EU states want to enforce competition in digital markets

This article was published in German by our media partner, Tagesspiegel.

Sometimes, even the strongest lobby reaches its limits. This is currently the case for managers of the major tech platforms in Europe.  According to Lobbycontrol and Corporate Europe Observatory, the ten largest digital companies — from Google to — spend €32 million a year on their Europe-wide network of associations, think tanks and representative offices. But even with that, they can no longer prevent the passage of legislation to limit their market power. In negotiations on the EU Commission’s proposed Digital Markets Act (DMA), the vast majority of the 27 EU governments have spoken out in favour of strict rules and fought off attempts by some states to water down the legislative text. This is what journalists from Investigate Europe and learned from the diplomats involved. The Council’s Working Group on Competition agreed on a text, which, after adoption by the Council of Economic Ministers on 25 November, will be the basis for the final negotiations with the EU Parliament. According to German government representatives, the compromise proposal contains “significant improvements” compared to the Commission’s original legislative proposal from last November. However, the Council has largely refrained from making major changes — despite the fact that there were massive trials to weaken the law behind closed doors.

It is thus foreseeable that the operators of digital platforms with more than 45 million users or 10,000 business customers — referred to in the law as “gatekeepers” — will, in the future, have to comply with 20 requirements in order to prevent unfair practices against competitors, at least in Europe. For example, one provision stipulates that Amazon may no longer give preference to its own products on its website over those of other sellers in its “marketplace”. At the same time, all sellers on the world’s largest retail platform as well as, for example, hotel operators who advertise on, will be free to offer their products and services elsewhere and at different prices. In this way, they could avoid or reduce the expensive commissions levied by the platform operators (of up to 30% of the sales prices). 

Another provision aims to break the duopoly through which Google and Apple force their services on app providers and users via their smartphone systems and get paid for it with data or high fees. Apple’s App Store would then be open to those vendors who do not charge for their sales through Apple Pay”. The controversial policy by the company to block alternative payment methods — which the game manufacturer Epic Games ( creator of Fortnite) recently took legal action against, would then no longer apply. At the same time, users should be able to delete pre-installed apps and use other services that do not siphon off their data. At least in part, the law is also intended to bring back what used to be the core of the Internet: that users be able to choose between applications from different manufacturers on the same platforms. Although this “interoperability” will initially apply only to “ancillary services” such as payment services and identity verification, it would be a first step in the phasing out of monopolistic practises by the big players.

And the possible penalties are also drastic. Those who do not comply with the requirement must pay up to 10% of their global annual turnover. For Apple, that would be USD 27.4 billion.

Lobby speak from Ireland and Luxembourg

In principle, the Council of the EU shares no information about how the 27 national representatives come to such decisions. The officials involved are engaged in normal legislative work, which, according to the current EU Treaty, must be carried out “as openly as possible and as closely as possible to the citizen”. However, the secretariat of Europe’s most powerful legislative body denies requests for documents that provide information on the positions taken by individual government representatives and the discussions held on them. For the purposes of this report, however, an insider provided access to a list of amendments tabled and minutes of the relevant meetings.

The documents reveal that it was primarily the governments of Luxembourg and Ireland that wanted to weaken and water down the law in numerous places. This is particularly piquant because almost all the big American tech companies have their European headquarters in Ireland (Google, Facebook, Apple) or Luxembourg (Amazon). The two states not only help them avoid taxes, but also often support the companies in other avenues, such as data protection.

An example of the attempts at mitigation is provided by the “nuclear bomb”, as Commission officials refer to Article 16 of the proposed law in a negotiating document. The article allows the Commission to conduct market investigations in cases of “systemic non-compliance” with the law — that is, in cases where a powerful platform repeatedly violates European laws for years. In these cases, “structural measures” are to be possible, up to and including breaking up a group — arguably the sharpest tool of EU policy against digital groups.

To this end, Germany, France and the Netherlands demanded more say in when the Commission launches such market investigations. The Council therefore now demands that even a single member state be able to ask the Commission to at least consider an investigation under Article 16. This was strongly opposed by some states: Ireland warned of political interference, while Luxembourg spoke of a “disproportionate” step. The majority, however, was not impressed by this.

In other places, too, Luxembourg and Ireland pushed for weaker formulations and reduced rights of recourse. This becomes clear, for example, in Article 9, which specifies possible grounds for exemption from the obligations of gatekeepers. The Commission wants to grant such exceptions only if public morality, health or safety require it.

The Irish government, however, wanted to extend this to include data security and even the protection of trade secrets. This legal manoeuvre would have allowed the tech companies to circumvent the intended requirements almost at will. Probably not entirely coincidentally, the Irish proposal resembles the reasoning of the Digital Europe lobby, of which these large corporations are paying members. It too warned against the planned obligations for gatekeepers, citing cybersecurity.

The link became even clearer when, in mid-September, Luxembourg, supported by Finland, Lithuania and Slovakia in the Council working party on competition, pushed to remove cloud services from the list of platform services subject to special obligations. Amazon, the world’s largest cloud provider, has its European headquarters in Luxembourg. In the negotiations, however, the corporate sympathisers from Ireland and Luxembourg were unable to get their way. Virtually none of their text proposals found their way into the draft now awaiting adoption.

Nevertheless, the Council’s proposal is not entirely satisfactory from an expert point of view. “We should not be satisfied with the fact that the Council has not weakened the Commission’s proposals,” says Agustin Reyna of the consumer association BEUC. Rather, he says it is a missed opportunity, pointing to the provision on interoperability, for example. This does not apply to central services such as social networks or messengers. But that would be necessary to give smaller providers a chance against giants like Facebook.

Germany and France have to take a back seat

The representatives of Germany, France and the Netherlands also suffered a defeat. In a joint initiative, the trio tried to give national competition authorities such as the Federal Cartel Office more direct influence. They should be given the opportunity to conduct their own proceedings and enforce obligations themselves — a kind of turbo of the big states for the often slow mills of the EU Commission.

But a “broad majority” of member states rejected this with the support of the Commission, the protocol notes. But the German-French-Dutch alliance was able to get the clause that national authorities are allowed to start their own investigations and report their findings to the Commission.

Germany, France and the Netherlands also failed with their proposal to limit the effect of the Digital Markets Act to a smaller group of companies. This would have allowed the Netherlands, for example, to prevent its provisions from applying to Amsterdam-based The German conservative MEP Andreas Schwab, the European Parliament’s chief negotiator for the law, would also like to see such a narrowing of the gatekeeper definition. However, this was also not able to gain a majority in the Council; the limits in the corresponding article remain unchanged in the draft of the EU states.

It is expected that from December onwards, the representatives of the Council will have to negotiate the final legislative text with those of the Parliament. There is still intensive wrangling about the positions. The information leaked so far, however, suggests that the Parliament wants to take much more ambitious action against the data monopolists than the Council. The Pirate MEP Marcel Kolaja, who negotiates on behalf of the Green Party, is determined to greatly expand the obligations for interoperability and thus knows that millions of users are behind him. Martin Schirdewan of the Left Party criticises the “hesitant draft” in a similar way. It is necessary to attack “the harmful business models of BigTech”, he demands.

This is less exaggerated than it sounds. MEP Evelyn Gebhardt, who is negotiating the law for the Social Democratic group,  also demands that Google and Facebook’s core business should be subject to regulations: the targeted advertising. By creating individual profiles from user data and offering targeted ads for them on their web services, the corporations have created a global surveillance infrastructure that has also often been used to manipulate voters. “We need to write into the law at least as an additional requirement that users are free to decide whether they want this or not,” Gebhardt demands, finding support for this even among conservatives and liberals.

The wrangling over the Digital Markets Act remains exciting.