Europe rewrites rulebook for digital age

Many of Silicon Valley’s biggest companies could face blockbuster fines under new proposals from the European Union announced Tuesday aimed at boosting digital competition and protecting people from online harm.

The announcement represents a watershed moment for Ursula von der Leyen’s Commission, which has made so-called “technological sovereignty,” or efforts to bolster the bloc’s role in digital markets, a central piece of its legislative agenda.

Under the proposals, known as the Digital Markets Act and Digital Services Act, large online platforms like Google, Amazon and Facebook will face new limits on how they can expand their online empires or face levies of up to 10 percent of their global revenue — potentially billions of euros — for unfairly hamstringing smaller rivals.

In the most egregious cases, EU regulators would be granted stronger powers to break up companies that flouted the bloc’s new digital rulebook.

Brussels also outlined separate fines of up to six percent of annual revenue for Big Tech companies — those with at least 45 million users across the 27-country bloc — that fail to limit how illegal material, everything from hate speech to counterfeit products, can spread across their networks.

“The two proposals serve one purpose: to make sure that we, as users, have access to a wide choice of safe products and services online.” Margrethe Vestager, the European Commission’s executive vice president who oversaw the bloc’s digital reboot, said in a statement. “What is illegal offline is equally illegal online.”

The proposals are still far from becoming law. The European Parliament and member countries will now weigh in — there is no consensus on how best to regulate tech companies — and final rules are not expected before 2023 at the earliest. Deciding which companies are deemed dominant under Europe’s new regime — making them liable for tougher oversight — is will also take years, and will likely involve firms challenging those decisions in EU courts.

Those in favor of the new rules say the current system for policing the online world is broken, with Silicon Valley holding too much sway over people’s digital lives. Those against the reboot caution that Europe’s proposals may harm innovation, just as the bloc tries to keep pace with the United States and China.

Still, Brussels is eager to flex its regulatory muscles as other parts of the globe, most notably the U.S. — where local competition authorities recently filed separate antitrust lawsuits against Google and Facebook — also begin to question Silicon Valley’s role in people’s daily lives.

“Many online platforms have come to play a central role in the lives of our citizens and businesses, and even our society and democracy at large,” said Thierry Breton, the French commissioner who helped draft Tuesday’s proposals and is a staunch critic of Big Tech. “With today’s proposals, we are organizing our digital space for the next decades.”

Digital Markets Act: Dos and don’ts

The centerpiece of Europe’s digital plans is aimed at boosting online competition in a world dominated by Silicon Valley.

As part of the proposals, the Digital Markets Act will impose new obligations on so-called “gatekeepers,” or online players that determine how other companies interact with online users, to ensure these platforms do not stop others from competing for users. The rules will cover companies offering digital services like online search, social networking, video-sharing platforms, cloud computing, internet messaging services, online operating systems, online marketplaces and advertising products.

Failure to live by these rules could lead to hefty fines up to 10 percent of a company’s global revenue, or — in the worst cases — threats to break up firms that repeatedly break the new rules, a provision that is already baked into EU law.

On Tuesday, Brussels did not name companies that would be designated as gatekeepers. But officials said that any firm with European revenues of at least €6.5 billion or at least 45 million users in the bloc would fall into the new category, allowing for tougher regulatory oversight. Companies operating in at least three EU countries, controlling a digital ecosystem that rivals need to use to reach customers and maintaining an entrenched market position would be included. That would almost certainly include the likes of Facebook, Google, Apple, Amazon and Microsoft.

There will also be a lesser defined gatekeeper provision to ensure the new rules also apply to smaller platforms that either do not have sufficient revenues to meet the EU’s first criteria or are only dominant in specific online markets. Several departments within the Commission are expected to work to define who should be treated as a gatekeeper — an overtly political decision that will likely lead to internal strife amid ongoing tensions between Vestager and Breton over the bloc’s approach to digital rulemaking.

As part of the overhaul, the Commission outlined plans to ban certain business practices like dominant digital companies displaying or ranking their own products ahead of those of rivals, known as self-preferencing. Apple, for instance, could see restrictions on how it promotes its new suite of digital services, while Google may be limited in placing its own products at the top of people’s search results. 

Brussels also wants to outlaw gatekeepers’ ability to ban others from accessing their online marketplaces like app stores, as long as these rivals comply with conditions that apply to all firms present on the service. That has become a significant bone of contention for the likes of Spotify and Facebook that believe Apple has slapped unfair conditions on those companies’ apps on the company’s App Store. The iPhone maker denies any wrongoing.

Big Tech firms will also have to inform, and win approval from, Brussels when they plan to buy smaller rivals — an acknowledgement, according to officials, campaigners and some smaller tech firms, that the EU’s current merger rules have often failed to stop large companies from buying startups, in what many see as tactics to stifle competition.

Digital Services Act: Greater responsibility

Brussels also unveiled a sweeping reboot of how large platforms must police their platforms for illegal material — rules that have not been updated in two decades.

Under those separate proposals, known as the Digital Services Act, online platforms will have to do more to limit the spread of illegal content and goods. The United Kingdom published similar proposals earlier on Tuesday, while the United States is mulling its own changes to so-called content liability to force platforms to further police what is posted or sold online.

The largest platforms like Facebook, Google and Amazon will have to provide regulators and outside groups with greater access to internal data, and appoint independent auditors who will determine if these firms are compliant with the new rules.

That will require these companies to carry out yearly risk assessments over how they are stopping illegal content and goods from spreading on their networks. National regulators will be granted more powers, including the ability to levy fines of up to six percent of a firm’s annual revenue if companies flout the regulations.

The biggest tech companies will also be forced to provide greater transparency to people over who targets them with online ads and how, give them more control over the material they see online. Companies will be encouraged to sign up to a new code of practice to stop illegal content from spreading, which will be overseen by firms, regulators and parts of civil society. 

For EU officials, Tuesday’s announcements mark their latest attempt to create greater competition in digital markets and protect people online from a wave of illegal material. 

But many European politicians, tech executives and civil society groups still disagree over how best to promote those goals while still encouraging the bloc’s online economy to compete with those of the U.S. and China.

That balance — Europe pushing for greater control over the online world while also boosting its digital economy — will now take center stage.

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