The EU girds its loins for Big Tech’s attack on the Digital Markets Act

19 August 2022 (Washington, DC) – As we detailed in our briefing note to our TMT client base, in their zeal to curb Big Tech through the Digital Markets Act (DMA), European legislators have risked the privacy and security of all Europeans in such obvious, foretold ways. And just from a legal point of view, the text constitutes a break with the construction of European Union law and in many respects will, just like the General Data Protection Regulation (GDPR), create yet another precedent undermining the principle of legal certainty.

And from an economic point of view, the Act has thrown out the robustness of having defined, targeted problems … and shows absolutely zero understanding of the business models of the concerned actors, and the consequences that they could have for innovation within the European single market. As we noted, the Act has numerous embedded flaws because of the haste (ineptitude?) of the drafters. Big Tech will pounce. Members will pounce. Everybody will pounce. 

And so they have.

Big Tech operatives are surfacing all the flaws and Europe’s regulators are preparing for legal challenges to the landmark legislation. Meanwhile, EU member states have become increasingly concerned over how the new rules will be enforced and are taking positions against the DMA.

Ah, it was just last year when EU politicians (and many others) hailed the passing of the DMA, a law that comes into force next year and was expected to set “the global standard” for how large online platforms such as Amazon, Facebook and Google Facebook must operate. Alas, a series of doubts have emerged full force as EU officials and Big Tech executives who have been scrutinising the legislation in detail and one major EU regulator opined “just what in hell have we passed!!??

The concerns include:

•   Big Tech groups announcements to seek to undermine the provisions through litigation

•   EU member states now deciding to seek the spotlight with their national cases outside the remit of the DMA

•  The European Commission finally figuring out it has not hired enough staff to meet the enormous task of enforcing the laws

Gerard de Graaf, the senior EU official who next month will become the head of the EU bloc’s new office in Silicon Valley, is among those who knows there will be legal fights over the DMA. In an interview on EURO News this week he said:

“There will be litigation from Big Tech. No doubt. We are prepared for litigation but we would like a constructive discussion with the platforms rather than an adversarial discussion”.

Well, Gerard, nice try but Big Tech’s discontent with the DMA will spill into the courts. Amazon already said last month it would engage “constructively” with Brussels … but given the serious concerns that the DMA “unfairly targets Amazon and a few other US companies” it might be better to just fight it out in court.

Amazon also said last month that it disagreed with a decision by Germany’s Federal Cartel Office to designate it as a powerful online platform, a denomination that comes with extra legal burdens in Germany, similar to the DMA. The company is formally appealing against the decision. An executive at Google said “yes, we are focused on finding solutions over the DMA, looking to make positive changes, and litigation should be our last resort. But ….”

Besides legal action, the EU is also facing resistance from within the bloc itself. Many member states want a more prominent role in going after Big Tech by opening formal probes … and they want to be the ones collecting hefty fines. That desire has led to tensions over how much power Brussels will have compared with national competition authorities to scrutinise the dominance of conglomerates such as Google parent Alphabet and Facebook owner Meta.

This is an important point. Under the DMA, the European Commission has centralised powers as the “sole authority empowered” to enforce the regulation and to decide when to open antitrust investigations and against which companies. Even when member states decide to look into breaches at a national level, these investigations need to be handed over to Brussels. In theory, EU countries cannot open their own probes without the blessing of the EU’s chief competition commissioner Margrethe Vestager.

BUT … how involved national regulators should be in tackling Big Tech is the source of “differences of opinions” between the commission and European capitals, according to senior EU officials and regulators. We are seeing a land grab of cases as member states seek the limelight. The DMA leaves no gap for member states to enforce their own rules and the window of opportunity for them to do is closing.

So Germany enacted its own version of the DMA in 2021. The head of the country’s competition watchdog pointed to the advantage that its country’s law is already in place. As one representative said:

“It’s way too early to say that once the DMA is in place we cannot pursue these cases against tech companies anymore.  We will see lots of conducts that are not caught by the DMA”.

Meanwhile, the head of the Dutch competition authority said his agency was going to follow Germany and set up a procedure to tackle illicit behaviour by Big Tech … and they started by opening a case against Apple over the lack of alternative payment methods for users on its platforms. He said the move to centralise enforcement of the DMA in Brussels was a “political decision and that’s OK” … but warned that could mean Holland had little incentive to work with the commission on tech cases:

“I am not sure how many investigations we will actually launch and I’m not sure it will be an efficient allocation of resources. But it will incentivise the national competition authorities to focus on the non-DMA matters — or against companies not considered gatekeepers under the DMA but who have a dominant position”.

NOTE: to qualify as a “gatekeeper”, a company will also have to have at least 45mn monthly active users or at least 10,000 yearly business users. Google, Amazon, Facebook, Apple and Microsoft all meet this standard, but also other groups such as accommodation site Booking.com and ecommerce group Alibaba.

The other problem: the DMA is expected to result in a torrent of extra cases that will increase the need for qualified staff of enforcement officials to fend off the well-resourced legal teams of Big Tech companies. During the DMA debate at the European parliament members said “Brussels’ ambitions are not matched by sufficient resources”. An independent analyst testified the EU Commission needed to hire 300+ extra staff to deal with the DMA. Otherwise “the fulfilment of Commission objectives will be seriously jeopardised”. The EU Commission budget only shows an expected extra hiring of  80. 

POSTSCRIPT

It will be interesting to see how much teeth this legislation really has when it gets down to litigation. But my guess is there is a good chance this will become a huge s***show. Just like the GDPR. The EU really has a terrible track history of compromises in its legislation. But this should be no surprise. There is no “digital single market” which the EU Commission loves to spiel. The European Union is actually 27 different states, with 27 different tax jurisdictions, 27 different laws and regulations, 27 different regulators, 27 different parliaments.

But the foundational problem here is that the EU has completely lacked any serious industrial policy for decades, and now is reduced to regulating exclusively foreign big players. When EU rule-making, as DMA demonstrates, it only applies in effect to foreign firms, and this is just covert protectionism. The EU will be continuously attacked by firms and other nations for this behaviour and its influence will only diminish.