US tech giants face tough new rules in Europe

Strict new rules passed by the European Union (EU) could force US-based tech giants to change their business practices. European industry chief Thierry Breton said the deal, reached on March 24, 2022, would ensure fair and open digital markets.

The largest companies that will be affected are Google parent company Alphabet Inc. (GOOG, GOOGL), Amazon.com, Inc. (AMZN), Apple Inc. (AAPL), and Facebook parent company Meta Platforms, Inc. (FB). EU antitrust chief Margrethe Vestager proposed the rules just over a year ago. She said in a statement: “What we want is simple: fair markets also in digital. Big control platforms have prevented businesses and consumers from benefiting from competitive digital markets.”

Key points to remember

  • The Digital Markets Act (DMA) slated for passage by the European Union (EU) would restrict the business practices of big US tech companies.
  • Companies considered to be online gatekeepers would be prohibited from favoring their own services or applications over those offered by competitors.
  • Violation fines can be massive, up to 20% of a company’s total worldwide revenue for a repeat violation.
  • Apple fears the rules will infringe on its intellectual property rights, and Google sees the rules limiting choice and innovation.

EU Digital Markets Act (DMA)

The new EU rules, as embodied in a Digital Markets Act (DMA), apply to online gatekeepers, the companies that control access to data and platforms. They apply to companies with a market capitalization of €75 billion or annual revenues in the EU of €7.5 billion over the past three years. Companies covered by the law must also have at least 45 million total monthly users in the EU or at least 10,000 business users in the EU.

On March 25, 2022, the euro was equivalent to $1.10 in US currency. The DMA is still awaiting adoption by the European Parliament and its 27 member countries, and there may be changes. If adopted in a timely manner, the DMA is expected to come into force in October 2022.

The DMA covers guardians of online intermediation services, social networks, search engines, operating systems, online advertising services, cloud computing, video sharing services, web browsers and virtual assistants.

Tech giants need to make their messaging services interoperable and give business users access to their data. Business users can promote competing products and services on a platform. They may also enter into agreements with customers outside the platforms. Tech companies cannot favor their own services over those of their competitors or prevent users from removing pre-installed software or apps.

Violation fines can be up to 10% of a company’s annual worldwide revenue. Repeat offenses can lead to fines of up to 20%.

Reasoning

One of the main goals of DMA is to prevent tech giants from hurting smaller rivals by exploiting “walled gardens” or closed systems that make it harder for a user to switch to another provider. Companies considered gatekeepers should not set their most important software (for example, Google’s Chrome web browser) as the default option when a user sets up a device. They will also be prohibited from favoring their own services over those offered by competitors.

Reaction from tech giants

Apple released a statement saying, “We remain concerned that certain provisions of the DMA will create unnecessary privacy and security vulnerabilities for our users, while others will prohibit us from charging for intellectual property in which we invest a lot.”

Alphabet’s Google division issued a similar statement: “While we support many of the DMA’s ambitions around consumer choice and interoperability, we are concerned that some of these rules will reduce innovation and consumer choice. Europeans.”

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