Gate expectations

Europe’s lawmakers settled the Digital Markets Act on a Thursday evening in Brussels, after more than a year of talks and three rounds of trilogue.^{3Freshfields Bruckhaus DeringerOne fewer gating item: the EU reaches political agreement on the Digital Markets Act29 Mar 2022,4Council of the European UnionDigital Markets Act (DMA): agreement between the Council and the European Parliament25 Mar 2022} The agreement, reached on 24 March 2022, is the closest the West has come to a rulebook for the firms that run the internet’s toll booths. Its reach is set by two numbers: a market value of at least €75bn, or annual turnover of at least €7.5bn, plus 45m monthly users in the EU.^{1European ParliamentDeal on Digital Markets Act: ensuring fair competition and more choice for users25 Mar 2022} The Commission had proposed €65bn and €6.5bn.^{3Freshfields Bruckhaus DeringerOne fewer gating item: the EU reaches political agreement on the Digital Markets Act29 Mar 2022} Parliament has, as ever, found a way to make a high bar a little higher.

The firms in the frame are the familiar ones: Google, Meta, Amazon and Apple, with WhatsApp, the App Store, Android and Chrome among the services named in coverage.^{2Al JazeeraEU negotiators agree landmark law to curb US big tech giants25 Mar 2022} They will have to behave. Combining personal data for targeted advertising will need a user’s explicit consent. People must be free to choose their browser, virtual assistant or search engine.^{1European ParliamentDeal on Digital Markets Act: ensuring fair competition and more choice for users25 Mar 2022} Apple must open its App Store to alternative payment systems, and users may uninstall Safari and other bundled apps.^{2Al JazeeraEU negotiators agree landmark law to curb US big tech giants25 Mar 2022} Google must offer Android users clear alternatives to its own search, maps and browser.^{2Al JazeeraEU negotiators agree landmark law to curb US big tech giants25 Mar 2022}

The price of misbehaviour. Maximum DMA fine, % of worldwide annual turnover

	Maximum fine
First infringement	10
Repeat infringement	20

Source: European Parliament, 25 March 2022

We think most of this is sensible, and that the principle behind it is a market one. Competition needs customers who can leave. A rule that turns a default into a choice, and a payment rail into a menu, gives rivals a fair fight without picking the winner. Margrethe Vestager, the competition commissioner, put it with Brussels economy: there will be “a number of things they can do, a number of things they can’t do, and that of course gives everyone a fair chance”.^{2Al JazeeraEU negotiators agree landmark law to curb US big tech giants25 Mar 2022} That is a fair description of a good rulebook. It is also a description of the Highway Code, and nobody thinks the Highway Code designs cars.

The trouble starts where the act stops describing conduct and starts prescribing architecture. The largest messaging services must interoperate with smaller rivals on request, so that users can exchange messages, send files and make video calls across apps.^{1European ParliamentDeal on Digital Markets Act: ensuring fair competition and more choice for users25 Mar 2022} WhatsApp, Messenger and iMessage are named.^{1European ParliamentDeal on Digital Markets Act: ensuring fair competition and more choice for users25 Mar 2022} The aim is admirable and the engineering is not trivial. Freshfields, a law firm, notes that the deal demands a high level of security and data protection but specifies no technical standard, including for encryption and user authentication, and that interoperability may open new entry points for cyber threats.^{3Freshfields Bruckhaus DeringerOne fewer gating item: the EU reaches political agreement on the Digital Markets Act29 Mar 2022} Apple has said it is “concerned that some provisions of the DMA will create unnecessary privacy and security vulnerabilities for our users”.^{2Al JazeeraEU negotiators agree landmark law to curb US big tech giants25 Mar 2022} A firm defending its margin will say that. It does not follow that the claim is false.

Then there is the enforcement bill. Fines can reach 10% of worldwide turnover, and 20% for repeat offenders.^{1European ParliamentDeal on Digital Markets Act: ensuring fair competition and more choice for users25 Mar 2022} Systematic offenders can be barred from acquisitions for a time,^{1European ParliamentDeal on Digital Markets Act: ensuring fair competition and more choice for users25 Mar 2022} and gatekeepers must tell the Commission about deals before closing them, even where EU merger thresholds are not met.^{3Freshfields Bruckhaus DeringerOne fewer gating item: the EU reaches political agreement on the Digital Markets Act29 Mar 2022} Enforcement is centralised in Brussels, because Parliament conceded the veto it wanted over national actions that conflict with the act.^{3Freshfields Bruckhaus DeringerOne fewer gating item: the EU reaches political agreement on the Digital Markets Act29 Mar 2022} One regulator, one rulebook and a penalty large enough to concentrate a board’s mind is tidy. It is also a great deal of discretion for one institution.

The strongest defence of the act is that antitrust has not kept pace. Cases take years, and the market moves on while the lawyers argue. A rulebook written in advance is faster. Andreas Schwab, the German MEP who led Parliament’s talks, says the law “puts an end to the ever-increasing dominance of Big Tech companies”.^{1European ParliamentDeal on Digital Markets Act: ensuring fair competition and more choice for users25 Mar 2022,2Al JazeeraEU negotiators agree landmark law to curb US big tech giants25 Mar 2022} That is a large claim for a text that still awaits checking by lawyer-linguists and formal approval by Parliament and the Council.^{1European ParliamentDeal on Digital Markets Act: ensuring fair competition and more choice for users25 Mar 2022}

Speed is a real virtue, but it is also how bad rules get made. The Commission should treat the choice obligations as the core of the act and the interoperability duties as an experiment. Social-network interoperability is, rightly, left for later assessment.^{1European ParliamentDeal on Digital Markets Act: ensuring fair competition and more choice for users25 Mar 2022} Messaging deserves the same patience, with security tested before any mandate bites. Gatekeepers are expected to comply by February 2024,^{3Freshfields Bruckhaus DeringerOne fewer gating item: the EU reaches political agreement on the Digital Markets Act29 Mar 2022} which leaves time to do it carefully.

Brussels has built a gate with a lock on it. Whether it has also built a door depends on who holds the key.