(Bloomberg) -- For years, the world’s biggest technology companies were largely able to resist government oversight. That’s changing fast.
The US Department of Justice and 16 attorneys general have sued Apple Inc., accusing the iPhone maker of violating antitrust laws by blocking rivals from accessing hardware and software features on its popular devices. In Europe, regulators who suspect Apple, Alphabet Inc.’s Google and Meta Platforms Inc. of failing to comply with new laws limiting their dominance of the digital economy have begun investigations that could pave the way for hefty penalties. Meanwhile, Meta’s Facebook, Alphabet’s YouTube and Amazon.com Inc. have been scrambling to comply with tougher European Union rules governing digital marketplaces and the policing of social media content.
The EU regulations have already changed the way consumers use their iPhones and other gadgets. A successful DOJ suit could make it easier for consumers to use rival products on Apple’s devices in its home country and largest market.
The EU’s twin-track approach
The EU has put in place two separate laws: the Digital Markets Act and the Digital Services Act, both better known by their initials, DMA and DSA.
The DMA took hold on March 7, hitting big tech firms with a broad list of dos and don’ts based on decades of antitrust enforcement in the digital economy. The aim is to stop abusive conduct before its takes hold and allows the digital giants firms to dominate, and potentially abuse, markets.
The DSA became legally enforceable on Aug. 25, laying out content rules for social media platforms, online marketplaces and app stores. It forces their owners to clamp down on misinformation and objectionable content such as hate speech, terrorist propaganda and ads for unsafe toys.
The Digital Markets Act
Under the DMA, six tech giants — Alphabet, Amazon, Apple, TikTok owner ByteDance Ltd., Meta and Microsoft — now face a range of new prohibitions and obligations. For example, it’s illegal for their platforms to favor their own services over those of rivals. They’re barred from combining personal data across their different services, and prohibited from using data they collect from third-party merchants to compete against them.
Platforms that violate the DMA’s long list of rules risk fines of as much as 10% of their worldwide annual sales. This could rise to 20% in the event of repeat infringements and the EU’s executive branch, the European Commission, could even demand a company be broken up in the case of systemic violations. The commission can open proceedings against companies for non-compliance, prescribe specific compliance solutions and impose fines.
And the list of firms caught up in the rules could get longer. Booking Holdings Inc.’s accommodation platform has fallen under the scope of the rules since they kicked in, and Elon Musk’s X could also be hit.
The Digital Services Act
Under this legislation, national governments get more power to force the big tech companies to take down material that’s deemed illegal. It also obliges them to submit risk assessments to the European Commission that detail how they are mitigating the impact of harmful content. If it’s found they’re not doing enough, they may be told to alter the algorithms that decide what posts users see.
If they transgress, it could lead to fines running to 6% of their annual revenue. Additional powers to combat misinformation could be triggered during a crisis, such as a war or a pandemic. Ads aimed at children — a significant source of revenue for the companies that own Facebook and Google — have been banned.
Since the new rules took hold, EU regulators have launched a spate of investigations into potential non-compliance, targeting Meta’s Facebook and Instagram, TikTok and X. On July 12, the EU said it had found X was deceiving users into engaging with potentially harmful content. The bloc has also launched a probe into Chinese e-commerce giant AliExpress to examine compliance with the DSA.
The DOJ case against Apple
The suit, filed on March 21 in federal court in New Jersey, marked the culmination of a five-year probe into the tech giant.
The DOJ and the attorneys general allege that Apple has imposed software and hardware limitations on its iPhones and iPads that make it harder for rivals to compete and for consumers to switch phones. The complaint highlights five examples of technologies in which it says Apple suppresses competition: super apps, cloud streaming game apps, messaging apps, smartwatches and digital wallets.
Apple has taken steps to address some of these issues. It recently added support for cloud-based gaming services and said it would add RCS cross-platform messaging later this year. The company said the lawsuit was “wrong on the facts and the law,” warned that it would “set a dangerous precedent, empowering government to take a heavy hand in designing people’s technology” and vowed to “vigorously defend against it.”
The background to the case
The Biden administration has made competition a cornerstone of its economic policy, with Silicon Valley a key focus.
The DOJ opened its antitrust probe of Apple in 2019, during Donald Trump’s presidency. A 2020 House investigation into four tech giants found that Apple operates as a monopoly in software distribution on the iPhone, generating massive profits from commissions of as much as 30% that it charges developers.
In 2020, Epic Games Inc., the maker of the popular online video game Fortnite, sued Apple over its App Store. A federal judge found the App Store policies didn’t violate federal antitrust law but did breach California state law.
As a result of that case, Apple said in January that it would allow US developers to use alternative payment systems, but charge a lower fee of 27% for most digital purchases or 12% on subscriptions. Epic is contesting those changes, saying they are inadequate. Microsoft Corp., Meta and X, formerly known as Twitter, have also criticized Apple’s proposed changes, saying the iPhone maker has imposed onerous limitations on links to alternate payment systems.
The latest case marks the third time the DOJ has sued Apple for antitrust violations in the past 14 years. In 2010, the company agreed to settle allegations that it illegally agreed not to poach employees from Google, Adobe Inc. or Walt Disney Co.’s Pixar.
Two years later, the DOJ sued Apple and book publishers for illegally fixing the price of e-books sold on the iPad. After the DOJ won at trial, Apple was forced to accept a monitor and adopt policies and training to improve its compliance with antitrust law.
The DOJ’s goals
If the latest lawsuit is successful, the DOJ could seek a variety of remedies for Apple’s conduct such as restrictions on contracts with third-party vendors or app makers. It could require the company to open up its devices to alternative app stores or other payment mechanisms. But it’s still too early to tell what specific remedies the department may seek.
The tech firms’ response
Apple has vowed to “vigorously defend against” the DOJ suit. In Europe, companies have been working to get in compliance with the new laws. Google announced on March 5 it would link more in search to comparison sites in areas such as flights, hotels and shopping in addition to providing more choice screens on Android devices. Meta previously pledged to allow Facebook and Instagram services to be unlinked, and Microsoft has said that some programs normally bundled with Windows will in the future be able to be uninstalled.
To comply with the DSA, Google said it’s disclosing more information about content moderation operations for services like Google Search. Meta said it’s ending targeting of ads for teenagers based on their app activity on Facebook and Instagram. Bytedance announced it would allow users to report illegal content and choose a feed that has not been personalized.
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