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EU actions on Big Tech: Will they be Enough?

Posted on 24 May 2021
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EU actions on Big Tech: Will they be Enough?

The European Commission has recently put forward two proposals that would lead to ground-breaking legislation on the so-called “Big Tech”. On the one hand, the first proposal that European Competition Commissioner Margrethe Vestager made was the Digital Services Act (DSA), which will target how these big companies operate, in other words, the European Union plans to use the DSA to make Big Tech firms have to divulge information and data to regulators about how key decisions are made, like for instance how their algorithms work or how adverts are directed at users. Secondly, the other proposal made by the Commission is the Digital Markets Act (DMA), which has been regarded as similar to an antitrust legislation by some experts. The key objective of the DMA is to promote a playing-field where smaller tech companies have enough strength to compete with these tech giants, due to the fact that several European lawmakers have long regarded these companies as increasingly monopolistic, which has resulted in the inability of smaller companies to compete (Perrigo, 2020). This article will seek to give a more in-depth explanation on how both the DSA and the DMA will operate, in order to enable the EU to have a greater control over Big Tech companies when they carry out nefarious acts. Also, this article will give a brief overview of the conditions that have resulted in several European lawmakers, as well as a significant majority of the EU population to consider the need for more legislation enacted on these tech companies. Finally, this article will look to consider the impact that these two proposals are expected to have, and the problems that they may face during the legislative process and after.

It has been widely acknowledged that the EU has failed to compete with other superpowers like the United States and China in the tech sphere, particularly in the form of production of tech companies. Even though, there have been some important tech companies, which have been produced inside the borders of the European Union, like Spotify, Skype or Zalando, they pale in comparison with US tech giants like Apple, Google or Facebook, as well as with the increasing number of tech companies that are being created in China. Nevertheless, the EU has been able to find a way to become a significant player in the tech sphere, in spite of the fact of the reduced number of important tech companies that it has been able to produce, and that is through tech legislation. The EU has been at the vanguard on tech regulation, which is clearly shown in how Europe’s data protection rules, known as GDPR, which were introduced in 2018 has been copied in other countries like Australia or Brazil. Jeremy Ghez, an associate professor of economics at H.E.C. Paris stated that “This EU potential to shape business models can be huge. And it’s remarkable that it has an extraterritorial aspect to it: firms abiding by European regulations usually abide by it worldwide for operational reasons,” (Amaro, 2021).

However, the EU is not planning on stopping there, as it also plans to introduce the DSA and the DMA as new forms of legislation. The EU has regarded these two as crucial steps in their plans on Big Tech, as Competition Commissioner Margrethe Vestager described the two proposals as “milestones in our journey to make Europe fit for the digital age… we need to make rules that put order into chaos” (Kelion, 2020). As mentioned above, the DSA seeks to create a set of EU-wide rules, which focus on safeguarding the freedom of expression online, maintaining the safety of the users online and enabling local authorities and users to keep the accountability of tech companies. The obligations that a tech company will have to take on with the DSA will be directly proportionate to how large and influential the company in question is, thus tech giants will be the ones to have the most obligations, as many of these obligations will only be applied to those companies, which surpass 45 million users, like Facebook, TikTok or YouTube. Not only that but, tech giants will also have to pass even greater checks, as they will get an annual independent audit, which will ensure that these companies are following the rules. These companies must also publish annually a report that explains how they have handled the important risks that they have faced, like users posting illegal content, disinformation that could sway elections, and the unjustified targeting of minority groups. Moreover, the DSA clearly states that local officials will have the power to send cross-border orders that can for instance, make tech firms have to remove content or even provide access to information, without importance of where they have their EU headquarters. A commission spokesman gave an example explaining this rule, which showed that Amsterdam’s local government would be able to ask a company like Airbnb, which is based in Dublin, to remove a listing of a non-registered apartment and share details about a host that is suspected of not paying taxes. In order to be able to ensure that tech companies comply with the DSA, the EU has established that breaking the rules will result in fines that can go up to 6% of a company’s annual revenue, which for a company like Facebook would amount to an estimate $4.2 billion (Kelion, 2020; Perrigo, 2020).

The other main proposal that the EU Commission has put forward is the DMA, which focuses on regulating the so-called “gatekeepers”, which are those companies that control services where other companies are able to provide their products, which are search engines, social networks, chat apps, cloud computing services and operating systems, among others. The main gatekeepers at the moment are companies like Facebook, Amazon, Microsoft, Google or Apple (Kelion, 2020; Perrigo, 2020). The digital marketplaces have been experiencing an exclusion of rivals and customer abuse, which the current regulatory apparatus is unable to undertake. These gatekeepers have acquired such a significant amount of control and power that they have been able to constitute a near-monopolistic system in the sectors in which they operate, mainly due to the fact that they have been gotten so big that smaller companies are unable to compete with them. They have been able to do this through their “multi-product ecosystems”, in other words they have expanded into a significant number of verticals. Two of the best examples of these are Google and Facebook, as for instance Google, which started as a such engine has expanded into various other activities, like email and storage, content via YouTube, mobile interfaces via Android and even health with their acquisition of Fitbit. On the other hand, Facebook has been able to expand their control over the social media sphere through their acquisitions of Instagram and WhatsApp and has recently showed a willingness of expanding into new markets like cryptocurrency with Libra (Jacobides et al, 2021). The DMA is a crucial tool as it would focus on preventing these companies from using their position and status to gain an unfair advantage over smaller competitors, therefore allowing these smaller companies to compete. The EU Commission has established a set of rules in the DMA that these companies will need to comply with, like for instance informing a regulator, whenever they would plan control over another service. In addition, they would be obliged not to showcase their products or services in a more beneficial way, when determining the order in which these products or services will appear on screen. The DMA would also prohibit these companies from using the data that they would be able to acquire from other products through their main service in order to launch a competing product against the ones that already exist. Finally, these companies will have to enable the users the ability to uninstall pre-installed apps on their platform, as well as the opportunity of using different software. Commissioner Vestager stated that fines for breaking DMA rules could go up to 10% off a company’s annual turnover, which for Amazon or Apple could be an estimate $28 billion, and not only that but, if a company was fined three times within five years the EU would seek to carry out more drastic measures, like even breaking up the company (Kelion, 2020; Perrigo, 2020; The Economist, 2020).

Even though the EU tends to move in an incredibly slow pace when it comes to important matters, in tech regulation it is the complete opposite as all the Member States and the different institutions seem to move in the same direction, and it looks like the DMA and the DSA could be passed in a short time. This is mainly due to the fact that the different EU Institutions, the Member States and a significant amount of the population in the Union share common views and values in this area, as they all agree on the need of regulating the activities of Big Tech. Even countries like the Netherlands, which have been seen as very business-friendly economies have argued in favour of actions, which are defined in these proposals (Pladson, 2020; Amaro, 2021). This common view has been forged due to past events. The most notable one, would probably the Brexit referendum campaign in the United Kingdom and the 2016 US presidential elections, where social media platforms like Facebook were used as an instrument for acquiring users’ data and showcasing adds that had the objective of influencing the results of these two events (Amaro, 2021; Perrigo, 2020).

Nevertheless, in spite of the fact that this process may seem as a smooth one, there have already been concerns that it will face some problems, due to the fact that for example it looks like some Member States have already been taking some unilateral actions in this matter, as for instance France, Germany, Denmark and Austria have all started the process to pass national laws, and Hungary has been reportedly considering introducing its own rules. This would create a problem for the DSA, as one of the main benefits that it proposes is an EU-wide framework, instead of 27 different ones. Not only that, but conflict between different proposals could also lead to delays in the legislative processes for the DSA and the DMA. There are already clear examples of these as for instance Stephanie Yon-Courtin, vice-chair of the committee on economic and monetary affairs stated that “We are now in the middle of the conflict of competence which prevents us from dealing with the substance,” “Speed is of the essence but as far as the European Parliament is concerned, we don’t have the opportunity to discuss [the draft rules].”. Commissioner Vestager has also showed clear signs of frustration as in an interaction with Members of the European Parliament (MEPs) she argued that “I hope you sense the same urgency as I do. I’d use the metaphor that this is a wake-up call without the snooze function. I really hope that we will have a good debate leading to a swift adoption. This is timely, this is now.” (Espinoza, 2021).

What is more, even though these two proposals made by the European Commission have been regarded by many as a positive move forward, they have also been widely criticised, from the sectors which argue for the need of even greater regulation, as well as, from the one which state that the negative consequences that these two proposals would bring may outweigh the possible benefits. Firstly, some have argued that the DMA and the DSA do not offer the sufficient changes needed for addressing the problems that tech giants pose to society, for instance these proposals could end up further reducing the capacity to have freedom of expression online, as companies could act in a much more prudent form to stop the risk of being fined (Prettner, 2021; EDRi and Penfrat, 2020). Nevertheless, there have also been arguments against these two proposals due to the fact they are considered as too intrusive, for example, some small businesses inside the EU have stated that these two laws would not only not help them, but they would suffer significant damage because of it. The App Association, which is a trade body that represents hundreds of small app developers in the EU, argued that the DMA and could hinder the willingness of big tech companies to acquire smaller ones, which could have serious consequences as they stated that: “The DMA risks generating unintended consequences that could indirectly affect SMEs’ business models, growth ambitions, or exit strategies,” the body said in a report (Espinoza, 2021). Furthermore, even though these new laws have a clear focus in American giants like Facebook or Google, they could also have a negative effect on European tech companies like Spotify, which do not have the same resources as these American giants. Not only that but, these reforms could also become a source of tension in the political sphere, particularly if the US and China viewed them as a form of digital protectionism and as an excuse from the EU to create a playing-ground where more European companies would flourish at the expense of American ones (The Economist, 2020).

However, the DMA and the DSA have also sparked some positive reviews. Some have argued that even though these proposals may harm the innovation that is carried out by Big Tech companies like Google or Facebook, this would probably be replaced by innovation from other smaller companies, which would result in increased competition. Therefore, these proposals could hinder the monopolistic tendencies that the tech sphere is evolving towards and could result in a much more varied landscape, which would be extremely beneficial for the users as competition is key for innovation and they would have a much more protected position than in a monopolistic market (Jacobides et al, 2021). Moreover, the idea of prohibiting gatekeepers not only from establishing their own products in a preferable position but also from using the data that they are able to acquire for benefitting the rest of their products has been regarded as a crucial step forward for stopping these companies from acquiring an ever-increasing amount of power over consumers (EDRi and Penfrat, 2020). Nevertheless, experts like Professor Annabelle Gawer, director of the Surrey Centre of Digital Economy (CoDE) at the University of Surrey argued that even though these proposals are a clear step forward in the right direction, the European Commission, should take into account recommendations in order to make them even more effective like for instance establishing personalised codes of conduct for every gatekeeper company, as this would enable the Commission to get a better view of the grade of seriousness of each breach and thus would have the ability of tackling them depending on their gravity (Kaur, 2021).

In conclusion, Big Tech companies have been able in very few years to become some of the most important and valuable companies in the world, for instance the combined market capitalisation of Google parent company Alphabet, Amazon, Apple, and Facebook alone exceeded US$5.7 trillion in December 2020. This economic power added to the importance that they have been able to acquire in daily life and how they have been able to expand vertically have enabled these companies to acquire a significant amount of power and control over the economy and politics, which has resulted in an increase in debates about what should be done to tackle this issue (Kaur, 2021). Even though, the results that the DMA and the DSA may have are still unknown, it is clear that the EU has positioned itself as the major player in trying to tackle the problems created by the giant corporations, as they believe that the current system is unable to appropriately handle the dimension that these companies have been able to acquire. Therefore, even though these proposals may have flaws and according to some they may not go far enough, they have been widely recognised as positive steps forward and showcase the crucial intention of the EU of trying to face the problem before these companies become monopolistic actors in a key sector (Anderson and Mariniello, 2021; Ovide, 2021).

Bibliography:

 By Alvaro Perez Cardenes, The European Institute for International Law and International Relations.

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