EU Takes Aim at Big Tech’s Power With Landmark Digital Act

By | March 24, 2022

GÖTTINGEN, Germany — The European Union agreed on Thursday to one of the world’s most far-reaching laws to address the power of the biggest tech companies, potentially reshaping app stores, online advertising, e-commerce, messaging services and other everyday digital tools.

The law, called the Digital Markets Act, is the most sweeping piece of digital policy since the bloc put the world’s toughest rules to protect people’s online data into effect in 2018. The legislation is aimed at stopping the largest tech platforms from using their interlocking services and considerable resources to box in users and squash emerging rivals, creating room for new entrants and fostering more competition.

What that means practically is that companies like Google will no longer be able to collect data from different services to offer targeted ads without users’ consent and that Apple may have to allow alternatives to its App Store on iPhones and iPads. Violators of the law, which will take effect as early as later this year, could face penalties of up to 20 percent of their global revenue — which could reach into the tens of billions of dollars — for repeat offenses.

The Digital Markets Act is part of a one-two punch by European regulators. As early as next month, the European Union is expected to reach an agreement on a law that would force social media companies such as Meta, the owner of Facebook and Instagram, to police their platforms more aggressively.

With these actions, Europe is cementing its leadership as the most assertive regulator of tech companies such as Apple, Google, Amazon, Meta and Microsoft. European standards are often adopted worldwide, and the latest legislation further raises the bar by potentially bringing the companies under a new era of oversight — just like health care, transportation and banking industries.

“Faced with big online platforms behaving like they were ‘too big to care,’ Europe has put its foot down,” said Thierry Breton, one of the top digital officials in the European Commission. “We are putting an end to the so-called Wild West dominating our information space. A new framework that can become a reference for democracies worldwide.”

On Thursday, representatives from the European Parliament and European Council hammered out the last specifics of the law in Brussels. The agreement followed about 16 months of talks — a speedy pace for the EU bureaucracy — and sets the stage for a final vote in Parliament and among members from the 27 countries in the union. That approval is viewed as a formality.

Europe’s moves contrast with the lack of activity in the United States. While Republicans and Democrats have held several high-profile congressional hearings to scrutinize Meta, Twitter and others in recent years, and US regulators have filed antitrust cases against Google and Meta, no new federal laws have been passed to address what many see as the tech companies’ unchecked power.

Europe’s new rules could offer a preview of what’s to come elsewhere in the world. The region’s online privacy law, the General Data Protection Regulation, which restricts the online collection and sharing of personal data, has served as a model in countries from Japan to Brazil.

The path of the Digital Markets Act faced hurdles. Policymakers dealt with what watchdogs said was one of the fiercest lobbying efforts ever seen in Brussels as industry groups tried to water down the new law. They also brushed acid concerns raised by the Biden administration that the rules unfairly targeted American companies.

Questions remain about how the new law will work in practice. Companies are expected to look for ways to diminish its impact through the courts. And regulators will need new funding to pay for their expanded oversight responsibilities, when budgets are under strain from the pandemic.

“The pressure will be intense to show results, and fast,” said Thomas Vinje, a veteran antitrust lawyer in Brussels who has represented Amazon, Microsoft and Spotify.

Tech industry groups the new law as biased against American companies and predicted it would harm innovation in Europe.

“This bill was written to target US tech companies, and its impact will fall on American workers,” said Adam Kovacevich, chief executive of the Chamber of Progress, a trade group in Washington. “European regulations that single out our tech sector threaten American jobs — not just in Silicon Valley, but in cities from Pittsburgh to Birmingham.”

The Digital Markets Act will apply to so-called gatekeeper platforms, which are defined by factors including a market value of more than 75 billion euros, or about $83 billion. The group includes Alphabet, the owner of Google and YouTube; Amazon; Apple; Microsoft; and Meta.

Specifics of the law read like a wish list for rivals of the biggest companies.

Apple and Google, which make the operating systems that run on nearly every smartphone, would be required to loosen their grip. Apple will have to allow alternatives to its App Store for downloading apps, a change the company has warned could harm security. The law will also let companies such as Spotify and Epic Games use payment methods other than Apple’s in the App Store, which charges a 30 percent commission.

Amazon will be barred from using data collected from outside sellers on its services so that it could offer competing products, a practice that is the subject of a separate EU antitrust investigation.

The law will result in major changes for messaging apps. WhatsApp, which is owned by Meta, could be required to offer a way for users of rival services like Signal or Telegram to send and receive messages to somebody using WhatsApp. Those rival services would have the option to make their products interoperable with WhatsApp.

The largest sellers of online advertising, Meta and Google, will see new limits for offering targeted ads without consent. Such ads — based on data collected from people as they move between YouTube and Google Search, or Instagram and Facebook — are immensely lucrative for both companies.

“Large gatekeeper platforms have prevented businesses and consumers from the benefits of competitive digital markets,” said Margrethe Vestager, the executive vice president of the European Commission overseeing digital and competition policy, in a statement. The companies, she said, will now “have to comply with a well-defined set of obligations and prohibitions.”

Meta, Microsoft and Amazon declined to comment. Google and Apple did not respond to requests for comment.

Anu Bradford, a Columbia University law professor who coined the term “Brussels Effect” about the influence of EU law, said European rules often became global standards because it was easier for companies to apply them across their entire organization rather than one geography.

“Everybody is watching the DMA, it the leading tech companies, their rivals or foreignone be,” Ms. Bradford said, referring to the Digital Markets Act. “It is possible that even the US Congress will now conclude that they are done watching from the sidelines when the EU regulates US tech companies and will move from talking about legislative reform to actually legislating.”

President Biden has appointed Lina Khan, a prominent Amazon critic, to lead the Federal Trade Commission and a lawyer critical of the tech giants, Jonathan Kanter, to head the antitrust division of the Department of Justice.

But efforts to change American antitrust laws have moved slowly. Congressional committees have endorsed bills that would stop tech platforms from favoring their own products or buying smaller companies. It is unclear whether the measures have enough support to pass the full House and Senate.

European regulators are now faced with enforcing the new law. GDPR has been for lack of enforcement.

The European Commission, the executive branch of the bloc, will also have to hire scores of new employees to investigate the tech companies. Years of litigation are expected as companies mount court challenges of future penalties issued as a result of the new law.

“The gatekeepers,” said Mr. Vinje, the Brussels antitrust lawyer, “will not be entirely without defenses.”

David McCabe contributed reporting from Washington.

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