The European Union’s Digital Markets Act is officially here: After being recently published in the Official Journal of the EU, the latest in the European Commission’s regulatory framework entered into force on 1 November 2022 and will become applicable next year. Part of a larger European regulatory program called “A Europe Fit for the Digital Age”, the Regulation focuses on increasing competition by placing new obligations on the largest online platforms in the European Union, i.e., Big Tech. The framework signals the EU’s continued encouragement of damages claims against monopolies within the industry, widely known for their outsized impact on the economy and wider society.
As legal authorities in the EU pursue enforcement action in this space, victims of anticompetitive behavior and law firms looking to build follow-on claims in the EU and UK should take note of the potential ramifications of the DMA and the increasing number of large-scale claims against tech giants. This article explains the impact of the European Union’s latest act and reflects on the growing trend of anticompetitive claims against giant monopolies in the digital technology industry.
Gatekeepers will face increased obligations
Central to the DMA is the designation of “gatekeepers”: Companies with a market valuation of €75 billion in the past financial year, an annual turnover of at least €7.5 billion in the past three years and that provide their core services in at least three EU member states. Companies that meet these financial and user thresholds will be subject to increased obligations as early as May 2023.
The DMA covers any company that provides a core platform or gateway service between consumers and businesses, including search engines (Google), social networking services (Meta, WhatsApp), service-oriented platforms (Amazon) and any online advertising and computing services. The criteria strictly limit the scope of companies that fall under the framework to tech giants, with the “Big Five” (Google, Amazon, Meta, Apple and Microsoft) very likely included.
Gatekeepers will be required to follow new obligations, such as:
- Allowing electronic devices that use their operating systems to uninstall pre-installed software and allow for third-party equivalents to be installed
- Applying transparent, fair and non-discriminatory ranking conditions when displaying goods to customers and ensuring that their own goods and services are not treated more favorably
- Ensuring they receive express approval from their end users before combining personal data for business use
- Providing business users using their advertising services with information on the price, fees and performance of their adverts
Big Tech has been challenged by national authorities over the past several years on all the above areas, and the number of enforcement and follow-on cases is only expected to increase as consumer protection and data collection issues take center stage across the globe.
The EU continues to levy millions in fines against Big Tech
Under the DMA, the EU can now punish Big Tech companies that violate antitrust laws with fines of up to ten percent of the company’s annual global sales. This reflects the growing trend of EU member states charging tech giants enormous fines for egregious conduct, including tax avoidance, misinformation and unfair and anticompetitive business practices. Some notable examples of the damages involved in the digital technology space include:
- A 2016 fine of €13 billion against Apple by the European Commission, as part of an effort to curb tax shelter policy abuse and profit offshoring
- The Commission’s 2017 €2.42 billion fine against Google for breaching antitrust rules by establishing its market dominance as a search engine and giving an illegal advantage to its comparison shopping service
- A €4.3 billion fine the EU’s antitrust division levied against Google in 2018 for abusing its market position by requiring Android phone makers to pre-install Google Search and Google Chrome, which the company failed to appeal in 2021
- A €746 million fine in 2021 against Amazon by Luxembourg’s data protection authority for processing personal data in violation of the EU’s Data Protection Regulation
- A €1.13 billion fine against Amazon in 2021 by Italy’s antitrust watchdog over alleged abuse of market dominance by manipulating intermediation services to favor its own logistics services
- A €150 million fine against Google upheld by the French Court of Appeal in 2022 over opaque advertisement rules
Considering that many of these fines were imposed prior to the DMA, the frequency and scale of enforcement and fines brought against Big Tech in its wake will likely increase, which in turn will lead to more damages claims across Europe by impacted corporates and individuals. However, it’s important to note that the European Commission will now be the sole authority responsible for pursuing Big Tech claims. This will limit national authorities’ abilities to pursue such cases and recover substantial fines and could also potentially close the door to “read across” claims where the enforcement decision of one national authority is used as a basis for bringing litigation in another jurisdiction.
The DMA may spur an increase in litigation activity in the Big Tech sphere
We expect the DMA to lead to a further increase in the number of meritorious claims against Big Tech via follow-on claims from companies impacted in the marketplace. But national authorities who previously relied on the fines levied against Big Tech companies stand to lose a significant source of revenue as they hand over their investigations to the European Commission. This could potentially lead to more enforcement action by these authorities as they launch probes against second-tier companies that, while established, do not qualify as a gatekeeper under the DMA.
Furthermore, as national competition authorities take a stand against market dominance, companies that face anticompetitive behaviour in the marketplace are likely to follow suit. Follow-on claims have grown exponentially in the UK and Europe (particularly in Germany and the Netherlands), which are all regarded as having claimant-friendly litigation regimes. Claimants benefit from flexibility in the way they can bring collective actions against Big Tech within the EU as actions can be brought on an opt-in or opt-out basis. According to the UK’s Competition Appeal Tribunal in the FX decision, it appears that large claims brought by sophisticated institutions are likely to be brought as opt-in claims, with opt-outs reserved for consumers and smaller claims.
Regardless of which track an organization may choose to go down, the fact remains that the dominance of Big Tech cuts across the entire market: Businesses may be squeezed out by anticompetitive practices, for example, and consumers will lose out due to lack of choice and higher prices. Big Tech could end up fighting claims on both fronts.
Antitrust claims remain among the most complex, expensive and high-stakes commercial cases. This is especially true given the size and scale of antitrust litigation in the Big Tech space and where the subject matter of the litigation is often integral to the business model of the Big Tech companies and where proceedings look set to drag out for many years and require significant budgets. In cost-shifting jurisdictions such as the UK, claimants also risk high levels of adverse costs exposure. Legal finance can be a valuable tool for both victims of anticompetitive behavior and the law firms that represent them as it enables them to bring forward their claims without the fear of cost and duration risk. Burford can offer the full package of legal finance, including ATE insurance coverage via Burford Worldwide Insurance (BWIL).
The DMA is a strong move towards proactive rather than reactive solutions to Big Tech’s dominance and power in the digital technology space. As the DMA becomes law and tech giants respond to new widespread efforts to curb anticompetitive behavior in the EU, we stand to see just how ground-breaking this regulation will be, and how much litigation it will lead to.