Out-Law News

European Commission makes first ‘qualitative’ designation under Digital Markets Act

The European Commission has confirmed that Apple’s iPad operating system (iPadOS) should be designated as a “gatekeeper” service, marking the first time the regulator has made such designation based on "qualitative" criteria under the EU’s Digital Markets Act (DMA).

Under the DMA, a digital firm can be “presumed” to have gatekeeper status in respect of a core platform service (CPS) where certain prescribed quantitative thresholds are satisfied. These relate to the firm’s EU turnover or market capitalisation or market value and the provision of the same CPS in at least three EU countries, as well as the number of active end users and business users within the EU. Presumed designation is rebuttable, as shown by the Commission’s recent decisions involving one Apple and three Microsoft CPSs.

Where the DMA's quantitative designation criteria are not met, and therefore designation cannot be presumed, the Commission may conduct a market investigation to determine if a CPS should nonetheless be designated on the basis of “qualitative” criteria set out in the DMA. The Commission “shall endeavour to conclude” its investigation within 12 months.

The Commission launched a market investigation on 5 September 2023 under the DMA to assess if Apple's iPadOS should be designated as a gatekeeper service, despite that digital service falling below the DMA’s quantitative thresholds. It announced its decision to designate Apple’s iPadOS as a CPS on 29 April and Apple, as its gatekeeper, will have to fully comply with DMA obligations in relation to that service within six months – by late October 2024. The Commission reached its decision within just eight months, well short of the 12 month “best endeavours” deadline.

Tadeusz Gielas, competition law expert at Pinsent Masons, said that this is an important development because it is the first time the Commission has designated a gatekeeper CPS using the “qualitative” procedure under the DMA. “Until now, all gatekeeper CPSs have been designated under the quantitative approach. Once published, the Apple iPadOS decision is expected to provide valuable insights and guidance concerning the Commission’s analysis and approach in qualitative designation procedures,” said Gielas.

Apple was already designated as a gatekeeper in September 2023, when three of its services - iOS, browser Safari and App Store - were designated as core platform services as they passed the DMA’s quantitative thresholds.

According to the Commission, Apple’s iPadOS was brought within the scope of the DMA obligations because its investigation found that iPadOS constitutes “an important gateway” for business users to reach end users, and that Apple enjoys “an entrenched and durable position” with respect to iPadOS.

In its conclusion, the regulator highlighted the three most significant features of a gatekeeper that Apple presents in relation to iPadOS. First, Apple’s business user numbers exceeded the quantitative threshold elevenfold, while its end user numbers were close to the threshold and are predicted to rise in the near future. Second, it found that end users are locked-in to iPadOS because Apple leverages its large ecosystem to disincentivise end users from switching to other operating systems for tablets. Third, the Commission found that business users are locked-in to iPadOS because of its large and commercially attractive user base and its importance for certain use cases, such as gaming apps.

Companies that are subject to the DMA face strict compliance obligations, including rules on targeted advertising and interoperability. The Commission has already opened its first investigations into alleged non-compliance with the DMA, focusing on areas such as anti-steering provisions, self-preferencing, user choice, and personal data usage. It has also recently launched the DMA whistleblower tool – alongside a similar tool for the Digital Services Act (DSA) – to make it possible for individuals to provide information allowing the Commission to identify and investigate any suspected DMA non-compliance by gatekeepers without fear of reprisals.

So far, over 20 CPSs operated by Alphabet, Amazon, Apple, ByteDance, Meta, and Microsoft are subject to the new regime, including Google Search, Facebook, and Amazon Marketplace. ByteDance, the company behind TikTok, has challenged its designation, but the outcome of its appeal is yet to be decided by the EU General Court.

No current gatekeeper CPS designations relate to cloud services, although “cloud computing services” are expressly covered by the DMA.  “Remarks by a European Commission official at a recent tech and AI summit have pointed to areas of complementarity between the EU’s new Data Act and the DMA in achieving a fair and innovative digital economy, and suggested that cloud services providers could be on the Commission’s radar for future DMA designations - potentially through qualitative designation,” said Gielas.

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