EU agrees regulation targeting Big Tech

The EU has reached agreement on its Digital Markets and Digital Services act, twin tools in the Union’s effort to curb the power of Big Tech, which it hopes will bear fruit “as soon as possible”.

The Digital Markets Act and the Digital Services Act make up the EU’s attempt to get to grips with the ever-increasing power of Big Tech platforms. Having unveiled the legislation package in December 2020, the European Commission has since been in negotiations with the European Parliament and member states to reach a deal on the package. Having stated in October 2021 that the Commission hoped to agree a legislative package “as soon as possible”, agreement was reached in the European Parliament for the Digital Markets Act in November 2021 and the Digital Services Act in December.

The Commission states that the EU needs new rules governing the online behaviour of companies because the “rapid and widespread development of digital services has been at the heart of the digital changes that impact our lives” and the Digital Services Act and Digital Markets Act would “ensure that European legislation evolves with them”.

Following lengthy negotiations, the Digital Markets Act was agreed in the European Parliament in mid-November, endorsed by the Parliament’s Committee on the Internal Market and Consumer Protection a week later. The Act seeks to limit the anti-competitive behaviour of so-called gatekeepers such as Facebook, Apple, Alphabet and Google. Under the Act, gatekeeping companies would be defined as large online platforms who:

• have a strong economic position with significant impact on the EU market that are active in EU countries;
• have a strong intermediation position, linking large user bases with large numbers of businesses; and
• have or are about to have an entrenched and durable position in the market.

The passage of the Act would mean that these gatekeepers would have to allow their business users to access the data generate through use of the gatekeeper’s platform, provide companies advertising on the platform with the tools to carry out independent verification of advertisements hosted by the gatekeeper, and allow business users to promote themselves and conclude contracts outside of the platform. The gatekeepers would no longer be allowed to treat services and products that they offer more favourably than third-party services on the gatekeeper’s platform, prevent consumers from linking to businesses outside their platform, or prevent users from uninstalling preinstalled software or apps.

The Act will imbue the Commission with the power to qualify companies as gatekeepers, update the obligations for gatekeepers “when necessary” and design solutions to systematic infringements of the Act’s rules. Non-compliance with the rules laid down in the Act could result in fines of up to 10 per cent of the gatekeeping company’s total worldwide annual turnover or periodic penalty payments of up to 5 per cent of the company’s average daily turnover. A major addition to the Act during negotiations was agreed, allowing the Parliament to restrict gatekeepers from making ‘killer acquisitions’ that further concentrate the market.

Systematic infringements of the obligations under the Act by gatekeepers could also mean that “additional remedies may be imposed on the gatekeepers after a market investigation”, with the remedies to be “proportionate to the offence committed”. If necessary, the Commission says that it will impose non-financial, behavioural, and structural remedies such as the forced divestiture of parts of a business as a last resort option.

The Commission’s impact assessment of the Digital Markets Act states that it will “increase the contestability of digital markets and help business overcome the barriers stemming from market failures or from gatekeepers’ unfair business practices”. The Act passed through the European Parliament with 642 votes for, eight against and 46 abstentions. One major amendment added during negotiations was the amendment on default settings, which will allow users to choose their default settings the first time but also to change them any time, including on pre-installed apps.

The Digital Services Act, the Digital Markets Act’s companion piece, seeks to “foster innovation, growth and competitiveness” while encouraging the scaling up of SMEs and start-ups via new rules to better protect consumers and the establishment of a transparency and accountability framework for online platforms. Its terms were approved by the internal market committee in December.

The Act includes: measures to counter illegal goods, services, or content online; new obligations on the traceability of business users in online market places; effective safeguarding for users such as the possibility to challenge a platform’s moderation decisions; transparency measures for platforms on issues such as recommendation algorithms; obligations for very large platforms to prevent the misuse of their systems; access for researchers to key data of the largest platforms; and oversight structure to address the complexity of the online space.

The Commission’s impact assessment of the proposed plans states that “a positive effect can be expected on the single market and on competition”, with an estimated increase of between 1 per cent and 1.8 per cent in cross-border digital trade, helping SMEs operate and significantly decreasing the costs “brought about by the inefficiencies of the existing set-up for the cooperation of authorities”.

One of the key aspects of the Digital Services Act from an Irish point of view is its reiteration of the country of origin principle contained in the eCommerce Directive, which states that the service providers are subject to the jurisdiction of their country of establishment, a principle that the French Government in particular are attempting to have changed to the country of their destination.

Ireland, as a state containing the European headquarters of many Big Tech juggernauts, has opposed this move by the French during the Digital Services Act negotiations and has deemed the issue a ‘red line’, gathering a coalition of countries in support including Croatia, Czechia, Estonia, Finland, Latvia, Lithuania, Luxembourg, Slovakia, and Sweden.

With the vote on the Digital Services Act due to take place in January, Irish voices are sure to be prominent in the debate given the frequency with which the Irish Government has clashed with the Brussels establishment over the regulation of Big Tech companies that have made a European home in Dublin and elsewhere. The message from Europe, however, remains clear, as the Commission’s initial publication of the acts in 2020 indicates: “The business and political interests of a handful of companies should not dictate our future. Europe has to set its own terms and conditions.”