Introduction
Late last year, Japan joined the recent wave of countries attempting to regulate smartphone platforms such as iOS or Android when its new Mobile Software Competition Act (MSCA) went into effect. Like similar statutes around the world, the new legislation aims to give consumers more choices when it comes to how and where they purchase apps, while improving access for third-party developers.
But compared to some of its international peers, Japan has pursued a more smartly tailored regulatory approach that should be seen as a model. It stands in especially stark contrast to the European Union’s overbroad Digital Markets Act (DMA), avoiding many of the safety and security issues that have been created by the EU’s effort. Here are four key areas where the Japanese and European approaches differ, underscoring how the MSCA offers a better approach.
Security and User Choice
How to give consumers more choice about where they purchase apps without compromising their security is one of the most important questions in mobile platform regulation. Europe and Japan have taken vastly different approaches to the issue.
Under Europe’s DMA, platforms must allow users to download apps directly from third-party websites, without intermediaries providing protections or checks on in-app content. This approach creates substantial security risks, allowing for the distribution of malware or other content that skirts existing security reviews conducted by platforms.
Under the law, platforms are also required to let developers use an alternative payment system — so, for instance, your favorite music streaming app could direct customers to its own payment system and entirely bypass Apple or Google’s, which might charge the companies a fee. As a result, users might no longer be able to use trusted platform payment options and instead be forced to share their financial information with an unfamiliar firm. The tools and protections that users have come to know and trust (like refund and fraud monitoring) could be removed as a result of poorly designed attempts to increase user choice.
By contrast, the MSCA takes an approach that protects security while still encouraging user choice. By permitting measures “ensuring cybersecurity for smartphone use,” mobile platforms can ensure that alternate app stores include security protections or block criminal content. Meanwhile, alternative payment systems must appear alongside platform payment systems, expanding user choice with flexibility rather than reducing it.
The MSCA’s approach acknowledges that competition regulation should expand the choices users have, not eliminate existing ones or push users towards less secure alternatives.
Protecting Kids
Policymakers around the world are grappling with a difficult question: how do we keep young people safe online in an increasingly digital world? There are no easy answers to this question. But at the very least, online competition rules shouldn’t make it more difficult to protect kids.
Unfortunately, the DMA, passed in 2022, fails on this front. For starters, it does not include explicit protections for minors. As a result, children are treated the same as adults when it comes to the DMA’s rules on alternative app distribution and payment services, discussed above. Since the law forces platforms to allow relatively free access to sites and systems outside of the platform owner’s control, efforts to restrict the content that kids can access could be considered a violation of the DMA. For example, age restrictions for apps distributed outside the app store may not be permissible under the DMA; platforms have already been forced to allow apps containing explicit content to be installed through alternate app stores. Lacking a carveout for youth protections, kids could be left with unmitigated access to explicit or harmful content online.
Unlike the DMA, the MSCA permits measures “safeguarding youth who use smartphones.” Measures that might face legal challenges under the European approach can remain in place in Japan. Tools like limiting transaction links in apps designed for children, restricting access to alternative markets through controls at the operating system level, and limiting targeted advertising to minors are all possible through the MSCA, empowering parents.
As PPI has previously explored, parents are strongly supportive of these sorts of controls, which enable them to make decisions about their kids’ online access. The MSCA’s approach does not resolve all of the difficult questions about kids’ online safety, but it provides the flexibility needed to maintain existing safeguards while still preserving competition.
Interoperability and Privacy
Interoperability — allowing third parties to interface with a platform’s systems and data— is an admirable strategy for strengthening competition and helping users get more out of their devices. But it is not without tradeoffs: integration inherently requires control and access to potentially sensitive data. Competition regulation should be selective about where and how interoperability is mandated in order to maximize the benefits for users while maintaining safety as much as possible.
The European approach forces platforms to provide third parties with sweeping access to user data for interoperability purposes. For example, mobile platforms have faced requests to hand over the full contents of users’ notifications or the history of Wi-Fi networks they have connected to, regardless of how the third party intends to use the data. Notification contents could expose two-factor authentication codes or private details, while Wi-Fi history could reveal where and how a user is spending their time. With no option for platforms to deny requests for sensitive user information, third parties may maliciously harvest and monetize data for their own gain, all while consumers remain unaware of risks. These overly broad interoperability mandates harm user privacy and could eventually erode trust in platforms, hurting the market for all developers.
Japan’s competition law takes a narrower approach to interoperability access. The MSCA requires that requests remain “proportionate to the competition related problems at hand” and allows platforms to reject inappropriate data access attempts. Platforms can also reject requests from parties who are legally required to share collected data with foreign governments, keeping user data safe. These measures mean that opportunities for interoperability, which benefit users, can remain in place, while those that exploit them are rejected.
Innovation and Intellectual Property
Governments also need to balance their desire to encourage competition with the need to incentivize innovation. Requiring platforms to share features or access with competitors can provide users more choice, but it also weakens the returns from research and development. This can lead to stagnation as companies find themselves unwilling to invest in innovation. In designing competition regulation, policymakers are forced to make a choice about how to strike this balance, and the DMA and MSCA represent meaningfully different answers with real consequences for users.
The DMA’s “interoperability by design” approach means that platforms are often required to share features and IP with third parties without compensation, including early notice about coming updates. This gives competitors valuable insight into platforms’ future plans, and introduces significant costs for platforms to make new systems and features compatible while competitors’ development costs are effectively subsidized.
These misaligned incentives mean that platforms may withhold or delay new features, leading to a worse experience for users. Recently, Apple has delayed iOS features like Live Translation or withheld others like iPhone Mirroring entirely in Europe as a result of the DMA. Apple argues that because of concerns over privacy and compliance with interoperability requirements, such delays are likely to continue. Today, European users have a limited product compared to their international counterparts, not due to technical limitations but because of the high costs of legislative compliance.
Japan’s “proportional interoperability” approach is narrower and contains protections for “legitimate exercise of intellectual property rights,” including the ability for platforms to charge for interoperability access. Platforms maintain the right to evaluate whether to implement interoperability access on some features, allowing them to more effectively use resources and preserving incentives for R&D investment. Tellingly, Japanese users have so far not faced the same feature delays or limitations that European users have. The results show that the MSCA’s proportional approach can still address genuine competition concerns without severely damaging incentives for innovation.
Conclusion
The DMA and MSCA present two significantly different approaches to increasing competition in the smartphone ecosystem. The DMA’s hardline, no-exceptions approach has lofty ambitions, but has already led to negative tradeoffs for consumers, including reduced protections for minors, privacy risks with interoperability, and delayed features. While the full impact of the still-young MSCA remains to be seen, its moderate approach appears poised to avoid the same pitfalls that have hampered the DMA to date.
As both laws mature and their impacts are fully understood, the comparative outcomes will be instructive for policymakers around the world considering similar legislation. Effective competition policy should expand user choice without major sacrifices to security, privacy, or other protections that users value, and Japan’s efforts show this balance is achievable.
