Thursday, July 25, 2024

What are the battle lines between the EU and Big Tech?

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The EU has accused Microsoft and Apple this week of stifling competition, as Brussels steps up its legal challenges to the world’s largest technology groups.

European regulators hit Microsoft on Tuesday with antitrust charges that the software giant is unfairly bundling Teams, its video conferencing app, with its Office suite, the first such strike on the company in more than a decade. 

A day earlier, the European Commission, the executive arm of the EU, had accused Apple of breaking new ‘gatekeeper’ rules with its restrictions on how app developers could market to their customers within its App Store.

Why are these cases such a big deal?

The EU’s push to bring the big technology companies to heel follows years of complaints from start-ups and campaigners that regulators have reacted too slowly to a rapidly evolving sector and that they lacked the legal tools to go after anti-competitive behaviour.

The commission has now begun to enforce the Digital Markets Act, a groundbreaking piece of legislation passed in 2022 aimed at opening markets for start-ups to thrive in the bloc. 

The DMA gives the commission powers for so-called ‘ex-ante’ regulation, introducing requirements for Big Tech companies to run their platforms fairly or face hefty fines.

“The new powers set rules of the road in advance, whereas the old rules deal retrospectively with any concerns,” said Alec Burnside, a Brussels-based partner at law firm Dechert.

What penalties could the companies face?

The DMA stipulates that companies, in an initial breach of the rules, could face fines of up to 10 per cent of their global revenue. That penalty could be doubled to 20 per cent for repeat offenders.

That would translate into fines in the billions of euros. Apple’s revenue of $383bn last year could mean a penalty of up to $40bn, for instance, while Microsoft’s sales of $212bn could lead to a potential $20bn fine. However, such large penalties very rarely materialise in practice.

Tech groups have the option of trying to settle long-running cases by agreeing to change their practices. Apple, for example, is close to reaching a deal with the EU on an antitrust probe relating to its mobile payments system, people familiar with the case have said.

What is Big Tech’s response?

The world’s biggest companies are expected to put up a fight in the EU courts in Luxembourg for years to come, delaying the impact of Brussels’ enforcement efforts.

The tech industry will try to advance the narrative that regulation kills innovation. For instance, Apple said last week that it was delaying the launch of artificial intelligence features on its iPhones in Europe, blaming the uncertainty caused by the DMA over how it could combine its various services.

Who else is in Brussels’ firing line?

The EU’s cases against Microsoft and Apple are the latest in a series of running battles between the regulators and Big Tech. Several other investigations are in progress.

The EU has been probing Facebook’s parent Meta over how it may be undermining rivals in classified advertising. It has also accused Google of abusing its power in the advertising tech sector. These actions both fall under traditional antitrust rules.

Separately, Brussels is also using the powers it gained with the new digital rules in a range of potential cases.

It has opened proceedings against Alphabet over how it governs its own mobile app store. Concerns have also been expressed that Google is “self-preferencing” in search, by inserting its own services such as shopping results ahead of rivals’.

Meta, too, is being investigated under the DMA for its “pay or consent” model, which has given EU users the options of paying a subscription or agreeing to its data policy.

The cases show the EU is adopting whatever tool it can to prise open markets for tech start-ups, says a Brussels-based legal expert. “White cat, black cat, it doesn’t matter as long as it catches the mouse,” he said.

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