Written by: Matthew Unsworth

Tech giants are coming under increasing scrutiny by competition authorities, especially in the EU.  The European Commission, having led high-profile investigations into Microsoft and Google in recent years, has now turned its gaze to Amazon and Apple.  Here, we will take a brief look at why those companies have piqued antitrust regulators’ interest, before fleshing out the specific allegations against them.  We will round off by considering likely remedies and their effectiveness, were breach of competition law to be established.

Why focus on Big Tech?

It’s worth remembering that competition authorities, like all public bodies, do not enjoy limitless budgets; some complaints must be prioritised over others.  Why, then, have tech giants found themselves under the spotlight?  The simple answer is that the services they offer have become hugely relevant to our day-to-day lives.  In 2019, 88% of EU residents used the internet and 63% made online purchases, compared with just 71% and 40% respectively in 2010.  In roughly the same time span, social media usage has increased from 38% to 56% of the EU population.  If consumers are moving online, so the argument goes, it makes sense to focus on ensuring virtual markets are functioning properly rather than spending time and effort investigating traditional bricks-and-mortar businesses.  Tristan Harris, President of the Center for Humane Technology, captured this sentiment very well in describing social media as the next frontier in utilities, supplying ‘attention’ as opposed to water/gas/electricity/etc.

There are also a couple of antitrust-specific factors we should consider.  First of all, the largest tech firms have very deep pockets.  Alphabet, Amazon, Apple, Facebook and Microsoft are amongst the top ten global companies both by total assets and by market capitalisation.  Such financial might enables them to pursue strategies which aren’t open to competitors.  Crucially, we’re not just talking about outright anticompetitive conduct, here.  True, a wealthier undertaking is better able to engage in predatory pricing (ie sacrificing profit margins in the short term to win market share in the long term); but it is also better able to reduce its dependence on other firms through vertical integration.  Apple, for example, announced last month that it would move from buying chips from Intel to manufacturing its own for the full range of Mac computers within two years.

Second of all, the large tech firms in particular benefit from so-called ‘network effects’; in other words, their popularity is self-reinforcing.  The more users a social media site has, the more likely people are to join and so on and so forth.  The flip side is that it becomes progressively harder for new market entrants to gain a foothold, since the incumbents become almost unassailable—something the Competition and Markets Authority has very recently argued in relation to Facebook and Google.

What sort of conduct is being investigated?

The Commission seems to be honing in on instances of tech firms manipulating virtual ecosystems they control to give an unfair advantage to their own products/services (‘self-preferencing’).  The first time issue was taken with such conduct was back in 2017, when Alphabet was found to have committed an abuse of dominant position by pushing Google Shopping results to the top of Google search pages to the detriment of competing price comparison services.  In the Commission’s eyes, this was a means of evading competition on the merits; consumers wouldn’t necessarily choose Google Shopping because it was any better than competitors but just because its results were engineered to be most visible.

The ongoing investigations into Amazon and Apple follow similar lines.  There are concerns that the way the former runs its online marketplace improperly favours Amazon’s own retail arm.  Third-party sellers agree to the analysis of certain sales data by Amazon but the question is how this information is used.  If it helps to improve the service it offers retailers which list products on its website, this is ‘completely legitimate’.  However, some claim that sales information is being analysed to identify products which sell well so that they may be replicated by Amazon, which can then outcompete the original sellers.  A finding that the relevant data is used in this way would be problematic from an antitrust perspective as it would mean Amazon was operating, as a retailer, without any of the risk (eg of product failure) which burden its competitors.

As for Apple, two distinct issues are being investigated.  Firstly, the company seems to limit access to near-field communication technology on its iPhones, essential for effecting ‘tap and go’ payments, to the Apple Pay app.  Producers of competing payment apps are therefore entirely excluded from the iPhone market.  Interestingly, similar concerns had been raised about the way in which Apple had prevented wireless tracking tags (produced by companies such as Tile) to integrate with its ‘Find My’ app but the company backtracked on this at its Worldwide Developers Conference (WDC) on 22 June.

Secondly, Apple takes a 30% cut of all in-app payments made to developers, including subscription fees for music or e-reader services.  What’s more, developers are prohibited from advertising other payment avenues (eg a payment portal on their website) in the apps themselves.  If these terms are not complied with, the relevant app will be excluded.  The Commission is concerned that Apple might be using this ‘“gatekeeper” role’ vis-à-vis the App Store to ‘distort competition … where Apple is competing with other app developers’.  Companies such as Spotify and Kobo, for example, must choose whether to forfeit 30% of their takings, putting them at a considerable competitive disadvantage to Apple Music and Apple Books, or risk losing users on account of them not knowing how to pay.  Though Apple announced new mechanisms to challenge both a finding of non-compliance with the App Store Review Guidelines and the Guidelines themselves at the WDC, there was no explicit reference to the rules on in-app payments.

What remedies might be imposed?

The Commission may reach the conclusion that Amazon and/or Apple have violated one of Articles 101 or 102 of the Treaty on the Functioning of the European Union (TFEU).  Put simply, those firms might be found to have either abused a dominant position or been party to an anticompetitive hub-and-spoke agreement with retailers and app developers respectively.  Of course, we should note that there is no guarantee of such a finding.  Indeed, even if the Commission believes there to have been a breach of competition law, the logic of ‘self-preferencing’ still hasn’t been confirmed by the EU courts.  We could plausibly argue that how a firm manages its own ecosystem is its business; if the terms a particular platform offers are egregious, eventually someone will replace it with a fairer one.  Moreover, antitrust investigations are not typically short affairs.  The Commission’s investigation into Qualcomm, which concluded in 2019, related to conduct which took place way back in 2009.  Whatever the verdict on Amazon and Apple’s business practices, we will be waiting some time for it.

Those caveats in mind, what would be the consequences of a finding of breach?  The Commission would first seek to bring the illegal conduct to an end through a structural or behavioural remedy.  In the Google Shopping Decision discussed above, rather than automatically reserve the top spots in search results for its own price comparison service, Alphabet was required to allocate them more fairly.  Those spots are now allocated to the highest bidder.  Of course, there’s a risk of over-intervention.  In the early 2000s, Microsoft was required to offer a version of its Windows operating system without Windows Media Player (WMP) so that the latter didn’t derive an unfair advantage from the popularity of the former.  This remedy ended up being wholly unnecessary; only a tiny fraction of consumers chose the WMP-free version.

Amazon and Apple would also face fines up to a maximum value of 10% of their annual turnover.  We’re undoubtedly talking about substantial amounts for both companies—based on last year’s figures, as much as $28bn and $26bn respectively—but the effectiveness of fines in deterring anticompetitive conduct has been doubted by The Economist.  For a start, even though antitrust fines seem high, they tend to pale into insignificance compared to the turnover of a large tech firm; Alphabet was fined $2.6bn for the Google Shopping infringement yet it made more than $160bn in 2019.  Furthermore, fines imposed on tech firms in the past haven’t tended to dent their share prices.

Conclusion

It’s no coincidence that the European Commission is increasingly interested in tech firms from a competition perspective; they are wealthy, popular undertakings with huge relevance to the lives of European consumers.  Whether any findings of breach will emerge from the investigations into Amazon and Apple is for the time being uncertain.  If either firm is held to have violated articles 101 or 102 TFEU, they face changes to their business strategies and hefty fines—though, if past is experience is anything to go by, they’ll weather the storm.