EU’s Digital Markets Act (DMA)

INTERNATIONAL/ ECONOMY/ GOVERNANCE

• GS-2: Effect of policies and politics of developed and developing countries on India’s interests
• GS-3: Internet Governance

EU’s Digital Markets Act (DMA)

Context: Negotiators from the European Parliament and EU member states have agreed on a landmark law (DMA) to curb the market dominance of Big tech giants

• The legislation has not passed. A finalized version is yet to be officially adopted by the European Parliament and the 27 countries that make up the EU.
• The rules could come into place starting on January 1, 2023, though tech companies are asking for more time to implement the law.

Who are the targets of the DMA?

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. Following are the metrics used to identify ‘gatekeeper’ companies:

• Dominant Role in Digital Ecosystem: 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.
• Revenue & Valuation: 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. 
• User Base: 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. 
• Exemption: Small and medium enterprises are exempt from being identified as gatekeepers.
• Platform Services: The Company 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”.
• Even if the list of Gatekeepers has not been released yet, the “Big Tech” – GAFAM (Google, Amazon, Facebook, Apple, Microsoft) – are likely to be the main subjects of the act, but not the only ones.

What are the DMA’s Proposals?

• Pre-loaded apps: It crack down on pre-installed apps, common in Apple, Google and others. Users will have the right to choose and install their apps. So, future iPhones might not come with Safari, or even iMessage or Siri, pre-loaded. 
• Interoperability in messaging services: This could mean that a user on WhatsApp and one on iMessage should be able to talk to each other. 
  • Large internet companies are often criticized for operating “walled gardens,” closed systems that make it harder for a user to ditch one provider for another.
• Third-party app stores: Gatekeepers must allow the installation and effective use of third party apps & app stores, even while they can take “proportionate measures” for security. 
  • Companies like Apple have for long opposed third-party app stores citing security as the reason.
• Fair access to developers: The EU wants app developers to get fair access to supplementary functionalities of smartphones, for example the Near Field Communications chip. 
  • 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.
• Transparency in Ad Performance data: Gatekeepers will have to give sellers access to their marketing or ad performance data on the platform.
• Mergers & Acquisitions: 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. 
• Fairness in ranking: 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.
  • The new law will prevent these giants from using the data generated on their site by business customers to better compete with them, as Amazon has been accused of doing.
• Penal Provision: Violators can be fined up to 10% of the company’s global annual sales for an initial breach of the law, rising to 20% for repeated infringements. In worst case scenarios, they could even be banned from any further acquisitions

What is the significance of DMA?

• The law makes the digital sector fairer and more competitive in the EU market.
• It helps prevent abusive business practices of large platforms and is compared to historic antitrust reforms to the banking, energy and telecom sectors.
• It widens consumer choices.
• It gives rivals a better chance to survive against the world’s powerful tech companies
• Once implemented it sets a new precedent for tech regulation worldwide.
• It averts years of procedures and court battles needed by EU to punish Big Tech’s monopolistic behaviour where cases can end with huge fines, but little change on how these giants do business.
• The law will give Brussels unprecedented authority to keep an eye on decisions by the giants

Conclusion

Tech companies have alleged that some of the rules can create unnecessary privacy and security vulnerabilities for their users.

Nevertheless, the act is a step in the right direction.

Connecting the dots:

• Dominance of Big Tech
• New Social Media Code
• Australia’s News Media Bargaining Code