Techonology

Meta and Apple violated the Digital Marketing Act, EU alleges

Apple has become the first tech giant to be formally charged by the European Commission for violating the Digital Markets Act. A preliminary decision was made on Monday, June 24, and could result in a hefty fine being imposed on the Cupertino firm. On July 1, the Commission ruled that a second organisation, Meta, failed to comply with the DMA.

According to Reuters, both Apple and Meta are priority cases, but regulators are still investigating whether Google’s parent company, Alphabet, gives disproportionate preference to Google Play and its own services in Google search results.

If an organisation is found to be in violation of the DMA, it can be fined up to 10% of its total worldwide turnover, or up to 20% for repeat offenders.

What is DMA?

The DMA, established in 2022, is a European Union regulation that aims to promote fairness and competition among digital products and services. It established obligations for certain influential tech firms, called “gatekeepers,” who must comply with it in their daily operations.

These include:

  • Providing users with access to data collected about them by Gatekeeper.
  • Tracking users outside of your platform.
  • Allowing third parties to interoperate within your platform.
  • Allowing users to uninstall any pre-installed software or apps.
  • Prioritization of services and products offered by third parties on Gatekeeper’s platform.

In September 2023, the European Commission labels Alphabet, Amazon, Apple, ByteDance, Meta, and Microsoft as gatekeepers or providers of certain “core platform services” such as Google Maps, the Apple App Store, and Amazon Marketplace.

Fines for non-compliance with the DMA can be up to 10% of a company’s total global turnover, rising to 20% in cases of repeated violations. In more serious cases, the Commission may order an organisation to sell all or part of its business or ban the organisation from receiving related services.

The DMA is effective from May 2023, but the deadline for gatekeepers to submit DMA compliance reports to the European Commission was March 7, 2024. A few weeks later, the Commission announced it was launching non-compliance investigations into Alphabet, Apple, and Meta.

Meta’s ‘pay or agree’ on Facebook and Instagram misses DMA’s target

On July 1, the European Commission ruled that Meta’s ‘pay or consent’ advertising model, in which users who subscribe to Instagram or Facebook can opt-out of targeted ads, is in violation of the DMA. The Commission said the ‘pay or consent’ model does not provide an equivalent service to paid advertising when users subscribe. Nor does the ‘pay or consent’ advertising model “allow users to freely exercise their right to consent to the combination of their personal data,” the Commission said.

What does the DMA ruling against Apple mean?

The Commission found that Apple has three sets of business rules that ultimately prevent iOS app developers from directing their users to third-party purchase options. This goes against the DMA, which states that developers should be able to direct their customers to purchase options outside of the App Store easily and free of charge.

Apple takes a 30% commission on the revenue from any in-app purchases, so when users make app-related payments on their phone browser, for example, it eats into its profits.

Margrethe Vestager, the executive vice president in charge of competition policy, said in a press release on June 24: “Our initial position is that Apple does not allow steering completely. Steering is important to ensure that app developers are less dependent on the gatekeeper’s App Store and that consumers are aware of better offers.”

As well as publishing these preliminary findings, the Commission has also launched a new investigation into Apple’s commercial terms for developers, which were drawn up in response to the DMA. These new terms act as a condition for offering iOS apps through any distribution channel other than the App Store, and include a so-called ‘core technology fee’. Principally, the Commission is looking at whether Apple still effectively restricts the distribution of apps through alternative channels by leaving open the option for developers to subscribe according to its old terms.

How has Apple violated the DMA?

The European Commission found that Apple violated the DMA in three main ways:

  1. None of its three business rules for app developers allow developers to independently direct their customers to purchase options outside of the app.
  2. Purchase options outside of the iOS app can only be conducted via “link-out,” where an in-app link directs the user to a web page to complete the transaction, which is highly restrictive.
  3. The fees charged by Apple for bringing new customers to developers by hosting their apps on the App Store far exceed what is needed to remunerate them.

Why has the European Commission launched a new investigation against Apple?

The European Commission wants to find out whether Apple’s new commercial terms for developers who want to host distribution channels for their iOS apps other than the App Store are so restrictive as to discourage them from doing so.

Specifically, it will examine whether the following aspects comply with the DMA:

  1. The new core technology fee, which will see developers pay €0.50 for the first app installs above one million.
  2. Downloading an alternative app store or app on an Apple device requires the user to take a number of steps, and there are information screens they are shown as part of the process.
  3. Eligibility requirements for developers were related to the ability to offer an alternative app store or distribute apps directly from the web on the iPhone.

How have Apple and Meta reacted to DMA?

Apple responded to the DMA requirements in January, saying that accessing third-party apps on Apple devices posed security risks, including “malware, fraud and scams, illegal and harmful content.” However, it made several changes, including to its pricing structure.

The maximum commission claimed by Apple on subscriptions and in-app purchases for apps listed on the App Store has been reduced from 30% to 17%, and the company takes no cut for apps that are distributed by third-party apps. However, it also added a controversial Core Technology Fee for developers of apps with more than one million installs each year; this costs €0.50 per first install over one million in the past 12 months.

Some developers, including the CEO of ‘Fortnite’ maker Epic Games, have argued that the introduction of the core technology fee means they will be charged more than before and called it a ‘rights’ for ‘Fortnite’. “A new devious example of malicious compliance.”

See: EU DMA compliance reporting deadline for ‘gatekeeper’ organisations has arrived

In response to this week’s announcement, Apple spokesperson Peter Ajemian told The Verge: “Over the past several months, Apple has made a number of changes to comply with the DMA in response to feedback we received from developers and the European Commission.

“All developers doing business in the EU on the App Store have the opportunity to use the capabilities we introduced, including the ability to direct app users to the web to complete a purchase at a very competitive rate. We will continue to listen to and engage with the European Commission, as we have done regularly.”

Meta spokesperson Matthew Pollard told The Verge that Meta’s “ad-free subscription follows the directives of Europe’s highest court and complies with the DMA.” This matches Meta’s statement in a blog post last year: “‘Ad-free subscription’ addresses the latest regulatory developments, guidance, and decisions shared by leading European regulators and jurisdictions in recent years.”

When will we know if Apple and Meta will be fined?

So far, the Commission has only made preliminary findings that Apple and Meta have breached the DMA. Apple and Meta have been notified, but still have the opportunity to respond or take action to address the concerns before a decision is made.

However, if these preliminary findings are confirmed and Apple and Meta are found to be in violation of the DMA, a non-compliance decision will be adopted by March 25, 2025.

According to Reuters, a decision on a separate investigation focused on Apple’s web browser choice screen may take longer, which “could prevent users from properly accessing their services of choice within the Apple ecosystem.”

Note: Megan Krause contributed to this article to reflect the allegations against Meta.


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