The story so far: In a comprehensive slew of measures to ensure “contestable and fair markets in the digital sector” in line with the provisions of the Digital Markets Act (DMA), the European Commission on March 25 initiated ‘non-compliance investigations’ against Apple, Meta and Google’s parent Alphabet. It will also investigate Amazon’s ranking practices on its marketplace.

The Commission reportedly intends to conclude the investigation in 12 months.  

Where is the context of these non-compliance investigations?  

The non-compliance investigations concern Alphabet’s alleged rules on steering or directing its customers to its in-house services over those of its competitors in Google Play, and self-preferencing on Google Search. Apple will be investigated for allegedly similar practices in its App Store, as well as the way it positions its Safari browser. Lastly, Meta will be investigated for its “pay or consent model” — a subscription service that lets a user get rid of personalised advertising.  

The investigations fall in with the primary objective of the DMA to better regulate ‘gatekeepers’ and ensure fairer competitive practices in the digital market space. The idea is to mitigate paradigms that may create a “bottleneck” in the digital economy and fairness in competition and consumer access. For clarity, the Act designates companies with dominance in any of the ‘core platform services,’ such as app stores, online search engines, social networking services, web browsers and operating systems, among other things, as ‘gatekeepers’.  

The Digital Markets Act came into force on November 1, 2022. Alphabet, Amazon, Apple, TikTok’s parent company ByteDance, and Microsoft were designated as ‘gatekeepers’ in September 2023. They were expected to fully comply with obligations under the DMA by March 7 this year. 

The Commission assessed the mandatory compliance reports submitted by these companies setting out compliance measures, and gathered feedback from stakeholders, including in the context of workshops, before launching the investigation.

“We have been in discussions with gatekeepers for months to help them adapt, and we can already see changes happening in the market,” Margrethe Vestager, Executive Vice-President of the European Commission in charge of competition policy, said in a press statement, adding, “But we are not convinced that the solutions by Alphabet, Apple and Meta respect their obligations for a fairer and more open digital space for European citizens and businesses”.

How are the steering rules non-compliant?  

DMA provisions stipulate that app developers be allowed to steer consumers to offers (and services) outside the gatekeeper’s app store, free of charge. This would eliminate exclusivity and dependence on a particular mode of payment, or enable access to an online game with an outside gaming account, among other such services.  

The Commission aired its concerns about Alphabet and Apple not being fully compliant “as they impose various restrictions and limitations.” It stated, “These constrain, among other things, developers’ ability to freely communicate and promote offers and directly conclude contracts, including by various charges.”  

Apple has maintained that the tight integration associated with its App Store is essential to provide a “uniquely secure and seamless user experience.” In their initial comments in January 2020, the iPhone maker said that the DMA is “too blunt a tool.”  

“It equates size with harm, and then imposes a one-list-fits-all set of regulatory obligations without providing an opportunity for the platform to explain, and the regulator to assess, whether – on balance – there are broader benefits to consumers or businesses,” Apple said. 

In a blog published this January, Spotify, however, had the following to say: “For years, even in our own app, Apple had these rules where we couldn’t tell you about offers, how much something costs, or even where to buy it.” It added that with the DMA, it would be able to share details about Spotify promotions, deals and better-value payment options with consumers in the EU.  

Additionally, Spotify said this would come without the “burden” of the mandatory 30% tax imposed by Apple on in-app purchases. 

Back home, the Competition Commission of India (CCI) on March 15 ordered a detailed probe against Google for alleged discriminatory practices on its Play Store pricing policy after having discovered a prima facie violation of competition law. The petitioners had argued that Google’s updated payment policies for their proprietary app store was “impacting several stakeholders, including app developers, payments processors and users alike.”  

What about Alphabet engaging in self-preferencing?  

The Commission wants to determine whether Google search results are discriminatory; in other words, whether the search giant engages in self-preferencing for its verticals (such as Google Shopping, Google Flights, and Google Hotels) over rival services. It has stated that Alphabet’s measures to comply with the DMA may not have ensured that third-party services featuring on Google’s search results page are treated in a “fair and non-discriminatory manner” in comparison to their own services.

Alphabet has found itself responding to similar allegations in the past as well. In October 2020, the U.S. Department of Justice (DoJ) accused Google of “unlawfully maintaining monopolies through anti-competitive and exclusionary practices in the search and search advertising markets” and directed it “to remedy the competitive harms.” According to the DoJ, the conduct harmed consumers by reducing the quality of their search (including on dimensions such as privacy, data, protection and user of consumer data), lowering choices, and impeding innovation. The case is ongoing.

Amazon too is facing heat for similarly tailoring the listings on its marketplace.  

What are the concerns about user choice obligations?  

Ecosystem captivity is the main concern. The Commission is looking to assess if Apple enables users to easily uninstall any pre-installed or presently default software applications on iOS, change default settings, and if it prompts users with choice screens that allow them to effectively and easily select alternatives to the default service, such as a browser or search engine on their iPhones. 

The investigation emanates from the Commission’s concern that Apple’s measures, including the design of the web browser choice screen, may be preventing users from “truly exercising their choice of services with the Apple ecosystem.” In other words, concerns over ecosystem captivity.  

As providers of both app storefronts and browsers, Google and Apple’s ‘walled garden’ ecosystems have also been hit with lawsuits across the Atlantic. 

What are the concerns about Meta’s “pay or consent model”? 

To align with the DMA provisions, Meta in December last year introduced a subscription model that offered people in countries of the EU, European Economic Area (EEA), and Switzerland the choice to use Facebook and Instagram without any ads. Alternatively, they could continue using these services for free while seeing ads relevant to them; in other words, consenting to personalised advertising.    

Meta had argued that the subscription for no ads was the “best compliance solution.” According to them, this was a solution to comply with a “unique combination of connected and sometimes overlapping EU regulatory obligations with differing compliance deadlines.” It added that the option offered its users a “clear choice.”

The model, however, did not convince the Commission. It held that the model’s “binary choice” may not provide “a real alternative in case users do not consent, thereby not attaining the objective of preventing the accumulation of personal data by gatekeepers.”    

How will non-compliant companies be penalised? 

The companies face the prospect of being fined up to 10% of their global turnover or 20% in case of repeated infringement(s). Additionally, should the investigation come across any “systematic infringement,” the companies may be asked to sell a business or parts of it. A ban from acquiring additional services related to the systemic non-compliance could also be possible.

What were the reactions to the European Commission investigation? 

The announcement of the investigation has evidently not enthused participants or stakeholders in the ecosystem. Concerns continue to exist if overlapping prerogatives across the aisle can be addressed.  

Daniel Friedlander, Senior Vice President and Head of the Computer & Communications Industry Association (CCIA Europe), stated, “Last week’s DMA workshops highlighted many areas of uncertainty linked to DMA implementation, where different sectors and groups of access seekers expressed diametrically opposed requests that won’t be easily solved.” According to him, with many risks and opportunities still being reviewed, launching an investigation appears “premature.”  

An Amazon spokesperson told Reuters that the company was compliant with the DMA and has engaged constructively with the Commission on their plans since the designation of two of their services. “We continue to work hard every day to meet all of our customers’ high standards within Europe’s changing regulatory environment,” the spokesperson said.   

A five-year truce between rivals Alphabet Inc. and Microsoft Corp. came crashing down in 2020 when the tech giants found themselves at odds over their competing web-search businesses, according to testimony at the US government’s antitrust trial against Google.

After a decade of fights, the companies forged a non-aggression pact in 2016, wanting a fresh start to their acrimonious relationship. But three years ago, the situation began to fray, Jonathan Tinter, a Microsoft vice president of business development, testified Thursday in Washington.

Alphabet insisted that Microsoft place a Google search widget on the main screen of its Surface Duo touchscreen smartphone device in order to license the Android operating system, rejecting the software company’s request to use its own search engine, Bing, said Tinter, who negotiated the deal in the spring and summer of 2020.

Google also prohibited Microsoft from instructing users how to switch the default search engine to Bing, he said.

“Ultimately, for the Duo to be successful we needed the license from Google,” he said. “We wanted the search entry points to be Bing. They wanted the search entry points to be Google.”

Tinter is one of several Microsoft executives to testify as part of the Justice Department’s antitrust lawsuit against Google. Microsoft Chief Executive Officer Satya Nadella is expected to take the stand next week. The government alleges Google has monopolized the online search market through contracts where it paid billions to Apple Inc. and smartphone makers to make its search engine the default on browsers and mobile devices. Google has said consumers like its search engine and it’s easy to switch.

Microsoft and Google eventually reached a “compromise” on Duo for both search engines to appear on the device, Tinter said. A search widget, the Chrome browser and the Google Search app would all be on the phone and use Google, while Microsoft’s Edge, the device’s default browser, would use Bing.

Microsoft began taking orders for the $1,400 dual-screen folding Duo in August 2020, marking the company’s return to the handset market following an ignominious retreat in 2016 after its acquisition of Nokia Oyj’s handset unit resulted in a costly writedown. While it had some fans, the Duo fared poorly and within months Microsoft was already offering discounts on the product. Scarcely a year later it was selling for less than half the original sticker price.

While the release of the Duo appeared to represent a thaw between the tech rivals, behind the scenes, the relationship was less friendly, Tinter said. Tinter said he personally advocated for “strategic cooperation” with Google, citing the success of Microsoft’s Office products on the Android platform.

“There was a debate about how much we should work with Google or not,” he said. “The Bing ads team was arguing we should not.”

The companies’ agreement on ending hostilities set out a formal, escalating process for handling disputes that might previously have gone directly to regulators. In March 2020, Microsoft formally complained to Google that its Search Ads 360, which lets marketers manage advertising campaigns across multiple search engines, wasn’t keeping up with new features and ad types in Bing.

The dispute triggered talks between the companies’ top lawyers – Microsoft’s Brad Smith and Google’s Kent Walker. Tinter was also involved, he said, discussing the issues with Google’s Don Harrison, president of global partnerships and corporate development.

Tinter said that in response to Microsoft’s escalation, Google officially complained about a problem with the terms of Microsoft’s cloud program that barred participation of the Google Drive products – rival productivity software for word processing, email and spreadsheets.

In response to questions by the Justice Department, Tinter said Microsoft had informally agreed to pay for Google to make the changes to SA360.

“It was half a negotiating strategy,” Tinter said. Harrison “said, ‘This is too expensive.’ I said, ‘Great let me pay for it.'”

The two companies eventually negotiated a resolution about cloud, but couldn’t resolve the problems with the search advertising tool, he said. As a result, nothing was ever signed on either issue, Tinter said.

“We ultimately walked away and did not reach an agreement,” he said.

Microsoft and Google also let their peace deal expire in 2021.

The key allegation against Google is that its “arrangements” with Apple and other companies to be the default search engine on their devices, is unlawful monopoly building. File
| Photo Credit: AP

The story so far: On September 12, Justice Amit Mehta of the U.S. District Court for the District of Columbia started hearing what is being described as the most important case about the future of the Internet. Over the course of the next 10 weeks, Justice Mehta will hear arguments of the U.S. Department of Justice (DoJ) and several U.S. States to the effect that Google used illegal tactics to maintain a monopoly in online search. Several top officials from Google, including CEO Sundar Pichai, are expected to be called in as witnesses. If the allegations against the $1.7 trillion Silicon Valley giant are upheld, Justice Mehta will begin a separate trial to decide on the action that needs to be taken. Other mega Internet companies such as Amazon and Meta are keenly watching the trial, as it will have major implications on how their own ‘anti-trust’ issues are dealt with.

What is the charge against Google?

The key allegation against Google is that its “arrangements” with Apple and other companies to be the default search engine on their devices, is unlawful monopoly building. The DoJ filed the charges on October 20, 2020, arguing that Google throttled competition from other search engines and caused harm to consumers, making it a prime anti-trust — targeting monopolies — case. “Two decades ago, Google became the darling of Silicon Valley as a scrappy start-up with an innovative way to search the emerging internet. That Google is long gone,” the DoJ had said in its initial filing.

Since the extent of harm that has been caused to consumers is the key deciding factor in anti-trust cases, the DoJ is expected to show how the default search position for Google on various devices limited options available to consumers. Focus may also fall on how a lot of the real estate on Google’s search result pages is often taken up by the company’s own non-search services — such as user reviews — at the cost of rival services. Google’s default position also creates a ‘feedback loop’ in which consumers are regularly giving the search engine their personal preferences, allowing Google to fine-tune its algorithm and deliver better search results and advertisements. “Google’s contracts ensure that rivals cannot match the search quality ad monetisation, especially on phones,” Kenneth Dintzer, the main lawyer for the DoJ in this case told the Associated Press. “Through this feedback loop, this wheel has been turning for more than 12 years. It always turns to Google’s advantage.”

However, Google argues that the reason it controls 91% of the global search market is that it provides better quality of services, rather than a lack of competition. Google says that consumers can always choose to change the default option, and that any deals it has with device manufacturers like Apple are above board.

Is there a deal between Apple and Google?

While both Apple and Google have been secretive about their cooperation, several reports indicate that such a deal was renewed in 2017. According to The New York Times, while Google paid Apple to the tune of $1 billion in 2014, the latter now receives between $8 billion and $12 billion, amounting to 9% of its annual gross profits. Google’s willingness to pay such a huge amount is driven by the fact that 75% of its search revenue comes from iPhone and iPad users. It is also a precautionary measure as it holds back the creation of a rival search engine by Apple, one of the few companies that have the wherewithal to take on Google.

Google also understands a key lesson from behavioural economics — most people will not bother to change the default options made available to them.

Why is there a ‘techlash’ on anti-trust issues?

Google is no stranger to anti-trust cases, though not in the U.S. In 2017, it was fined $2.7 billion by the European Union for showing undue preference for its own services in search results. The EU has imposed a total fine of 8.25 billion euros on Google over three anti-trust investigations. The EU has also trained its anti-trust guns on other U.S. online giants such as Meta and Amazon.

On the other hand, the U.S. has been slow to act against homegrown behemoths, who also spend considerable amounts of money and effort on political lobbying. However, a massive ‘techlash’ has been building up in the U.S. in recent years with calls from both sides of the political aisle to restrict the influence that these companies can exert on aspects ranging from teenage mental health to personal privacy and the success of small businesses.

The current case against Google has the potential to redefine how anti-trust laws are wielded in the technology era against new business models. A key test of consumer harm under anti-trust law is the amount of monetary loss that has been sustained by consumers due to the monopolistic behaviour of companies. However, Google offers its search services for free. It remains to be seen how the DoJ, which has another anti-trust case in the pipeline against Google over its dominance in online advertising, will prove its point on consumer harm in this case.

Why are anti-trust cases important?

Anti-trust cases have the potential to completely revamp a sector of the economy. Such cases in the U.S. also have far reaching impact across the globe. The last major anti-trust case was over two decades ago, when the U.S. government took on the Bill Gates-led Microsoft that had near-total monopoly over the operating systems running personal computers.

Also read |Google fails to end $5 billion consumer privacy lawsuit

In 1995, the Internet revolution was taking off with the Netscape browser being the key software for accessing the World Wide Web. Microsoft tried to squeeze out Netscape by bundling its Internet Explorer web browser for free with its Windows OS. The government took Microsoft to court in 1998, and in 2001 arrived at a deal that made Microsoft keep a more open Windows environment. Critics of this case say that it did not do much to shake Microsoft’s monopoly; Netscape lost its market leadership and eventually morphed into the Firefox browser from Mozilla Foundation. Others, however, say that the open environment that the deal ensured saw to it that Microsoft did not crush the smaller technology companies that were developing products around the Internet, including one that was formed in 1998 in a garage in Menlo Park, California — Google.