Report from Bloomberg
In Brief – Apple’s legal challenge to the German Federal Cartel Office (FCO) designation that they are a digital company “of paramount significance on competition across markets” appears to face skeptical judges on the Federal Court of Justice in Karlsruhe, the country’s top civil court. Apple is one of five digital giants, along with Google, Meta, Amazon, and Microsoft, that are covered by Section 19(a) of the German Competition Act that enables the country’s competition regulator to prohibit the largest digital companies from undermining competition in any market in which they operate. The law requires the FCO to first determine if a digital company meets the standard of having paramount significant across markets, and then the agency can establish rules to protect competition in the markets they occupy, such as prohibiting preferential treatment for their own services or hindering interoperability. The FCO ruled in April 2023 that Apple was so designated, but the iPhone giant challenged the determination arguing that the FCO did not present an accurate picture of the hardware market in Germany and the competition that Apple faced. In the hearing, Presiding Judge Wolfgang Kirchhoff cited a long list of reasons why Apple likely qualifies for tighter regulation under Section 19(a), including its financial power, its market shares, and the fact that it bundles its hardware and software products.
Context – The German law allowing the FCO to regulate digital giants was a harbinger of the EU’s Digital Markets Act. Some German officials have questioned the DMA for being too limited in the types of conduct they can address. While there are seven DMA “gatekeepers”, only 24 of their designated “core platform services” are covered by the law. Section 19(a) authority allows the FCO to regulate any service of a designated digital giant. For example, the FCO used its authority to regulate Google’s auto services that are currently outside the scope of the DMA. Allegations that Microsoft uses Office 365 to benefit products like Teams and its cloud services are not in scope for the DMA, but they are for the FCO.