EU Move Against Apple, Microsoft May Slow AI Adoption
Apple halts rollout of AI features in EU in response to 'regulatory uncertainties'
The European Union (EU) took steps last month to curb US tech giants’ market dominance with regulations that may delay the roll-out of AI products, keeping the bloc behind the curve regarding the leading global technology.
The European Commission (EC) informed Apple (NASDAQ:APPL) on June 24 that its App Store rules are in breach of its Digital Markets Act (DMA), as they prevent developers from freely steering consumers to alternative channels for offers and content. A day later, the EC ruled that Microsoft Corp. (NASDAQ:MSFT) violated antitrust rules by tying Teams to its productivity applications.
The 2022 DMA sets regulations for designated internet gatekeepers, including Alphabet (NASDAQ:GOOG), Amazon (NASDAQ:AMZN), Apple, ByteDance, Meta Platforms (NASDAQ:META) and Microsoft, in an effort to establish fair competition in Europe. The act enables the EC to investigate, fine and impose structural remedies on non-compliant gatekeepers that reach up to 10% of global annual turnover.
“Strong competition enforcement is always needed at times of big industrial and tech changes,” Margrethe Vestager, Executive Vice-President in charge of competition policy, said in a speech on June 28. “It is then that markets can tip, that monopolies can be formed, and that innovation can be snuffed out..”
The EU has taken a tougher stance against tech giants than the US by forcing them to do more to ensure a level playing field. The regulatory requirements, though, may hurt European tech competitiveness as countries with fewer restrictions roll out new AI technology.
EU Lags Behind
The EU already lags behind the US in terms of private-sector AI investment and the number of new AI companies being established.
In 2023, the US saw AI investments reach $67.2 billion, nearly 8.7 times more than China, the next highest investor. Private AI investment in the EU, including the United Kingdom, declined 14.1% from 2022, compared with an increase of 22.1% in the US, according to Stanford University’s 2024 AI Index Report.
The US registered last year the largest number of new AI companies at 897, compared with 104 in the UK with 104 and 76 in Germany. In 2023, 61 notable AI models originated from U.S.-based institutions, far outpacing the European Union’s 21 and China’s 15, data from the Stanford University report show.
Apple, Meta halt AI rollouts
Ahead of the EC decision, Apple delayed the rollout of its recently announced AI features in Europe because of "regulatory uncertainties." It cited concern “that the interoperability requirements of the DMA could force us to compromise the integrity of our products in ways that risk user privacy and data security."
"We are committed to collaborating with the European Commission in an attempt to find a solution that would enable us to deliver these features to our EU customers without compromising their safety," the company said.
Meta also paused its plans to train AI models on Facebook and Instagram users in the EU, a move the social media giant said would delay its plans to launch Meta AI in the economic zone. Meta will move forward with using public social media posts to train its neural networks for all other regions than the EU.
The decision to halt AI training with EU customer data followed complaints to data protection agencies in 11 European countries. Meta called this "a step backward for European innovation" that will cause "further delays bringing the benefits of AI to people in Europe."
Preliminary Findings
The EC’s preliminary findings against Apple stem from an investigation opened in March.
The Commission also opened a new non-compliance procedure against Apple over concerns that its contractual requirements for third-party app developers and app stores fall short of ensuring effective compliance with Apple's obligations under the DMA.
Thierry Breton, the European Commissioner for Internal Market, said on June 24 that EC was determined to use “the clear and effective DMA toolbox to finally open real opportunities for innovators and for consumers” concerning Apple’s business prices
Regarding Microsoft, the commission said it was “concerned” that the company had restricted competition on the market for communication and collaboration products since at least April 2019, according to its statement on June 25. The Commission started its Microsoft investigation after complaints by Slack Technologies, which is owned by Salesforce, and by Germany’s Alfaview GmbH.
‘Remaining Concerns’
“Having unbundled Teams and taken initial interoperability steps, we appreciate the additional clarity provided today and will work to find solutions to address the Commission‘s remaining concerns.” Microsoft President Brad Smith said in a prepared statement.
Apple and Microsoft now have the opportunity to defend themselves against the commission’s finding of infringement. Both companies could face fines of up to 10% of their annual global revenue, according to the EC statements. The fine can be increased to 20% of the companies’ global revenue if it repeats the offense.
Despite the potential fines, Apple's share price was unchanged at $209 on the day of the ruling. Microsoft’s share prices edged slightly higher, closing 0.60% higher on June 25 at $450.84.
If the EC moves against, the US tech giants could impact their share prices. While Apple is forecast to report a 10% revenue increase, fines may prevent revenue growth. Microsoft is also expected to see a modest revenue increase, and may face additional pressure should penalties be imposed.