EU’s Digital Markets Act Aimed to Stifle Large Technology Companies

The European Union has not been shy about introducing technology laws with the intent to protect the wellbeing of its citizens and prevent excessive costs from being passed onto consumers. In this respect, the Digital Markets Act is reminiscent of the General Data Protection Regulation (“GDPR”), which was groundbreaking at its time and set a standard for other countries when it came to data protection.

The Need for the Digital Markets Act

To date, the GDPR is still the most rigorous law regarding data privacy and stands as what some industry experts consider the gold standard. Thus, true to form, the European Union set precedent again by agreeing to pass what could be considered one of the most  important technology laws to date. Known as the Digital Markets Act, this legislation is poised to reshape the digital space as we know it by forbidding any one company from becoming too monopolistic in any venue.

Last year, the Authority for Consumers and Markets (“ACM”), a regulating body in the Netherlands published a decision that stated it had concluded that Apple had abused its market power, in the form of its exclusive app store, by requiring mobile apps to use its in-app payment system. Without any competitors on the iOS, Apple had been able to require mobile app companies to pay commissions that ranged from 15-30% on in-app purchases that were processed through it.

While the ACM decision was narrow in scope and investigated Apple’s practices only in relation to the Match.com and Tinder apps on the iOS, this practice has long been under scrutiny. The most visible complaint perhaps came from Epic Games, the maker of blockbuster hit Fortnite. Epic Games had complained that it had been required to use Apple’s payment system despite having had its own native payment system within Fortnite since its inception, which resulted in the 15-30% surcharge. While Apple agreed to abide by the ACM decision, it has been appealing the decision ever since.

The EU’s Digital Markets Act

The Digital Markets Act could change this in one fell swoop. In a nutshell, the Digital Markets Act forbids technology giants from using their market resources, brand recognition, and interwoven products and service offerings to block the entry of new players in technology markets. This would be a gamechanger and could significantly alter the technology landscape forever. For example, this would mean that it is required by European Union law to allow alternatives to the Google and Apple app stores. This also means that Amazon would be forbidden from collecting data from its outside sellers in order to offer competing products. And lastly, this would mean that Meta’s WhatsApp could be required to allow rival messaging apps to become compatible with its services. And these are just a few examples.

Objections Against the Digital Markets Act

The European Union has stated that the law could take effect as early as late 2022 and that repeated failure to comply could result in penalties as high as 20% of a company’s global revenue. It is important to note, however, that the Biden Administration, has already registered its complaints with the law, and many Silicon Valley headquarters have complained that the law unfairly targets American companies.

Key Takeaways on EU’s Digital Markets Act

The European Union has agreed to pass the Digital Markets Act, which is intended to:

• prevent technology companies from creating virtual monopolies in a market to dominate that space;

• fine companies as high as 20% of their global revenue if they repeatedly fail to comply with the law; and

• take effect later this year.

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