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EU’s Digital Markets Act will allow app-makers to circumvent Apple and Google’s payment systems

By | Published on Monday 28 March 2022

European Union

Negotiators for the European Parliament and EU Council last week provisionally agreed a final wording of the European Union’s Digital Markets Act – or DMA – which, among other things, should result in app-makers being able to use alternative systems for in-app payments on iOS and Android devices.

The DMA is a major piece of EU legislation that sits alongside the Digital Services Act. The latter is about increasing the responsibilities of digital companies when it comes to the sale and distribution of harmful content and services on their platforms, while the former is more about stopping the largest internet businesses from unfairly exploiting their market dominance.

The European Commission published its first draft of the DMA in December 2020. It was then scrutinised, debated and amended by both the European Parliament and the EU Council, the latter involving relevant ministers from each EU member state.

In the final stage all three EU institutions – Commission, Parliament and Council – come together to seek agreement on a final text, which is what happened last week. Though final approval from both Parliament and Council is still required before this all becomes law.

By definition, the DMA exists to regulate the biggest digital platforms, most of which are American, although the final definition of what platforms are covered by the new rules – what the act calls ‘gatekeepers’ – means that some non-US companies will be subject to new regulation as well.

To be covered by the act a digital business must have an EU turnover in excess of 7.5 billion euros or a market valuation in excess of 75 billion euros, plus at least 45 million monthly users and at least 10,000 business users within the EU.

The Council published a bullet point list of the key new rules contained in the act. Gatekeeper platforms will have to “ensure that users have the right to unsubscribe from core platform services under similar conditions to subscription; for the the most important software (eg web browsers), not require this software by default upon installation of the operating system; and ensure the interoperability of their instant messaging services’ basic functionalities”.

The latter was pushed for by the Parliament and means users of WhatsApp would be able to send messages to users on smaller rival messaging apps.

Affected platforms will also have to ensure that app developers have “fair access to the supplementary functionalities of smartphones (eg NFC chip); give sellers access to their marketing or advertising performance data on the platform; and inform the European Commission of their acquisitions and mergers”.

Meanwhile, in terms of the don’ts under the new rules, gatekeeper platforms will no longer be able to “rank their own products or services higher than those of others; reuse private data collected during a service for the purposes of another service; establish unfair conditions for business users; pre-install certain software applications; or require app developers to use certain services (eg payment systems or identity providers) in order to be listed in app stores”.

The latter is particularly important for the music industry, of course, given Spotify et al have long complained that Apple and Google force app-makers to use their proprietary commission charging transaction systems for in-app payments.

And it’s not just the big streaming services affected by those app store rules. With the direct-to-fan side of each artist’s business becoming increasingly about selling fans premium digital content and experiences, the fact doing so via an app requires paying a 30% commission to Apple or Google is becoming ever more problematic for the music industry.

The DMA also provides tough sanctions for any companies that break the new rules, with fines of up to 10% of annual worldwide turnover – or even 20% for repeat infringements – which would equate to billions of dollars for the big US tech firms.

Commenting on the text published last week, MEP Andreas Schwab – from the European Parliament’s Internal Market And Consumer Protection Committee – said: “The agreement ushers in a new era of tech regulation worldwide. The DMA puts an end to the ever-increasing dominance of big tech companies. From now on, they must show that they also allow for fair competition on the internet. The new rules will help enforce that basic principle. Europe is thus ensuring more competition, more innovation and more choice for users”.

Meanwhile, France’s digital minister Cédric O added: “The European Union has had to impose record fines over the past ten years for certain harmful business practices by very large digital players. The DMA will directly ban these practices and create a fairer and more competitive economic space for new players and European businesses”.

“These rules are key to stimulating and unlocking digital markets”, he went on, “enhancing consumer choice, enabling better value sharing in the digital economy and boosting innovation. The European Union is the first to take such decisive action in this regard and I hope that others will join us soon”.

Perhaps unsurprisingly, the big tech firms aren’t impressed with the final version of the DMA, which arguably goes further in some domains than said companies expected, or at least hoped.

Apple said it was concerned the new rules “will create unnecessary privacy and security vulnerabilities for our users” and “prohibit us from charging for intellectual property in which we invest a great deal”.

Meanwhile, Google told reporters: “While we support many of the DMA’s ambitions around consumer choice and interoperability, we remain concerned that some of the rules could reduce innovation and the choice available to Europeans”.