Immediate and Long-Term Effects of the European Union’s new Digital Markets Act

On March 24 the European Union agreed to implement the new Digital Markets Act. The act itself appears to be crafted in an attempt to address growing concern regarding the power of the world’s largest technology companies, who the act refers to as the “gatekeepers” of the industry. The new law aims to encourage competition and innovation among new and emerging companies by limiting the gatekeepers’ ability to box in users through their interlocking services. By doing this, the Digital Markets Act hopes to create room for new entrants into the technology sector and foster more fairness and competition.

There has already been great speculation as to what the effects of this sweeping regulation may be. While the Digital Markets Act itself obviously applies only in Europe, it is not surprising that many expect that the ideas implemented in the DMA can and will eventually be adopted into laws across the world. This is because the DMA is the first act of its kind and creates an expectation for similar legislation in other jurisdictions. This pattern has been followed on numerous occasions. For example, regulatory sandboxes for innovative financial technology offerings were first implemented in the United Kingdom. Nearly identical regulatory sandboxes have since been implemented across jurisdictions in the United States and abroad. It is also possible that the changes will spread because the tech companies themselves will choose to adopt the changes necessary for European compliance more broadly. One policy director quoted in a recent CNN article stated, “[w]e often see that it’s easier for companies to implement a change globally than to do it in one jurisdiction.” The initial changes are due to take effect across Europe later this year.

If these changes are destined to make their debut around the world in the near future, what types of changes can we expect? The practical effects of the DMA could involve things such as users of Apple products being able to install and use apps available outside of the Apple “App Store.” Consumers will then have more and better services to choose from and direct access to more services. This could, in turn, have a great effect on young startups in the app space. If, for example, 1 percent of Apple users switched their business from the Appstore to a up and coming competitor, that 1 percent could have a huge effect for the competing company, even if losing that one percent would not cause significant fiscal harm to Apple.

While we cannot be sure how soon or to what extent the changes implemented in Europe will be adopted in the United States and other jurisdictions, we can be sure that the DMA will change how these technology powerhouses operate.

The DMA also would require companies like Google to receive their users’ consent before being able to collect data from different services to offer targeted ads. This change could then affect what users see when they enter searches into an engine like Google. Under the act, gatekeeper search engines would no longer be allowed to rank products and services to which they have monetary ties more favorably than those of competing providers, allowing competition in a more fair and nondiscriminatory way. This could mean that Google would not be able to give preferential placement to their own travel listings or restaurant reviews. Other significant changes involve the restriction on default services. For example, a gatekeeper like Apple that has its own web browser (Safari) would not be allowed to set their browser as the automatic default on their devices. So, according to Agustin Reyna (Senior Legal Officer at European Consumer Organisation), when a consumer buys their new iPhone, they would see a popup window that would say something like, “would you like to install a different browser or search engine?” While many may still select safari, a small amount might just give the little guy a try. This will allow for these startup companies to get their foot in the door and bring more innovation and fairness to the industries.

The technology industry’s gatekeepers, through the power of their reputation and resources they have acquired, have maintained a stranglehold on the technology industry. This domination has suffocated growth for the industry as a whole by limiting competition. When competition is limited, so is quality and innovation. These changes, though not massive in size, will surely end up being grand in effect. Sure, it is likely that the majority of consumers will continue to use the gatekeepers’ services in the same ways we always have. But a small amount of us will also adopt the new innovations of the up-and-comers. This will foster a competitive environment that will allow the industry to grow and become better and more innovative than ever. While we cannot be sure how soon or to what extent the changes implemented in Europe will be adopted in the United States and other jurisdictions, we can be sure that the DMA will change how these technology powerhouses operate.

Tyler L. Bennett

Tyler attended Utah Valley University for college and majored in Business Management. In law school, he has been a member of the Transactional and Corporate Law Association and has taken interest in corporate transactions. See the author’s previous blog post here.