As regulators get tough, Big Tech's easy ride is coming to an end

By Parmy Olson
 

Tech companies of a certain size have long expected an easy ride from authorities, and for good reason. They always got it.

Apple Inc. for years abused loopholes to pay virtually zero tax in the European Union while generating record profits there, thanks to special treatment from Ireland, where it bases its European headquarters. Alphabet Inc.’s Google for years was able to entrench its dominance in search thanks to the special treatment the company gave its own shopping service over competitors.  
 

Now Google and Apple are getting slapped for those blatantly unfair advantages. The EU is forcing Apple to pay €13 billion ($14.4 billion) in back taxes to the Irish government, and Google to pay a €2.4 billion fine for rigging its platform. For both, it’s the end of the line on appeals. Of course, the payments are just a cost of doing business — pocket change, really — and the companies can pat their lawyers on the back for dragging the cases out in court for years with endless appeals.

But the era of protracted cases is fading. The EU is transitioning to a period where its trust busters can be quicker and, as much as you can use the word to describe regulators, nimble, harnessing a more efficient legal framework to combat anticompetitive behaviour from the likes of Alphabet, Apple, Meta Platforms Inc., Amazon.com Inc., Microsoft Corp. and Nvidia Corp.

Until now, regulators had to be clever about how they used old, outdated rules to pursue their court cases. It’s why proceedings took so long to play out. The European Commission based Apple’s Irish tax case on a misuse of state aid, deploying laws that typically don’t have anything to do with tax. Legally, “it was a very creative approach,” says Anne Witt, a professor at EDHEC Business School's Augmented Law Institute. At the heart of the case was figuring out how to prove Ireland was giving Apple selective aid, which was also technically challenging to calculate, Witt adds.

Until now, regulators had to be clever about how they used old, outdated rules to pursue their court cases. It’s why proceedings took so long to play out. The European Commission based Apple’s Irish tax case on a violation of the EU State aid rules, which typically concern subsidies or grants. Legally, “it was a very creative approach,” says Anne Witt, a professor at EDHEC Business School's Augmented Law Institute. At the heart of the case was figuring out how to prove Ireland was giving Apple selective aid, which was also technically challenging to calculate, Witt adds.

But from this year onward, Europe’s authorities have a whizzy new tool, a regulatory innovation as meaningful to antitrust policy as ChatGPT was to generative artificial intelligence. It’s the Digital Markets Act (DMA), a law that large tech platforms had to start complying with in March. With any luck, the EU won’t be caught on the back foot quite as much, chasing after wrongdoing with investigations that run longer than it takes to put a child through school.

Now the big tech platforms have clear rules they must follow upfront. For instance, the DMA states that Apple and Google must allow their users to uninstall default apps on their devices like Apple Maps and Gmail, to promote competition. Google searches also don’t highlight results on Google Maps as easily as they did before.

Instead of drawn-out legal battles and appeals, the DMA should also lead to swifter resolution: fines of as much as 10 per cent of a company’s worldwide earnings, for instance. And instead of narrow investigations like the Google shopping case, the law covers far more ground, applying to everything from app stores to social media.

Spokespeople for Apple and Google both said the companies were “disappointed” with the court decisions this week. But Margarethe Vestager, the EU’s outgoing competition chief for whom these cases are a validating swan song, said they showed even the most powerful tech companies can be held accountable. 

That’s a growing sentiment across the Atlantic, where a US judge ruled last month that Google had rigged the search engine market and was a monopolist — and where for the first time in history, the prospect of breaking up a big tech firm (Google) is looking possible. The goal is to eventually create some more room for smaller companies to innovate and enter markets dominated by the giants and reduce the pressure to sell to those firms. 

For the tech monoliths, the payoff for lobbying lawmakers and keeping watchdogs tied up in court is looking less certain as regulations gather momentum. The DMA is one of the most radical approaches yet for keeping monopolistic practices in check, giving Europeans more control than anyone else in the world over what apps they can put on their smartphones and how their data is shared. 

How smoothly that transpires through the end of this year and into 2025 is still an open question, but it’s clear that Apple, Google and other big players will have to start waving goodbye to the advantages they’ve clung to for far too long.

Disclaimer: This is a Bloomberg Opinion piece, and these are the personal opinions of the writer. They do not reflect the views of www.business-standard.com or the Business Standard newspaper