EU Big Tech Rules Aim to Bolster Competition, Protect Users
Imagine an online marketplace where advertising and product placement aren’t controlled by a handful of Big Tech companies. Where consumers can install whatever apps they like, messaging platforms are interoperable, and smaller businesses have greater access to advertising metrics.
The European Union is taking steps to make this imaginary world a reality. On July 5, 2022, the EU adopted the Digital Markets Act (DMA) and Digital Services Act (DSA) — sweeping new rules designed to regulate the business practices of Big Tech companies. The DMA, which entered into force on November 1, 2022, aims to promote greater competition, innovation, and choice. The DSA entered into force on November 16, 2022, and is focused on user safety and the accountability and transparency of online platforms.
The DMA refers to Amazon, Apple, Google, and other tech giants as “gatekeepers” that have significant control over the online marketplace. It prohibits these companies from ranking their own products and services more favorably than others and addresses the use of personal data for targeted advertising. The DSA is broader, encompassing all “intermediaries,” with special rules for large platforms. It targets disinformation and illegal content on social media platforms and bans ads based on sensitive data.
Key Provisions and Penalties of the DMA
The DMA defines “gatekeepers” as companies that operate in at least three EU countries, have at least 45 million active users in the EU each month, and have annual revenue of at least €7.5 billion. To be classified as a gatekeeper, a company must have met these criteria for the last three years. The DMA will begin to apply on May 2, 2023, and companies must provide relevant information by July 3, 2023, so the regulatory body can determine classification. Gatekeepers will then have until March 2024 to ensure that they meet DMA requirements.
Some of the key provisions of the DMA include:
Prohibiting gatekeepers from giving their products and services a higher rank than others in online searches.
Requiring gatekeepers to get express permission to use consumers’ data for advertising purposes and making it easier for consumers to obtain their personal data.
Giving users the option to uninstall applications that are preinstalled on devices.
Enabling users to download or sideload applications — install software from a third-party source — outside the gatekeeper’s designated app store.
The DMA is enforced through the EU Directorate-General for Communications Networks, Content and Technology. It also provides for private enforcement. Penalties for noncompliance include fines of up to 10% of global revenue or up to 20% for repeat offenses. In some cases, regulators could bar the offender from making acquisitions or force the breakup of parts of its business.
A Look at the DSA
Under the DSA, hosting providers, online platforms, search engines, and other “intermediaries” must meet new requirements for transparency. At minimum, intermediaries must publish clear terms and conditions, report annually on actions taken against illegal content, and notify law enforcement of illegal activity. Hosting providers must also provide a means of reporting illegal content and explain content moderation decisions. Online platforms such as app stores, online marketplaces, and social media must meet additional requirements, such as disclosures on advertisements, sellers, and recommender systems.
Very large online platforms and search engines — those with more than 45 million active users each month — have heightened reporting requirements regarding content moderation and advertising transparency. They must also conduct risk assessments on illegal content, intentional manipulation of services and the effect on fundamental rights, and submit to an independent compliance audit.
Like older EU regulations, the DSA includes liability exemptions for intermediaries that are hosting services, caching services, and mere conduits for third-party content. It also does not require companies to monitor user content.
EU member states must designate Digital Service Coordinators to enforce the requirements for intermediaries. The EU Board for Digital Services will provide enforcement for very large online platforms and search engines. Fines of up to 6% of global revenue may be imposed for noncompliance.
Pros and Cons
Several gatekeepers have stated that they will cooperate with European regulators and take steps to comply with the new rules. Because of the “Brussels effect,” in which EU regulatory requirements tend to influence corporate behavior outside the EU market, there is strong incentive for gatekeepers to implement these standards across their global operations.
However, detractors say that Big Tech companies can easily afford the fines and that regulators do not have enough personnel to monitor compliance. Others say the law’s broad scope will stifle competition and innovation.
The Electronic Frontier Foundation (EFF), a nonprofit organization dedicated to defending civil liberties online, issued a statement praising some aspects of the DMA and DSA while panning others. The EFF said the DSA takes important steps toward protecting users but doesn’t go far enough and at the same time gives government agencies a lot of power over content. The DMA should foster competitiveness but could also hinder privacy and security, it says.
While the U.S. is attempting to rein in Big Tech power through antitrust suits, the EU has implemented concrete measures to regulate unfair business practices. If effectively enforced, the DMA and DSA could improve the online experience of users worldwide.
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