Apple has become the first tech giant to be formally charged by the European Commission for violating the Digital Markets Act. A preliminary ruling was made on Monday, June 24, and the Cupertino firm could be handed a hefty fine as a result. On July 1, the Commission ruled that a second organisation, Meta, failed to comply with the DMA.
According to Reuters, Apple and Meta are both priority cases, but regulators are still investigating whether Alphabet, Google’s parent company, disproportionately favours Google Play and its own services within Google Search results.
If found to be in violation of the DMA, organisations could be fined up to 10% of their total worldwide turnover, or 20% for repeated offences.
What is the DMA?
The DMA, established in 2022, is an E.U. regulation that intends to promote fairness and competition among digital products and services. It established obligations for certain influential tech firms, dubbed “gatekeepers,” that must comply within their daily operations.
These cover:
- Providing users access to the data gatekeepers collect about them.
- Tracking users outside their platforms.
- Allowing third-parties to inter-operate within their platforms.
- Allowing users to uninstall any pre-installed software or app.
- Deprioritising services and products offered by third parties on the gatekeeper’s platform.
In September 2023, the European Commission labelled Alphabet, Amazon, Apple, ByteDance, Meta and Microsoft gatekeepers, or providers of certain “core platform services” like Google Maps, Apple App Store and Amazon Marketplace.
Fines for noncompliance with the DMA can be up to 10% of the company’s total worldwide turnover, going up to 20% in cases of repeated infringement. In more extreme instances, the Commission may order an organisation to sell all or parts of its business or ban the organisation from acquiring related services.
The DMA has been in effect since 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 opening non-compliance investigations into Alphabet, Apple and Meta.
Meta’s ‘pay or consent’ on Facebook and Instagram misses DMA’s mark
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 ‘pay or consent’ model does not provide a service equivalent to one with paid ads if users opt for the subscription, the Commission stated. Nor does the ‘pay or consent’ ad model “allow users to exercise their right to freely consent to the combination of their personal data,” the commission stated.
What does the DMA’s ruling against Apple mean?
The Commission has found that Apple has three sets of business rules that ultimately prevent iOS app developers from directing their users towards third-party purchase options. This goes against the DMA, which states that developers should be able to steer their customers towards purchasing options outside of the App Store easily and free of charge.
Apple takes a 30% commission from the revenue of any in-app purchases, so when users make app-related payments on their phone browser, for example, it eats into its profits.
Margrethe Vestager, Executive Vice-President in charge of competition policy, said in a press release on June 24: “Our preliminary position is that Apple does not fully allow steering. Steering is key to ensure that app developers are less dependent on gatekeepers’ app stores and for consumers to be aware of better offers.”
As well as publishing these preliminary findings, the Commission has also opened a new investigation into Apple’s business terms for developers that were drawn up in response to the DMA. These new terms act as a condition for offering an iOS app via a distribution channel other than the App Store, and include the so-called ‘Core Technology Fee’. Primarily, the Commission is looking into whether Apple still effectively restricts the distribution of apps through alternative channels by keeping the option open for developers to subscribe by its old terms.
How has Apple violated the DMA?
The European Commission found that Apple violated the DMA in three main ways:
- None of its three sets of business rules for app developers allow developers to freely steer their customers to purchase options outside the app.
- Steering to purchase options outside an iOS app can only be done through “link-outs,” where an in-app link directs the user to a web page to complete the transaction, which are heavily restricted.
- Apple’s fees for bringing a developer new customers by hosting their app on the App Store go beyond what is strictly necessary for remuneration.
Why has the European Commission opened a new investigation into Apple?
The European Commission intends to find out whether Apple’s new business terms for developers looking to host their iOS apps’ distribution channels other than the App Store are so restrictive that it discourages them from doing so.
Specifically, it will investigate whether the following aspects comply with the DMA:
- The new Core Technology Fee, which sees developers charged €0.50 per first app install over one million.
- The multiple steps the user must take to download alternative app stores or apps on an Apple device, and the information screens they are shown as part of the process.
- The eligibility requirements for developers related to the ability to offer alternative app stores or directly distribute apps from the web on iPhones.
How have Apple and Meta responded to the DMA?
Apple responded to the DMA’s requirements in January, saying accessing third-party apps on Apple devices presents security risks, including “malware, fraud and scams, illicit and harmful content.” However, it did make a number of changes, including to its pricing structure.
The maximum commission Apple claims on subscriptions and in-app purchases for apps listed on the App Store was reduced from 30% to 17%, and the company takes no cut for those distributed by a third-party app. However, it also added the controversial Core Technology Fee for developers of applications with more than one million instals every year; this costs €0.50 per first install over one million in the past 12 months.
Some developers, including the CEO of ‘Fortnite’ creator Epic Games, have argued the introduction of the Core Technology Fee means they will be charged more than before and has been dubbed “a devious new instance of malicious compliance.”
SEE: Deadline for EU DMA Compliance Reports Arrives for ‘Gatekeeper’ Orgs
In response to this week’s announcement, Apple spokesperson Peter Ajemian told The Verge: “Throughout the past several months, Apple has made a number of changes to comply with the DMA in response to feedback from developers and the European Commission.
“All developers doing business in the EU on the App Store have the opportunity to utilize the capabilities that we have introduced, including the ability to direct app users to the web to complete purchases at a very competitive rate. As we have done routinely, we will continue to listen and engage with the European Commission.”
Meta’s “Subscription for no ads follows the direction of the highest court in Europe and complies with the DMA,” Meta spokesperson Matthew Pollard told The Verge. This matches Meta’s statement in a blog post from last year: “‘Subscription for no ads’ addresses the latest regulatory developments, guidance and judgments shared by leading European regulators and the courts over recent years.”
When will we know if Apple and Meta will be fined?
So far, the Commission has only made preliminary findings that suggest Apple and Meta are in breach of the DMA. Apple and Meta have been informed of this but still have the opportunity to reply or take actions that alleviate the concerns before a decision is made.
However, if these preliminary findings are confirmed and Apple and Meta are found to have violated the DMA, a non-compliance decision will be adopted by March 25, 2025.
A decision on a separate investigation focusing on Apple’s web browser choice screen, which “may be preventing users from truly exercising their choice of services within the Apple ecosystem,” is likely to take longer, according to Reuters.
Note: Megan Crouse contributed to this article to reflect the charges against Meta.
