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By Samuel Stolton, Jillian Deutsch, and Leah Nylen
September 12, 2024 at 17:52 GMT+7
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For years, the world’s biggest technology companies were largely able to resist government oversight. That’s changing fast.
Google’s dominance in digital advertising and online search is under threat from twin actions by the US Department of Justice, with a potential breakup of the company among the possible outcomes. The DOJ is also suing 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, Apple and Google parent Alphabet Inc. have been told to pay billions of dollars related to past anticompetitive practices. The rulings have emboldened European Union regulators who are now investigating Apple, Google and Meta Platforms Inc., accusing them of failing to comply with new laws limiting their dominance of the digital economy. Hefty penalties may follow. Meanwhile, Meta’s Facebook, Alphabet’s YouTube and Amazon.com Inc. have been scrambling to comply with tougher EU rules governing digital marketplaces and the policing of social media content.
Regulators on both sides of the Atlantic have also turned their attention to the huge amounts of money flowing into artificial intelligence, anxious to prevent a handful of firms dominating the emerging industry.
The EU’s twin-track approach
The EU has put in place two 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. The aim is to stop abusive conduct by the biggest players before it takes hold.
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 products.
The Digital Markets Act
Under the DMA, six tech giants — Alphabet, Amazon, Apple, TikTok owner ByteDance Ltd., Meta and Microsoft Corp. — 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.
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.
Companies have been working to get in line with the DMA. Google announced on March 5 it would link more in search to comparison sites in areas such as flights, hotels and shopping. Meta previously pledged to allow its 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.
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 — which have been 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.
In response to 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.
The DOJ cases against Google
Judge Amit Mehta ruled on Aug. 5 that Google illegally monopolized the markets of online search and search text ads, concluding a case originally filed in 2020 under former President Donald Trump. Google has said it will appeal that decision, but the DOJ is already working out what remedies it will seek.
It’s likely to seek a ban on the type of exclusive contracts that were at the center of the case. It may also push for a breakup of the Silicon Valley giant, with its Android operating system and web browser Chrome seen as possible targets for divestment, according to people familiar with the matter.
Such a move would be Washington’s first effort to dismantle a company for illegal monopolization since an unsuccessful effort to break up Microsoft two decades ago.
Google is also fighting separate DOJ allegations that it manipulates the $677 billion display advertising market in violation of antitrust laws. The US and a coalition of eight states have accused Google of building up a “trifecta of monopolies” to lock up the technology behind website ads and harm publishers and advertisers.
Google has denied the claims. “Today we are one big company among many others,” Google attorney Karen Dunn said, adding that the firm is “intensely competing” with dozens of others including Microsoft and Amazon.
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 iPhone maker.
The DOJ alleges that Apple has imposed software and hardware limitations on 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.
If the lawsuit is successful, the DOJ could seek a variety of remedies, such as restrictions on contracts with third-party vendors or app makers. It may require that the company open up its devices to alternative app stores or other payment mechanisms.
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Apple has vowed to vigorously defend against the DOJ suit, saying it was “wrong on the facts and the law” and would “set a dangerous precedent, empowering government to take a heavy hand in designing people’s technology.” It has taken steps to address some of the issues highlighted in the case: It recently added support for cloud-based gaming services and said it would add RCS cross-platform messaging later this year.
The background to the DOJ cases
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 the Trump 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, 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.
What are regulators doing about AI?
The increasingly common practice for big tech firms to form partnerships with AI startups — most notably Microsoft’s $13 billion investment in OpenAI — has also piqued the interest of regulators.
EU watchdogs are quizzing market rivals about OpenAI’s exclusive use of Microsoft’s cloud technology. They’ve also been circulating questions to market rivals on Google’s arrangement with smartphone maker Samsung Electronics Co. to pre-install its small model “Gemini nano” on certain devices.