Apple has become the first tech giant to be formally accused by the European Commission of violating the Digital Markets Act. On Monday, June 24, a preliminary ruling was issued that could see the Cupertino company face a hefty fine. On July 1, the Commission ruled that a second organization, Meta, had failed to comply with the DMA.
According to Reuters, the Apple and Meta cases are a priority, but regulators are still investigating whether Google’s parent company Alphabet is disproportionately favoring Google Play and its own services in Google search results.
If found to be in breach of the DMA, an organisation can be fined up to 10% of its total worldwide turnover, or 20% in the case of repeated breaches.
What is DMA?
The DMA, established in 2022, is an EU regulation that aims to promote fairness and competition among digital products and services. It established obligations for certain influential technology companies, known as “gatekeepers,” that must comply with the regulations as part of their day-to-day operations.
These include:
- Providing users with access to data that administrators collect about them.
- Tracking users outside of their platforms.
- Enabling third parties to interact within their platforms.
- Allows users to uninstall any installed software or application.
- Loss of priority for services and products offered by third parties on the gatekeeper platform.
In September 2023, the European Commission designated Alphabet, Amazon, Apple, ByteDance, Meta and Microsoft as gatekeepers, meaning providers of certain “essential platform services” such as Google Maps, the Apple App Store and Amazon Marketplace.
Penalties for non-compliance with the DMA can range up to 10% of the company’s worldwide turnover, and up to 20% for repeated violations. In more extreme cases, the Commission can order an organization to sell all or part of its business or prohibit an organization from acquiring related services.
The DMA has been in force since May 2023, but the deadline for data processors to submit DMA compliance reports to the European Commission expired on March 7, 2024. A few weeks later, the Commission announced that it was opening non-compliance investigations against Alphabet, Apple and Meta.
“Pay or Agree” Meta on Facebook and Instagram Does Not Meet DMA Expectations
On July 1, the European Commission ruled that Meta’s “pay or agree” advertising model, where users who subscribe to Instagram or Facebook can opt out of targeted ads, violates the DMA. The “pay or agree” model does not provide a service equivalent to a paid advertising service if users choose to subscribe, the Commission found. The “pay or agree” advertising model also “does not allow users to exercise their right to freely consent to the combination of their personal data,” the Commission found.
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 contradicts the DMA, which states that developers should be able to direct their customers to purchase options outside the App Store easily and free of charge.
Apple takes a 30% cut of revenue from in-app purchases, so when users make payments in-app, such as on their phone’s browser, the company takes a cut of its profits.
Margrethe Vestager, executive vice president for competition policy, said in a June 24 press release: “Our initial position is that Apple does not allow full steering. Steering is key to ensuring that app developers are less dependent on gatekeeper app stores and that consumers are aware of better offers.”
In addition to publishing these preliminary findings, the Commission has also opened a new investigation into Apple’s business terms for developers, which were developed in response to the DMA. These new terms constitute a condition for offering iOS apps through a distribution channel other than the App Store and include a so-called ‘core technology fee’. In particular, the Commission is investigating whether Apple continues to effectively restrict the distribution of apps through alternative channels, leaving developers free to subscribe under the old terms.
How did Apple violate the DMA?
The European Commission found that Apple had breached the DMA in three main ways:
- None of the three sets of business rules for app developers allow developers to freely induce customers to make purchases outside of the app.
- Directing a user to a purchase option outside of the iOS app is only possible via “outbound links,” where an in-app link directs the user to a website to complete a transaction, which is strictly limited.
- The fees Apple charges for developers to acquire new customers by placing their apps on the App Store go beyond what is strictly necessary to compensate them.
Why did the European Commission open a new investigation into Apple?
The European Commission intends to check whether Apple’s new business conditions for developers who want to make their iOS apps available through distribution channels other than the App Store are so restrictive that they discourage them from doing so.
In particular, it will examine whether the following aspects comply with the DMA:
- A new Core Technology Fee, under which developers pay €0.50 for the first install of an app above one million copies.
- The multi-step steps a user must complete to download alternative app stores or apps to their Apple device, and the informational screens that appear as part of the process.
- Developer eligibility requirements for offering alternative app stores or directly distributing apps from the web to iPhones.
How did Apple and Meta respond to DMA?
Apple responded to the DMA’s demands in January, stating that accessing third-party apps on Apple devices poses security risks, including “malware, fraud and scams, illegal and harmful content.” However, the company has made a number of changes, including to its pricing structure.
The maximum commission that Apple charges on subscriptions and in-app purchases for apps listed in the App Store has been reduced from 30% to 17%, and the company does not charge any commission on apps distributed by third-party apps. However, the company has also added a controversial Core Technology Fee for developers of apps with more than one million installs per year; this costs €0.50 for the first install above one million in the last 12 months.
Some developers, including the CEO of Epic Games, the creator of “Fortnite,” say the introduction of a fee for core technology means they will have to pay more than before, in what has been called a “a new, insidious example of malicious submission.”
SEE: EU DMA Compliance Reporting Deadline for Gatekeepers
In response to this week’s announcement, Apple spokesman Peter Ajemian told The Verge: “Over the past few 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 benefit from the capabilities we have introduced, including the ability to direct app users to the web to make purchases at a very competitive price. As we have done routinely, we will continue to listen and engage with the European Commission.”
“Meta’s ad-free subscription is in line with the guidance of Europe’s highest court and is compliant with the DMA,” Meta spokesperson Matthew Pollard told The Verge. This is consistent with Meta’s statement in a blog post last year: “‘Ad-free subscription’ refers to the latest regulatory developments, guidance, and rulings shared by leading European regulators and courts in recent years.”
When will we find out if Apple and Meta will be fined?
So far, the Commission has only presented preliminary findings suggesting that Apple and Meta are violating the DMA. Apple and Meta have been informed of this but still have the opportunity to respond or take steps to mitigate their concerns before a decision is made.
However, if the initial findings are confirmed and Apple and Meta are found to have violated the DMA, a decision on non-compliance will be made by March 25, 2025.
A decision on a separate investigation focusing on Apple’s web browser selection screen, which “may prevent users from actually using select services in the Apple ecosystem,” is likely to take longer, according to Reuters.
Note: Megan Crouse contributed to this article to reflect on the allegations against Meta.
