Tech giants prepare for strict new EU laws

Many of the world's leading tech companies have a presence in Ireland including search giant Google. File Picture: Stephen Collins

US 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 and Google, both of whom have a significant presence in Ireland, 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 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 US after it was sued 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 - 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.

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.

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.

Bloomberg