What does the European Union’s Digital Market Act, which terrifies Silicon Valley’s giants, say?

“She really hates America.”

Four years ago, former U.S. President Donald Trump publicly complained to leaders at the GROUP of Seven about Margrethe Vestager, the European Union’s famously tough antitrust chief.

Vestager, a hardliner on TECHNOLOGY regulation in the EU, is an important driver. During her tenure as European Competition commissioner, she became known as the “Policewoman of Silicon Valley” for her frequent and exorbitant fines against US tech giants such as Apple and Google.

Now, her usual antitrust action plan has had a breakthrough substantive progress.

Brussels, March 24 (Xinhua) — Member states and lawmakers reached an agreement on the Digital Markets Act (DMA) and published the final text in Brussels.

The new rules target Apple, Google, Meta (formerly Facebook), Amazon and Microsoft for their business practices and market dominance in Europe. Silicon Valley giants that qualify as gatekeepers face hefty fines or even the risk of being broken up if they break the rules.

The bill’s style, like that of vestager, is strict, tough and clear-cut. DMA is regarded as “the eu’s first comprehensive revision of Internet competition rules in 20 years” and “the EU’s most comprehensive technology regulation legislation after the adoption of the General Data Protection Regulation (GDPR) in 2018”, which is a milestone and has far-reaching impact on the global scale.

The bill could reshape the way app stores, online advertising, e-commerce, messaging services and other everyday digital tools operate, changing the core businesses and business models of big tech companies.

Margrethe Vestager is an important campaigner for the EU’s digital regulation legislation. Source: | Reuters

Just a week after the DMA was finalised, Vestager said another blockbuster antitrust sister proposal, the Digital Services Act (DSA), focusing on platforms’ regulatory responsibility for content and targeted advertising, was on track to be finalised in April.

With the EU firing two arrows at once, the gatekeeper will not sit still. But after a round of intense lobbying, their protest speech did not change the EU’s attitude and realistic legislative direction. According to THE EU’s legislative procedure, the final text of the law will be put to a vote by the European Parliament and the EU Council and implemented in member states six months after it comes into force.

In fact, the final vote was a formality, and Vestager expects the DMA to come into force in October. When the new rules hit the ground running, the real uncertainty lies with the big Internet companies on the other side of the Atlantic, which are unwilling to be tamed.

01

The Iron Lady and the Gatekeeper

Trump’s remarks came after Apple CEO Tim Cook publicly criticized Vestager for what he called a “policy injustice” by asking apple to pay more taxes.

Vestager is the leading standard-bearer for Internet antitrust and technology regulation in the European Union and around the world. She became the European Union’s competition commissioner in 2014 and was appointed executive vice-president of the European Commission in 2019, with the power to shape Europe’s digital governance strategy.

She is an exception to the limited powers of most of her colleagues, who can block mergers, launch raids on private offices and impose huge fines on multinational companies.

Outsiders fear Ms Vestager’s power. On Twitter, her colleagues were ridiculed as slow-witted fools or scheming politicians. Ms Vestager, by contrast, is portrayed as a “medieval queen of arms” with a supercillious eye and two big tomahawks.

A caricature of Eu antitrust chief Margrethe Vestager. | source: the economist

It was the Iron Lady who accelerated the DMA from its original proposal to reach a deal within the legislature in 16 months, laying the groundwork for final approval. This flurry of activity is fast enough under the EU’s legislative process.

The most notable aspect of DMA is the first clarification of the conditions and criteria for the identification of gatekeepers.

The so-called “gatekeeper” refers to large Internet online platform enterprises. These platforms often have enormous wealth, stable market dominance, the ability to connect huge user bases to businesses, and control critical data resources.

According to the bill, gatekeepers need to meet the following criteria:

1. Annual turnover of at least 7.5 billion euros or market value of at least 75 billion euros in the EU in the last three financial years;
2. At least 45 million end users per month and at least 10,000 enterprise users per year in the EU;
3. One or more core platform services, such as app stores, search engines, social media, cloud services, online advertising and browsers, must be controlled in at least three EU member States.

The list, drawn up by these criteria and determined to qualify as gatekeepers, is made up of the world’s most valuable US technology companies. Apple, Google, Meta, Amazon and Microsoft are all in the “hunt” category. Of the European Union’s homegrown Internet companies, only Spotify is in the running to become one, but so far it is not strong enough.

However, Ms Vestager denied that DMA was aimed only at the US. “DMA is not specific to certain businesses or the nationality of certain businesses.” “We’re trying to figure out who should be in governance and who might be the gatekeepers, which has to do with market effects,” she said in an interview with the Financial Times last year.

Another aspect of DMA is the high penalty standard. The commission can fine gatekeepers up to 10 per cent of the previous year’s global revenues if they break the rules; For repeat offenders, the rate can rise to 20 percent.

Apple, for example, reported total revenue of $365.8 billion in fiscal 2021. If the EU imposes an antitrust fine, apple could lose nearly $36.6 billion at a 10% rate.

“No company is going to shrug off a fine of 20 per cent of its own global revenues.” “Said Thierry Breton, the European Union’s internal market commissioner.

The Commission has the power to launch market investigations if companies are “repeat offenders”, break them up if necessary, and may ban them from taking over other companies for a period of time.

The DMA complements the eu and member states’ competition law systems and does not affect existing competition rules.

“One of the things I have learnt in my seven or eight years as competition commissioner is that dealing with some problems requires systematic answers and greater efficiency.” Vestager said in an interview with foreign media at this year’s South by Southwest conference that competitors and consumers face great pain and risk if illegal practices are allowed to exist, even for a short period of time.

She expects the new rules to address systemic problems that cannot be solved by a single enforcement action, to streamline the EU’s past tussles with tech giants, and to create fair, open and competitive markets.

Vestager also said he was looking at cryptocurrencies and the metasverse. Once she figures out what these new species of technology are, she may consider regulatory action as a next step.

02

Left hand DMA,

The right hand DSA

The final text of the DMA emerged on the evening of March 24, local time, after eight hours of three-way talks.

Back in December 2020, the European Commission put forward two major legal proposals in the field of digital compliance and regulation, namely DMA and DSA. At that time, there was no agreement within the EU on the identification criteria and scope of obligations of gatekeepers.

The final version of the bill has the following key changes from the original version of the proposal:

1. Added web browsers and voice assistants to the “core platform services” category, but excluded internet-connected TVS;
2. Raised the identification threshold of “gatekeeper”, increased annual revenue of 6.5 billion euros and market value of 65 billion euros to 7.5 billion euros and 75 billion euros respectively, and quantified the number of monthly end users and annual enterprise users;
3. Linkage with GDPR to strictly limit the cross-platform data processing by “gatekeeper”;
4. Raise the cap on penalties from 10 per cent of global revenues to 20 per cent.

Diagram to the DMA. | source: European council website

In reality, the EU and Google, Apple and other big Internet companies antitrust battle, is a long and protracted tug of war. Antitrust authorities in America and Europe have also been criticised for being slow and inefficient.

Gu Zhengping, a partner and antitrust lawyer at Anjie Law Firm, told Geek Park that this is because the determination of monopolistic behavior in the Internet environment involves a complex set of legal and economic analyses.

Specifically, it involves how to define the relevant market, determine the market share and position, whether the enterprise abuses its dominant position, whether there are reasonable business reasons for the enterprise’s behavior, and whether it causes damage to market competition.

If the suspected monopolistic behavior not only causes competition damage to a certain extent, but also promotes competition, it is necessary to comprehensively consider which role is more important between promoting competition and hindering competition. It is necessary to identify and analyze the specific business situation and industry characteristics.

For anti-monopoly, the dynamic change and innovation are the important influencing factors.

In the PC era, governments were wary of Microsoft, then a tech giant, and used antitrust laws to keep the company under constant scrutiny.

In the era of mobile Internet, platform companies have created a new business model, leading to the lag of the original anti-monopoly law and enforcement tools, which can not keep up with the technological progress and business evolution of the new business.

In Gu zhengping’s opinion, technology companies in the traditional PC era mainly rely on technology to promote, and mainly serve offline traditional industries, with relatively simple business logic. The new Internet platform economy is deeply involved in all aspects of social life, and both users and related enterprises are more dependent on the platform.

Platform especially the platform with a rich selection of user data, have stronger Internet lock effect, were also more likely to have strong power and control, it is easier to use data manipulation and mislead the user behavior, abuse of its dominant position on competitors, fair competition in the market, thus to regulators need to be more comprehensive and effective supervision.

“The new DMA regulation sets up quantitative indicators to identify gatekeepers and a clear list of actions, which are highly targeted and provide stronger penalties for illegal acts, which will facilitate the investigation of cases against Internet giants and improve the efficiency of law enforcement and justice.” He said.

The DSA, a companion to DMA, is expected to be finalized in April.

Different from dMA-anchored gatekeepers, DSA focuses on strictly regulating platform giants’ use of their vast data resources to push targeted online ads, especially for minors, while requiring platforms to assume more responsibility for content regulation.

More time is needed to verify the actual impact and implementation of the new rules. The Commission said it would set up an advisory committee and a high-level working group to work on the next phase of implementation.

With a combination of punches, big tech companies are facing tighter compliance restrictions.

03

Under the dark cloud of regulation,

The gatekeeper seeks resistance

Brussels goes left, Silicon Valley goes right.

As the European Union escalates its antitrust war with big tech companies, Silicon Valley’s giants continue to voice their protests and find ways to lobby.

Nick Clegg, president of global affairs at Meta, wrote in his column that some of the new law’s details “could lead to a rigid way in which products are served, impeding the continued progress and iteration of technology”.

An Apple spokesman said some of the DMA’s rules could create unnecessary privacy risks and security vulnerabilities for Apple users, and would hinder the company’s revenue from intellectual property.

Google is concerned that some of the DMA’s rules will hamper innovation in Europe. Amazon is reviewing the impact of the new rules on customers and has commissioned research to assess them.

At the same time, Silicon Valley giants have been lobbying Brussels in an effort to steer the direction of legislative regulation.

According to data published by the Corporate Europe Observatory, an EU research group, there have been more than 150 documented meetings between big tech companies and EU officials involving 103 organisations since the new Commission was established in late 2019.

But the tech companies’ lobbying efforts were seen by EU officials as “clumsy” and futile. Seeing that their efforts were wasted, big companies have shifted their strategies and focused on complying with the new law.

Legal teams at Google, Apple and Amazon are already considering implementing the new rules as part of efforts to streamline their businesses, including creating a new compliance department, according to foreign media reports.

More critically, these companies face changes in their core businesses and business models. Potential changes, according to DMA, might include:

• Apple’s and Google’s walled garden of App stores could be loosened to allow App developers like Spotify to use alternative payment systems;
• Apple will allow iPhone users to download apps from rival App stores;
• Meta and Google’s original online advertising business model will be restricted from serving personalized ads based on data to users without their consent;
• WhatsApp, which is owned by Meta, may be required to provide services for users of rival services such as Signal or Telegram, allowing them to send and receive messages to others using WhatsApp;
• Amazon would be prohibited from using data collected from outside sellers in its services to gain a competitive advantage.

The changes listed above are just a few. Some foreign media mocked the bill’s provisions as a “wish list” drawn up by silicon Valley rivals.

“DMA has ushered in a new era of global technology regulation, ending the growing dominance of big tech companies.” “Andreas Schwab, the rapporteur for the European Parliament’s internal market and consumer protection committee, said the night the draft was finalized.

Anu Bradford, director of Columbia University’s Centre for European Legal Studies, calls The EU’s legislative influence “The Brussels Effect”. Because the EU is one of the largest consumer markets in the world, most multinationals cannot afford to ignore it, much less give it up. That gives the EU the clout to regulate.

In addition, European legal rules often provide the framework and model for global regulation. For example, the GDPR, billed as “the toughest data protection law in history,” has become a model for laws in countries from Japan to Brazil.

Looking at the world, anti-monopoly supervision of large online platform enterprises has attracted the attention of many countries and become an irresistible governance trend and international consensus. Data, algorithm, platform, these high-frequency words in the field of digital economy, become the focus of expansion under the legal framework.

In China, the anti-monopoly law, which has been in force since 2008, is undergoing its first revision.

The revised draft, which has now been published, adds a new article 10 stating that “operators shall not abuse data, algorithms, technology, capital advantages and platform rules to exclude or restrict competition”.

The draft also adds a paragraph to Article 22, which states: “Any business operator with a dominant market position using data, algorithms, technologies and platform rules to set up obstacles and impose unreasonable restrictions on other business operators shall be an act of abusing its dominant market position as prescribed in the preceding paragraph.”

Released in November last year, state administration of market supervision and management of the hierarchical classification of Internet platform “guide (draft)” the Internet platform to carry out the principal responsibility guidelines (draft) “, will consider user scale, type of business and limited capacity, the Internet platform is divided into super platform, large and small and medium-sized platform 3.

According to the regulations, super platforms are required to fulfill the corresponding principal responsibilities, for example, when providing relevant products or services, do not exercise self-preferential treatment; Promote interoperability between the services it provides and those provided by other platforms.

Back home, silicon Valley giants are having a hard time, too, and the Biden administration has taken steps to show them no mercy.

Last year, Mr Biden appointed Lina Khan, Amazon’s leading critic, to head the FEDERAL Trade Commission, and Jonathan Kanter, an antitrust lawyer known as “Silicon Valley’s Nemesis”, to head the Justice Department’s antitrust division.

History in different stages of development, staged a variety of changes and invariance. Back in the late 19th and early 20th centuries, something similar happened in the New World.

According to the book four Hundred Years of America, “Old Roosevelt” gave a speech upon entering the White House: “Many Americans believe that large corporations, called trusts, have certain functions and tendencies that are harmful to the public good. This view is not the result of envy… They genuinely believe that mergers and concentrations, while not prohibited, should be regulated and reasonably controlled.”

In Roosevelt’s view, this view was correct. At that time, the “trust” was mainly concentrated in steel, automobile, oil and other industries.

More than 200 years later, with wealth and resources on the move, the focus of the global antitrust narrative has become technology and the Internet, the new civilising force for humanity.