Updated: Feb 1, 2021
The European Commission has recently unveiled its new answer to digital market regulation in the form of the Digital Services Act (DSA) and the Digital Markets Act (DMA). If passed, the onus would fall heavily on big tech firms, but the measures are intended to impact firms of all sizes and their consumers.
The proposed package of legislation comes at an important moment in the global regulation of tech. Google and Facebook are facing a slew of anti-trust cases in America. Yet, tech giants have shown no signs of curtailment despite heightened scrutiny over the last couple of years. Silicon Valley’s four largest firms have enjoyed a combined profit growth of over £29 billion thanks to COVID-19. The EC’s new Acts, however, may well be the most significant hit to Big Tech to date. Both the DSA and DMA would be in place across the single market and would apply to any digital platform providing a service to EU users, irrespective of their host country.
Digital Services Act
The Digital Services Act deals with the consumer-facing issues of tech regulation. It includes, for instance, mandates on the traceability of sellers using host platforms (such as Depop), to ensure that consumers are protected from illegal or counterfeit goods and services. It also includes wide-ranging measures to increase transparency. For example, users must be made aware of why they are seeing certain advertisements, and what algorithms are being used to recommend content to users.
Digital Markets Act
This is the more targeted branch of the EC’s package and is aimed exclusively at so-called ‘gatekeepers’, who control access to digital platforms such as search engines and social networking sites. The EC has defined ‘gatekeepers’ as having roughly over 45 million EU users, having strong market power, and enjoy a durable market position.
The Act will seek to correct the sorts of practices seen in the case against Google regarding AdSense. There, the EC found that Google engaged in anti-competitive practices by forcing third-party websites to favour Google as a search engine.
Both Acts are pending approval by the European Parliament, who are likely to propose even more stringent measures. Big Tech, meanwhile, will no doubt begin a fierce lobbying campaign.
For the UK
The new regulations will only be finalised after the Brexit transition period (i.e. after 31st December 2021). As a result, neither Act will directly affect the UK. However, UK digital platforms that provide services to users in the EU will indeed be required to comply with the regulations. For a post-Brexit UK, the obvious question remains over whether Britain will pass a similar set of legislation that is equally as stringent. If the UK adopts digital regulation that deviates significantly from the DMA and DSA, this will result in digital platforms operating in both the EU and UK having to juggle two sets of very different rules. However, the UK’s Online Safety Bill, coming next year, looks set to be very similar.
The Commission’s emphasis on ‘gatekeepers’ does, of course, fall overwhelmingly on American firms. Fines for non-compliance are hefty: the DMA has room to fine up to 10% of a gatekeeper’s annual revenue. To put this into perspective, Facebook could theoretically face a $7.1 billion fine. At their worst, when companies refuse to, or cannot stop, engaging in anti-competitive behaviour, the Commission may resort to measures that break up a firm, like selling off divisions. Just weeks ago, the US Federal Trade Commission lawsuit that accused Facebook of breaking competition law sought an injunction that suggested ‘divestitures of assets, including Instagram and Whatsapp’. This may well become an increasingly common punitive tool.
Should the laws be passed, American firms may choose to run their European branches along local rules, rather than adopt the measures globally, given that Big Tech’s primary market is the US.
As well as reigning in Silicon Valley, however, the measures are also intended to stimulate the growth of Europe’s own digital sector. But this is not so simple. As Martin Sanbu of the Financial Times has pointed out, the regulation of Big Tech and promotion of European tech industries should be treated ‘as separate goals’. Europe’s digital sector has long faced issues besides the market dominance of Big Tech. European firms have lacked the equity capital that has helped risk-taking Silicon Valley, instead relying on bank lending. Tighter rules are not the solution in this respect and perhaps the Commission is attempting too much with this package. However, the measures still await scrutiny from the European Parliament and, as for firms, EU rules may be the least of their worries against the incoming Biden administration.