach has the downside risk we see today of forcing rules without a specific consumer welfare analysis or finding.
As we have noted before, the way the DMA was written and is being implemented has been highly problematic. Today’s decision is another step in the wrong direction. Here are three problems we see with today’s decision:
1. It discourages innovation, which Europe badly needs.
Last year former Italian Prime Minister and European Central Banker Mario Draghi issued a groundbreaking report addressing European competitiveness and the future of the European Union. One of the key findings of the Draghi Report is that the European Union must pivot from regulation to innovation to benefit its citizens and economy.
As Trusted Future’s Jim Kohlenberger wrote last year:
While Europe’s competitiveness has long lagged behind its global counterparts because of lackluster technology adoption, its past challenges are now coming to a head. As technology transforms almost every sector of the global economy, Europe’s slow technology adoption rates combined with a tsunami of sometimes contradictory new technology regulations have converged to stall foreign investment and pose what is perhaps the biggest fundamental threat to the region’s future prosperity in decades.
Today’s decision rejects the Draghi recommendation, further entrenching a regulatory not innovation approach, and makes it even more difficult for its citizens to benefit from technological innovations.
2. It ignores the conversation around privacy and security, which is more important than ever.
One of the most common critiques of the Digital Markets Act is that it degrades the ability for some companies to maintain current, eliberate, high levels of privacy and security protection. This is something Trusted Future has written about many times before. For example, the recent regulatory interoperability required measures force Apple to unlock iOS and disable key security features in order to grant third parties access to core features and weaken protections for encrypted messages as part of its interoperability requirements. This is the first time a government regulator has stepped into the role of an operating system software designer, substituting the dictates of Commission personnel for world-class software engineers, requiring changes to products they know little about. It is hard to imagine this is an increase in consumer welfare. Strikingly from the user perspective,the Commission is trying to force these design changes without any review of the privacy or security effects of these forced changes.
Today’s decision from the Commission is one of the biggest yet regarding DMA implementation, but there still has not been any meaningful conversation on how to best protect the privacy and security of consumers under the new rules.
3. It does not serve consumers, who should be the north star for competition policy.
The irony of the decision today is that the Commission’s actions are supposed to benefit consumers, but the Commission’s theory of consumer harm is divorced from specific factual analysis and imposes remedies and fines not related to specific consumer benefit.
The EC decision denies consumers the ability to choose the safest application and operating system ecosystem and affirmatively forces a less secure future. European consumers value their privacy and want greater protections. But the Commission’s implementation of the DMA is preventing consumers from having the ability to continue to choose an existing safer, and more privacy forward market alternative.
Today the EC passed on the opportunity to benefit consumers and support a safe digital environment. The actions are ‘anti-consumer,’ ‘anti-safety,’ and ‘anti-Draghi’. To benefit EU technology consumers, the EC should follow through on its stated ‘Draghi Pivot,’ and implement the DMA guided by a fact-based analysis of consumer welfare, security, and innovation.