Context: EU internal market commissioner Thierry Breton contributed greatly to a high-profile victory for the Digital Markets Act (DMA). Apple backtracked quickly and allowed Epic Games to create an alternative iOS app store in the EU (March 8, 2024 games fray article). But it takes a lot more to open up mobile app distribution markets: even the Epic Games Store for iOS will be subject to rules that limit its potential essentially to apps that Apple wouldn’t be prepared to carry in its own App Store. Yesterday, the EU Commission announced investigations of different types of gatekeeper conduct, with the emphasis on Apple’s and Google’s anti-steering rules (March 25, 2024 games fray article).
What’s new: This is a follow-up to yesterday’s article, with a focus on what Mr. Breton hopes to achieve and whether his consistently fine-focused messaging, which contrasts with Executive Vice President Margrethe Vestager’s strict emphasis on compliance, helps the cause of opening mobile app distribution markets. Apple’s and Google’s allies suggest the European Commission rushed into investigations, but the course of action is reasonable and the actual concern is whether (and if so, when) it will make a major difference in the marketplace.
Direct impact & wider ramifications: There can be no doubt about the EC’s commitment to fair and contestable digital markets. Neither the public statements nor the actions taken raise any serious questions about that. However, it’s already certain that the terms of both commissioners will end without any significant changes in the marketplace. The DMA’s shortcomings and resource constraints in enforcement greatly reduce the likelihood of success. Bravado will not be a substitute for tangible results.
With respect to Epic’s iOS store, Mr. Breton’s unprecedented attack on Apple’s alleged silencing of critics was forceful. Apple’s behavior warranted that accusation, though Apple presumably just wanted to deny Epic an account rather than obtain a gag order in exchange for access to the EU market. Prior to Mr. Breton, Mrs. Vestager had already made it clear that mobile app stores were going to be an enforcement priority. That message was also a very good one, but it really took Mr. Breton’s more political style (essentially raising a question of democracy and human rights) that brought the desired result, amazingly quickly.
There are obviously huge differences between the two, but Mr. Breton is, relatively speaking, the most Trumpian EU commissioner, at least as we speak, if not in history. “Trumpian” in terms of taking to X (Twitter) with more direct messages than others would dare to put out, and also in terms of advocating a strong Europe that vigorously defends its interests (his X profile says “Together, taking Europe forward”) just like Mr. Trump wants the United States to put America First.
One can’t describe Mrs. Vestager and Mr. Breton as a “good cop – bad cop” couple because they both seek to assert the EC’s authority, the difference being that Mrs. Vestager carefully limits her public statements to where she sees objective enforcement needs, while Mr. Breton also likes to threaten and has been described as very publicity-oriented.
The speeches the two delivered yesterday (PDF; Mrs. Vestager spoke first, then Mr. Breton delivered a part in French and finished in English) reflect that difference. Mrs. Vestager explained the idea behind the DMA, its implementation, some of the issues and why and how the Commission is tackling them. Mr. Breton’s speech emphasizes power: the DMA has forced the gatekeepers to make more concessions in 18 days than the previous legal framework in 10 years; no one can afford not to be in the 450-million people market that is the EU; and toward the end he notes that in the event of non-compliance, gatekeepers will face “heavy fines.”
He already said so on other occasions, going back to the year 2020, the start of the DMA legislative process (2020 article). He also made such a remark shortly before DMA Compliance Day (March 7) when it was already clear that (in particular) Apple was going to put rules in place that minimize the impact of the DMA.
Whom does Mr. Breton want to remind of the potential of heavy fines?
Apple and other gatekeepers know exactly that the DMA allows fines up to 10% of worldwide annual turnover (or 20% in the event of repeat violations), and even structural measures (breakups). They also know that any such fines are court-reviewable, and if a huge fine is nixed or massively reduced, it doesn’t reflect nicely on the EC. In full awareness of the overall framework, Apple designed its rules, and it still has room to make further concessions without losing much.
What Apple also knows is that within the Commission, Mr. Breton is always going to be a champion of the cause. He’s going to advocate hefty fines, and that means more than one or two billion euros. But he’s not the ultimate decision maker. The DMA is at the intersection of Mrs. Vestager’s and Mr. Breton’s remits, but Mrs. Vestager is the enforcement chief. She can launch investigations, and there’s every indication that yesterday’s decision was one on which the two fully agreed. But when the EC gets to the point of an actual ruling (which involves non-compliance fines), all commissioners will have their say. They will consider the overall ramifications. That includes U.S.-EU relations. Even though U.S. enforcers are now tackling some of the same issues (March 24, 2024 games fray article), U.S. politicians are not going to take it lightly if the EU imposes, say, a 10- or 20-billlion euro fine on Apple. That effectively means an EU tax on a U.S. corporation.
For those reasons, Apple is not going to be shocked or frightened. And the more often Mr. Breton repeats the threat, the less they’re going to listen.
There are two other audiences. There’s the general public, which Mr. Breton wants to assure that the EU is strong and unrelenting. And there are other gatekeepers who may not be as tough as Apple (but they all know how it works).
How likely is it that Apple will make meaningful concessions in 2024?
Depending on how long it takes after this year’s EU elections, the term of the current Commission may end in late 2024, though more likely in early 2025.
Regardless of that consideration, let there be no doubt that both Mrs. Vestager and Mr. Breton definitely want to achieve compliance and positive market dynamics. But it is a factor that there is now a fast-closing window for any settlements that Apple can negotiate with them. For Apple, this means that they may want to first see who the successors are going to be. If they feel they can get a better deal from the outgoing Commission, they’ll go for that. But if they believe it’s going to be easier next year, they’ll try to delay. In order to get to the point where they’ll know, they have to delay this into at least the fourth quarter.
Apple may also be speculating that the outgoing commissioners want a solution (as a final win) just before the end of their term. That, too, would give Apple an incentive to delay things, and the EC’s announcement that the plan is to conclude the investigations during the standard 12-month window helps Apple.
That doesn’t mean they wouldn’t do an earlier deal if it works for them. For instance, the browser choice investigation looks like a candidate for an early settlement (previous games fray article), except that Apple might then have to fend off the next iOS browser investigation and it could tackle more important aspects.
Maybe Mr. Breton hopes that the Damocles sword of huge fines creates an incentive for Apple to consider early settlements. But that wouldn’t work here. Apple knows that the issues in the ongoing investigations (anti-steering and browser choice) are not the ones over which there could be any draconian fines. Multi-billion euro fines, maybe, but not the kind of fine that would have Apple’s shareholders concerned.
In order for a fine to be high, two requirements must be met:
- The allegations must be strong. Not only strong enough to survive an appeal but also strong enough that judges will feel the violation was reckless and lawless enough to warrant a huge fine. If a company may have interpreted the DMA too restrictively, but wasn’t being unreasonable (meaning that the case could have gone either way), a hefty fine won’t appear warranted.
- The issue must be economically significant.
The current investigations (anti-steering and browser choice screen) tackle issues of limited economic relevance. The issues are not as big as whether alternative app stores have a chance to succeed. And while Apple’s behavior, at least with respect to anti-steering, is more than aggressive and one can reasonably criticize Apple, the problem is that the law isn’t perfectly clear:
- The EC’s press release correctly notes: “Article 5(4) of the DMA requires gatekeepers to allow app developers to ‘steer’ consumers to offers outside the gatekeepers’ app stores, free of charge.” (emphasis added)
- But it omits that Recital 40 says (among other things): “An acquired end user is an end user who has already entered into a commercial relationship with the business user and, where applicable, the gatekeeper has been directly or indirectly remunerated by the business user for facilitating the initial acquisition of the end user by the business user.” (emphasis added)
The compensation Apple wants is excessive. Google’s remuneration model also makes it very unattractive for app makers, but compared to Apple’s, it at least creates a theoretical opportunity for a return on investment.
But for the Commission to impose a heavy fine on Apple, it has to show that Apple’s terms were squarely outside the range of FRAND terms. During the course of the investigation, Apple will likely make some concessions. They might even do it repeatedly, just to dissuade the EC from entering a decision too quickly.
What communications strategy will work best for the EC in this enforcement context?
It was great that Mr. Breton built maximum pressure on Apple with a political argument concerning the Epic Games Store. It wasn’t bad to mention the risk of fines, but the more often he repeats that point, the less it helps. It may be perceived as a sign of desperation (caused by Apple’s unwillingness to make major concessions).
It’s easy for the EC to get publicity for any announcement of a new investigation. But over time, there will be a greater interest in what is actually happening in the marketplace. What market share do alternative app stores and direct web installs have? If the DMA had worked as intended, there would already have been significant effects in 2024. A few more downloads of rival browsers (that nevertheless use Apple’s browser engine) are not a proof of concept. It’s really about alternative app stores more than anything else.
The EC has resource constraints, and that may be part of the reason why Mr. Breton would like to pressure Apple into some early settlements. This tweet by him shows that the enforcement team is not very large (given the size and importance of the task as well as Apple’s vast resources), and it now has a lot of issues to deal with:
The solution won’t come in the form of X posts (formerly called “tweets”).
The best approach is to focus on the facts, to listen to complainants, to develop workable solutions (also taking into account the limitations of the legislation to be enforced), and to deliver results. If the Commission can say at some point that a very significant percentage of all iOS app downloads in the EU come from alternative app stores and directly from the web (“sideloading”), that will be the best news.
The fines will just be appealed, and to the extent they’re upheld, they’ll be viewed as a cost of doing business.