Tech Giants Gird for Business Threats Under Strict New EU Laws

U.S. tech giants are bracing for new laws that could force sweeping changes to how they operate in Europe, with significant fines or, in extreme cases, orders to break up the worst offenders.

The new Digital Markets Act, set to be proposed by the European Union on Tuesday, targets so-called gatekeeper companies, platforms with the power to control distribution in their markets.

Such platforms will be prohibited from giving preferential treatment to their own products and services, along with other practices. They won’t be allowed to use data from competitors that sell on their marketplace, for instance, or use data about rivals obtained through advertising activities, according to a person familiar with the matter.

The EU will define gatekeeper platforms based on a combination of different criteria, including a company’s revenue, user numbers, its impact on the European single market and its importance to competitors to be able to compete, this person said. Authorities will regularly assess whether companies should still be designated gatekeepers or whether new ones emerge.

In separate policy measures, some platforms could also face penalties if they fail to quickly remove illegal content from their sites.

Prodigious web companies such as Amazon.com Inc. and Alphabet Inc.’s Google have for years been targets of a regulatory onslaught from Brussels. But to successfully break what the EU says is a stranglehold on digital ecosystems by a handful of giants, officials say they need new tools.

The technology companies say the planned measures could prevent them from rolling out new services or challenging established rivals in new markets.

“These would be big changes, uncharted waters,” said Kay Jebelli, competition and regulatory counsel at CCIA, an industry association that represents platforms like Facebook Inc. and Amazon.

The EU’s plans come as regulators around the world are bearing down on tech giants, which they see as having become too big, too powerful and too profitable. Facebook already faces the threat of a business breakup in the U.S. after it was sued Wednesday by antitrust officials and a coalition of states that want to unwind its acquisitions of Instagram and WhatsApp.

Constant expansion is part of the DNA of Silicon Valley giants, but it’s at the heart of what EU antitrust regulators have increasingly been scrutinizing in their probes into companies like Google and Apple Inc. -- whether powerful platforms are using their market position in one area to bolster their entry into another. The allegedly unfair trading practices that have emerged from those investigations will inform Tuesday’s legislation, officials say.

Apple, Microsoft Corp. and Amazon, for instance, might be giants in their own areas but all are trying to compete with Google in search, Jebelli said. Similar is true with Amazon and Spotify in digital advertising.

“The Digital Markets Act could make this kind of competition more difficult,” he said.

Some firms are concerned the new rules could also constrain their ability to develop new products.

“Depending on how the regulations are drafted, they could hamper our ability to continue to provide the products and services that are used by many small businesses and consumers,” said Matt Brittin, Google’s president of business & operations for Europe, the Middle East and Africa.

Brittin pointed to a variety of products potentially under threat by the new rules if the company can’t combine data across its services. One example, he said, is an initiative that brings together information from Google’s Maps and Google My Business products into its search engine. That tool has helped customers connect with businesses during the pandemic to inform them about opening times, e-commerce or curbside delivery possibilities, he said.

However, some large platforms who might be considered to be gatekeepers but who clash over each others’ practices may also benefit from the legislation. Facebook and Microsoft, for instance, have both complained about Apple’s app store rules.

If companies labelled as gatekeepers don’t comply with the new rules, they may face increasingly larger fines up to orders to break up their companies in Europe -- a far more important menace to business.

But the threat may amount to a paper tiger. EU antitrust authorities already have the power to order structural separation in antitrust probes but have never used it.

“It’s sort of a nuclear option,” Margrethe Vestager, the EU’s antitrust chief and digital regulation czar, said at the online Web Summit earlier in December.

She said all other options would have to be ruled out and so far her team hasn’t dealt with such a case, adding it’s unclear whether such a decision would be effective in restoring competition in a foreseeable time frame. “We would be spending a lot of time in court,” she said.

The second regulatory proposal to be unveiled Tuesday, the Digital Services Act, also threatens large fines, in this case if they fail to remove illegal content quickly enough. But tech giants seem to have been spared the potentially biggest threat to their business.

Read more: Facebook, Google Risk Fines Up to 6% Revenue Under New EU Rules

Tech companies had expressed concern that, as the EU modernizes longstanding internet regulations, it could remove legal protections shielding platforms from liability for what users post to their site. But the EU has said it won’t remove the liability protections altogether, according to a draft of the regulation seen by Bloomberg.

©2020 Bloomberg L.P.

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