Summary

The European Commission has been aggressively investigating anti-competitive practices by big tech companies under the Digital Markets Act (DMA), the EU’s groundbreaking digital antitrust law.

This all lays the groundwork for something that can really hit companies, especially those with massive resources and legal teams: fines.

The DMA sets a high ceiling for these fines, up to 10% of the company’s annual global turnover. ‘guards’ first violations.

These are companies with a dominant or unique position in the market, offering core platform services such as search engines or app stores.

Regulators have set a high ceiling for possible fines under the DMA, effective from November 2022, but have not yet enforced them. The list of gatekeepers subject to such fines was announced in September 2023.

A similar landmark piece of content moderation legislation, the Digital Services Act, provides for fines of up to 6%, while the Artificial Intelligence Act sets the cap at 7%.

There have been no fines under the DMA so far. The latest tech antitrust fine is €1.84 billion for Apple’s treatment of music streaming providers since March.

The iPhone maker abused its dominant position through the App Store, driving users away from music streaming services, the Commission said in a penalty announced in March.

The company appealed against the fine to the Court of Justice of the EU, questioning his definition as a “guardian” and also stating that these so-called anti-steering regulations are abusive.

Still, the €1.84 billion fine is well below the maximum 10% of turnover allowed by the DMA and general antitrust laws. Apple’s revenue in 2023 was $383.3 billion (€354.1 billion), making it eligible for a potential fine of up to €35.1 billion.

It is the third-largest fine in the internet antitrust industry, following two imposed on Google: a €4.34 billion fine in 2018 for Google’s Android operating system and a €2.42 billion fine in 2017 for prioritizing Google shopping results in its search engine.

The two penalties for Google were calculated under the 2006 Directive on setting fines.

The Directive sets a maximum fine of 10% of a company’s annual turnover and provides guidelines on how to calculate fines.

The basic amount is calculated based on revenues generated by the infringing, in this case anti-competitive, conduct. The EU executive may decide to increase or decrease the amount based on ad hoc circumstances, such as cooperation with the investigation and how to deter other large global companies.

In the Google decisions, the Commission specified that the fines were calculated in each case on the basis of revenues generated from “search advertising services on Android devices” and “pricing comparison services”.

In the latest fines imposed on Apple, however, the Commission set the €1.8 billion figure as a “lump sum” that “was necessary in this case because a significant part of the harm caused by the infringement consists of non-pecuniary damage.” The revenue-based methodology of the 2006 directive cannot “appropriately” take into account such harm, the EU executive said.

In other words, the Commission used a degree of discretion in setting this number without providing much explanation as to how it was arrived at.

Apple doesn’t disclose specific numbers for its various services, such as the App Store, Apple Music, Apple Pay, and subscriptions. Overall, these business lines accounted for about a fifth of total revenue in 2023.

The services segment is recording new turnover records, approaching a quarter of total turnover by early 2024.

None of this means that the Commission should impose the maximum fines permitted under the DMA or antitrust policy. But it will be interesting to see what level of transparency the EU executive will provide for these multi-billion fines that strike at the heart of some of Big Tech’s business models.

One company that has faced the DMA’s firing squad is Meta, which was last week accused of violating the rules over its “pay or OK” model. Apple’s App Store has also been accused of violating the DMA while an investigation into its new developer contract terms continues.

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The views expressed are those of the author.

(Edited by Rajnish Singh)

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