As we celebrate American independence this week, a small cadre in Congress is set to reintroduce a European-style legal framework, the American Innovation and Competition Online Act (AICOA). According to the bill’s authors, AICOA is the American version of Europe’s own Digital Markets Act (DMA). Along with this development come the old fears that government may squash (or at least seriously undermine) the best global distribution options American small companies have today. European regulators, competitors, and consumers are learning the hard way about the downsides of an AICOA approach as the DMA fully blooms into implementation. From our shores, small businesses are hoping that American policymakers understand these problems well enough to reject AICOA.

As we’ve pointed out, even the DMA’s shrillest proponents have exhibited serious buyer’s remorse as its provisions take effect. Let’s take a fresh look at the reasons DMA is not the best fit for the United States:

DMA Eliminates New Product Developments. In a clear example of how DMA prevents foundational services from improving, Apple is not planning to bring Apple Intelligence to European consumers. The problem with this from small app company perspectives is that Apple Intelligence is an offering that puts privacy and security first, by tightly limiting access to the personal data powering generative artificial intelligence (AI) on iPhones. App makers want to be able to choose a more privacy protective AI platform on which to build their large language model (LLM)-powered tools. Consumers, in turn, at least want the option to benefit from generative AI without signing away all of their personal information. DMA’s mandates would require that Apple make the personal data driving the generative AI tools on iPhones available to any other developer. But it is precisely this kind of open access that gives scores of consumers pause when they encounter a generative AI service. They don’t want their personal data to end up in a huge database available to anyone. The fact that DMA may not allow this more privacy protective version of generative AI is a problem both for consumers and for small companies who want to build on that foundation.

DMA Degrades Consumer Experience and Small Business Prospects. By eliminating the flexibility online marketplaces have to keep consumers coming back to their services, DMA requires marketplace design to cater to specific, well-resourced competitors instead of small businesses and consumers. For example, DMA prohibits Google Search from applying any logical organization scheme to the sponsored results at the top of the page, instead requiring that it allow results and ads to appear randomly. The results have been measurable for both consumers and small businesses, with hotel ad clicks via Google Search declining 30 percent and costs for independent hotels increasing as they can no longer rely on Google Search to be found. Likewise, by mandating interoperability and full access to hardware and software features of consumers’ smart devices, DMA removes security and privacy protections currently in place for consumers in non-DMA markets. Small businesses disproportionately benefit from a privacy protective marketplace, so this aspect of DMA harms both consumers and small companies distributing through the major app stores.

 DMA Prioritizes Bureaucrat Preferences Over Those of Consumers and Compliance Over Innovation. The European Commission’s (EC’s) top competition enforcer, Margrethe Vestager, summed up the DMA’s prioritization of bureaucrat preferences over consumer welfare when she said she was “personally quite relieved” EU citizens would not get Apple’s generative AI features. It is hard to believe consumers in Europe would want to be prohibited from accessing the benefits of generative AI, especially via privacy- and security-protective options. Yet, in this case, the EC has decided for its consumers that it is good not to have this additional option introduced in the marketplace. Highlighting the DMA’s prioritization of compliance over vigorous competition, Vestager also proclaimed, “[i]t is surprising that some of the most valuable, respected big companies on this planet do not take compliance as a badge of honor.” Underscoring the extent to which DMA’s purpose was to produce a regulator-formulated, centrally planned marketplace, the EC only studies the effects of its mandate after it was adopted. For example, just a few days ago, it issued a tender for a study of interoperability tools to comply with DMA, and late last year, it sought feedback on the obvious cybersecurity problems DMA creates. It is unclear if the results of these studies will ever be published or if the EC will take them into account. Accordingly, they are weak, late-breaking gestures at evaluating DMA’s efficacy as a proposed solution and understanding the problems it would create. They are likely purposefully inadequate as a means of uncovering the true costs of foregoing consumer welfare in favor of government preferences and compliance.

In the United States, competitors have relatively wide latitude to make the products and services that consumers want more than those made by rivals. The net result of this is that small businesses are often able to satisfy consumers’ (and their own) discerning demand for the best inputs and distribution paths to reach their global markets. Flipping this paradigm, as AICOA would do, to one that punishes efforts to surpass and innovate beyond marketplace rivals—and instead places badges of honor on those who comply most fervently—is a bad formula for American consumers and small businesses. Congress should reject measures like AICOA and decline to convert America’s diverse engines of innovation to cookie cutter compliance factories.