EU vs Big Tech: Brussels’ bid to weaken the digital gatekeepers

Three years ago, the EU launched what seemed at the time to be a bold antitrust move against Google. 

The company was fined €2.42bn after the European Commission claimed it had “abused its market dominance” by giving an advantage to its own comparison shopping platform on its search engine. Google was also obliged to change its practices to give equal treatment to rival services. 

For many in the European technology industry, however, the impact of these changes has been minimal. 

Philipp Peitsch, chief executive of Germany-based shopping website Idealo, says it did little to change what he views as Google’s anti-competitive conduct. Other sources of traffic to Idealo have increased “fivefold” compared with that from Google search, he says.

“During stretches of time this year search traffic from Google has been below last year — in a time where internet and ecommerce demand is higher than ever,” he says. “It was a bogus solution. Antitrust enforcement is not working.”

Google denies such claims, insisting that traffic to other such services has increased significantly, while EU officials say the search giant has made “good” progress. The company is also contesting the fine before the EU courts.

Mr Peitsch is not alone in his frustration, however. The EU is about to launch a new push against the largest US tech companies — one that will have global implications. Startled by the growing economic power of the tech sector, EU regulators are rushing to act against the so-called “gatekeepers” — the businesses such as Google, Apple and Amazon that run online marketplaces other companies must use and compete against to trade.

Within the next fortnight, EU regulators are expected to come up with two major proposals.

The digital services act will look to clarify the responsibilities that internet companies have for taking down illegal content or counterfeit goods, with the large players facing more onerous requirements. It will also set out clear rules on ad transparency and disinformation.

At the moment, the big platforms can remove non-compliant products or content on a voluntary basis, with little legal downside if they refuse to do so or fail to act in a timely manner.

The second, called the digital markets act, will seek to place new restraints on the gatekeeper platforms. Regulators believe these companies are using the control they have of marketplaces where they also sell their own products and services to potentially disadvantage smaller competitors.

It will set out a list of rules for platforms so it is clear which activities are illegal without regulators having to launch lengthy antitrust investigations to prove damage to consumers. It will also seek the power to launch market investigations in different sectors of the economy where new gatekeeper platforms could potentially emerge.

The rules are deliberately asymmetric in that they are aimed at the larger groups. Those companies deemed as too powerful will have to comply with more onerous regulations, including potential bans on treating their services better than their competitors — as in the Google shopping case — and forcing online platforms such as Amazon to share commercial data with smaller rivals.

Given their size and reach, Google, Apple, Facebook and Amazon are very likely to be affected by the new rules, which are still being discussed within the European Commission, say multiple people with knowledge of the plans.

“There is a feeling in Brussels that online platforms have become ‘too big to care’,” says Thierry Breton, the EU commissioner for the internal market. He has even raised the idea that some Big Tech companies might need to be split up if they continually violate the new rules.

The new EU initiative comes at a delicate time in Europe’s relations with the US. On the one hand, there is also growing appetite on the other side of the Atlantic for tougher regulation of the tech sector. Last October, the US Department of Justice accused Google of being a “monopoly gatekeeper for the internet” and of crushing competitors by excluding them from the lucrative search business.

However, Brussels will be wary of antagonising the US just at the moment when it is hoping that the start of the Biden administration will provide an opportunity to boost the transatlantic alliance after the angst of the Trump years.

Although some of the new members of the Biden team will be keen to keep up the pressure on the tech sector, the new rules could prompt opposition in Washington if they are seen to be an effort to weaken US industry at the expense of European companies.

The US tech companies are likely to lobby hard against the European proposals — both in Brussels and Washington. Earlier this year, Dot Europe, a lobbying firm representing companies including Google, Amazon and Apple, urged the EU not to hold its members legally liable for all the content on their platforms.

For some observers, the new EU rules are important because they will establish a framework for regulating the tech sector that does not depend on time-consuming legal cases.

“This is a very big deal because companies that fall within the definition of a gatekeeper will not be able to come up with arguments to justify their behaviour during a lengthy antitrust investigation,” says Alec Burnside, a partner with law firm Dechert in Brussels. “Instead, certain behaviour will be banned in the law from the start.”

Chasing momentum

There is momentum behind the EU plans from several corners. A string of studies by leading figures have called for regulators to be tougher on Big Tech, arguing that new rules are needed to supplement antitrust enforcement.

A 2019 report commissioned by the European Commission suggested large online platforms could be held to higher standards of proof. “In the context of highly concentrated markets characterised by strong network effects . . . one may want to err on the side of disallowing potentially anti-competitive conducts, and impose on the incumbent the burden of proof for showing the pro-competitiveness of its conduct,” the report said.

In the UK, a report commissioned by the government and prepared by Jason Furman, chief economic adviser to former US president Barack Obama, accused the large tech companies of using their dominant positions to undermine competition and unfairly boost profits. The UK’s Competition and Markets Authority wants tech giants with “strategic market status” to adhere to tailored codes of conduct relating to sectors in which they are dominant as well as “adjacent markets”.

There is also pressure from within the EU to act. In November, the European Court of Auditors said Brussels lacked the legal muscle to restrain the likes of Facebook and Google from destroying competitors given that the sort of probes it typically conducts take too long before any meaningful action is taken. The auditor said the EU needed to overhaul its rules to make them fit for the digital era.

Prominent member states, including France and the Netherlands, have already come out in favour of the EU’s push to restrain the large platforms. In a joint position paper published in October, the countries called on regulators in Brussels to move quickly against existing “gatekeeper” platforms and even emerging ones with the possibility of breaking them up in the event of continued breach of the rules.

EU officials have dusted off old tools at their disposal to trigger more rapid action. In October last year, Brussels ordered US chipmaker Broadcom to suspend exclusive deals with six television and modem makers while it investigated if the contracts constituted anti-competitive behaviour. This was the first time in nearly two decades that the EU applied so-called interim measures, which have the power to stop alleged anti-competitive behaviour before it is too late. Roughly a year later the EU and the company settled.

The efforts to use antitrust powers have not always gone this smoothly, however. Google, for instance, is still contesting three separate fines in cases that have been running for years. Its rivals claim this is not acceptable and that Google is running the clock down while it gets away with what they see as unfair behaviour.

Regulators want the new powers to bring antitrust charges in a matter of months, not years. “You’ll be able to count the number of months it takes to carry out a probe with one single hand,” says an EU official with direct knowledge of the discussions.

Margrethe Vestager, the EU’s executive vice-president for competition and digital policy, has warned about the length of time the antitrust process takes. “It is painful that in digital markets the harm that can be done in that marketplace can happen very fast but the recovery of that marketplace can be very, very difficult,” Ms Vestager recently told the FT. “It is important to call in regulation that will help with saying going forward: ‘these are the things that you can do and these are the things that you cannot do.’”

Tech pushback

Despite growing momentum behind the push to regulate Big Tech, several challenges may hinder the efforts. First, the industry will put up a big fight. Last October a leaked internal document revealed that Google was planning an aggressive campaign against Mr Breton, who had earlier said he would support breaking up companies in extreme circumstances.

In the internal document, Google outlined plans to “increase pushback” on Mr Breton by mobilising the US government against him as the search giant sought to “reset the narrative” around the upcoming regulations.

Eventually Sundar Pichai, the Google chief executive, apologised to Mr Breton and said the tactics were not sanctioned by him and did not represent Google. Still, the document offered a glimpse into the approach some tech groups are prepared to take to oppose the EU’s efforts to regulate them, say lobbying experts.

The tech industry is likely to argue that the EU is trying to do too much with the new regulations. Thomas Boué, who runs Europe, Middle East and Africa policy for the BSA, a large software lobbying body that represents firms such as IBM, Microsoft and Adobe, says: “Ensuring fair competition makes a lot of sense. But what are the rules? It seems all quite broad and unattainable.”

He adds that new onerous rules risk strangling small players. “The more rules you have, the more complicated it gets, especially for small- and medium-sized enterprises.”

Second, the EU itself risks being its own enemy as divisions over the scope of the new legislation grow. Some want the criteria — which is both qualitative and quantitative — to capture only the biggest platforms, meaning Google, Apple, Facebook and Amazon, while others want looser criteria that would also affect up to 20 companies, including Airbnb and Booking.com.

Inside Brussels there are also tensions between Ms Vestager, the incumbent in digital technology, and Mr Breton, who was appointed to the European Commission last December. Nominally, Ms Vestager is two levels up in the hierarchy but Mr Breton has been grabbing the spotlight on the digital agenda, leading to tensions over who leads the initiative against Big Tech.

“There is a risk that all of this gets bogged down because of a multiplicity of objectives and a turf battle over who gets jurisdiction of a particular policy tool,” says Nicholas Levy, a competition partner at Cleary Gottlieb, whose firm has represented Google and other Big Tech players.

But even if the EU reaches internal consensus on the draft legislation, it needs to take the plans to the Council of Ministers and the parliament for debate. Critics say legislation risks getting watered down and that it will ultimately lack the bite it needs to be effective.

Eva Maydell, a centre-right Bulgarian MEP who will be directly involved in the discussions once the draft legislation reaches the European parliament, says political bickering could lead to “bad” new rules.

“Consensus is never easy,” she says. “Having in mind how Big Tech was used to sway elections and how Brexit happened, you may think this comes way too late and some MEPs will want to legislate as fast as possible. But the risk is to put bad legislation in place.”

She says that despite the need for regulation, attempts to restrain the power of the large tech groups with new legislation “will not automatically give birth” to a European alternative to the likes of Google. “That is a dangerous illusion.”

Philip Marsden, a professor at the College of Europe in Bruges, also warns that going after the big players can have unintended consequences for the small players in digital markets. The new rules may “handcuff” big platforms’ ability to innovate, which in turn might hurt those looking to be on those platforms, he says.

“Some small businesses are very grateful to get on to Apple and Amazon because they get a halo effect, they get global reach,” says Mr Marsden, who was co-author of the UK’s Furman report. “They just have to be careful who they choose as their saviour though — how much control over their business opportunities they cede to the tech giants.” 

Despite all the challenges and the frustration that cases move too slowly, Idealo’s Mr Peitsch is still hopeful that regulation can begin to level the playing field.

“There is no real competitor that can step up to Big Tech,” he says, in reference to the need to have regulation that would continue to enable innovation.

And he adds: “The EU consumer is still here, Europe is still an important market. I don’t think it’s too late.”