App developers in the UK have recently filed a class action against Google, seeking up to £1.04 billion in compensation. It is argued that Google has abused its dominant position (under UK competition provisions) by imposing technical and contractual restrictions that leave UK developers little choice other than to use its Play Store to reach customers. Its market dominance allows Google to charge commissions of up to 30% on sales, which is claimed to have caused significant financial harm to thousands of developers, particularly small and medium-sized enterprises (SMEs), since August 2018.
Restrictions and unfair practices by large digital platforms like Google have also come under much scrutiny within the European Union ("EU"). The EU's Digital Markets Act ("DMA"), introduced as a complementary tool to existing EU competition rules, seeks to regulate the market behaviour of major digital conglomerates.
In today's rapidly evolving digital environment, the DMA represents an important development that app developers should take note of. The DMA is primarily designed to target large digital platforms, referred to as "gatekeepers", which are designated by the European Commission ("EC") based on a set of defined criteria. So far, seven gatekeepers have been designated: Alphabet, Amazon, Apple, ByteDance, Microsoft, Meta and Booking. However, the DMA's effects extend beyond these tech giants. Its rules, especially those addressing anti-steering and self-preferencing, could impact how app developers design, market, and monetize their apps. For developers, understanding and navigating this new regulatory framework is essential to ensure a fair and competitive market while ensuring the rights afforded to them under the DMA are protected.
Steering obligations under Article 5(4) DMA and their impact on app developers
The DMA introduces significant changes to how app developers can engage with their customers, particularly through the steering obligations outlined in Article 5(4). These obligations are designed to prevent gatekeepers from monopolising the relationship between business users, including app developers, and end users.
Article 5(4) of the DMA requires gatekeepers to allow app developers to communicate and promote their offers to end users acquired through the gatekeeper's platform without incurring any charges. This includes allowing app developers to "steer" end users toward offers outside the gatekeeper's platform. In order words, this means developers can direct end users to alternative channels to complete purchases or access services under different conditions than those offered on the gatekeeper's platform.
These steering obligations effectively grant app developers more freedom to interact with their users outside the gatekeeper's platform. Developers can leverage this freedom to establish more direct relationships with their users, potentially reducing their dependence on gatekeepers and avoiding high commissions or restrictions imposed by app stores. Additionally, the DMA's steering obligations encourage multi-homing, allowing users to access similar services or content across different platforms. For developers, this means more opportunities to reach users from various channels, enhancing visibility and competition.
An example of Article 5(4) in action is the EC's ongoing investigation into whether Alphabet's Google Play Store's and Apple's App Store's restrictions on communication, promotion, and direct contracts, comply with the DMA's steering obligations. In its preliminary findings with respect to Apple, the EC determined that Apple's business terms governing its relationship with app developers do not allow developers to freely steer their customers to alternative channels. For instance, developers are only permitted to share pricing information or promote external offers within their apps through limited "link-outs" that direct users to a website. Even the link-outs are heavily restricted, preventing developers from fully utilising alternative distribution channels. Additionally, Apple imposes fees on developers for any purchases made within seven days of a link-out for initial acquisition, which the EC finds to exceed what is necessary.
Addressing gatekeeper self-preferencing through fair ranking measures under Article 6(5) DMA
Another critical aspect of the DMA that app developers should be aware of is the prohibition of self-preferencing, as outlined in Article 6(5). This provision is designed to ensure that gatekeepers do not unfairly prioritise their own products and services over those of third-party developers in search rankings, indexing, and other forms of content display. This means that when a gatekeeper operates a search engine, online marketplace, social media platform, or similar service, it cannot manipulate rankings to give its own products or services an unfair advantage over those of competitors.
Self-preferencing can occur in various contexts, such as search engine results, where a gatekeeper's products are embedded within or highlighted above third-party products, social media news feeds, where the platform promotes its own content more prominently than that of other users, and online marketplaces or virtual assistants, where the gatekeeper's offerings are featured more prominently or exclusively. These practices undermine the contestability and fairness of the market, making it difficult for app developers and other business users to compete effectively.
The prohibition against self-preferencing is designed to ensure, among other things, fair competition, improved visibility, and transparent, non-discriminatory ranking. This prohibition grants app developers a fair chance to compete with the gatekeeper's own products and services. If a developer's app offers better features or a superior user experience than a gatekeeper's equivalent service, it should have an equal opportunity to be discovered and used by end users. App developers can also expect improved visibility, which may lead to increased user acquisition and growth, particularly for innovative or niche apps that might otherwise be overshadowed by the gatekeeper's products. Furthermore, the DMA requires gatekeepers to apply transparent, fair, and non-discriminatory conditions to their ranking processes, allowing developers to better understand how their apps are being ranked and what factors influence their visibility. Such information is crucial for optimising app performance and marketing strategies.
An example of these self-preferencing obligations is the EC's investigations into Alphabet's practices, specifically its measures against the self-preferencing of its vertical services, such as Google Shopping, Google Flights, and Google Hotels. While Google has already made substantial changes to counteract self-preferencing, the EC remains concerned about whether the measures taken by Alphabet are sufficient to ensure fair and non-discriminatory treatment of third-party services in Google's search result displays.
Ensuring fair competition and compliance under the DMA
The DMA represents a significant change in the regulatory landscape. While primarily aimed at addressing the dominance of large technology platforms, its provisions also empower app developers by promoting fair competition and safeguarding their rights. The steering obligations outlined in Article 5(4) enable developers to engage directly with their customers, reducing their dependency on gatekeeper platforms. Similarly, the prohibition on self-preferencing under Article 6(5) ensures that developers can compete based on the merits of their products.
Given the complexity of the new regulations, some gatekeepers might face challenges in meeting the DMA's requirements within the stipulated time frame. In such cases, it becomes essential for business users to take action to ensure proper implementation of these regulations. If an app developer or any other business user encounters potential non-compliance by a gatekeeper, there are three options available to safeguard their rights.
First, a developer can lodge a complaint with the EC through the
DMA Whistleblower Tool, which may prompt the EC to address the
concerns with the gatekeeper and, if necessary, initiate
proceedings to enforce compliance. If a developer believes that a
gatekeeper's practice violates the DMA, a complaint can also be
filed with national competition authorities. Finally, rights can be
enforced directly in national courts, as the DMA has a direct
effect.
By utilising these mechanisms, and knowing their rights under the
DMA and - more broadly – national and EU competition
provisions, app developers can play an active role in ensuring that
gatekeepers adhere to their obligations towards business users,
thereby promoting a more competitive and fairer digital market.
If you need advice regarding the EU' Digital Markets Act contact us here.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
