Big Tech revenues under threat from EU law proposals

Digital Markets Act rules agreed, set to include fines of up to 10% of turnover and power to break up businesses

Sanctions for non-compliance with new EU powers could hit tech giants with fines of up to 10 percent of their worldwide turnover – that's around $21 billion in the case of dominant online retailer Amazon.

The political bloc's legislator has set out agreed rules to tackle dominance of big tech firms deemed "gatekeepers" because of their control over broad sets of services within their platforms.

Under Digital Market Act (DMA) outlined last night, the European Commission will have powers to designate companies as gatekeepers following a market investigation.

In the crosshairs will be providers of social networks, online ad services, operating systems, cloud computing, web browsers, online intermediation services, video-sharing services and virtual assistants. This includes controversial platform providers in social media, technology, and retail including Amazon, Meta, Apple, and Microsoft.

The DMA will require gatekeepers to proactively put in place certain measures such as allowing third-party software to properly function and interoperate with their own services.

Sanctions could include fines of up to 10 percent of the gatekeeper's worldwide turnover to ensure the effectiveness of the new rules, the commission said.

For recurrent infringements, these sanctions could also oblige companies to take structural measures, potentially extending to the divestiture of certain businesses, where no other equally effective alternative measure is available to ensure compliance, it said.

Margrethe Vestager, executive vice-president for the EU's digital strategy, took to Twitter following the agreement to declare: "We have achieved something that is unprecedented: legislation that paves the way for open, fair, contestable digital markets. The gatekeepers will now have responsibilities: a number of things to do and a number of things they can't do, and that gives everyone a fair chance to serve their customers."

In a prepared statement, she said: "What we want is simple: fair markets also in digital. We are now taking a huge step forward to get there — that markets are fair, open and contestable. Large gatekeeper platforms have prevented businesses and consumers from the benefits of competitive digital markets. The gatekeepers will now have to comply with a well-defined set of obligations and prohibitions. This regulation, together with strong competition law enforcement, will bring fairer conditions to consumers and businesses for many digital services across the EU."

Three criteria are set to bring companies within reach of the DMA. Annual turnover within the European Economic Area is set at €6.5 billion or above for three years, or the company has a market value of €65 billion and provides its platform service in at least three EU member states. The contender must also control an important gateway for business users towards final consumers. That means 45 million monthly active end users established or located in the EU and more than 10,000 yearly active business users established in the EU in the last financial year. An entrenched and durable position is judged on whether a company has met the first two criteria in each of the last three financial years.

The new regime continues to progress despite last-minute lobbying from tech giants. The EU's determination is to bring what it sees as a sense of fairness to digital markets and the use of data follows 2018's General Data Protection Regulation (GDPR), which granted powers to fine companies for up to €20m ($22m) or 4 percent of worldwide turnover. French watchdog Commission Nationale de l'Informatique et des Libertés (CNIL) previously imposed €150m and €60m fines on Google and Facebook respectively.

The proposed DMA text will be the starting point for further multi-state discussion before being ratified by Parliament. The outcome will be a regulation, with direct powers in member states, which, rather like GDPR, doesn't require legislation at a national level.

Andrea Schwab, EU lawmaker and member of the European Parliament for Germany, said the DMA "means that long anti-trust cases, during which the authorities were lagging behind the big tech companies, is over."

Just this month, European hosting provider OVHcloud opened up on a complaint filed with the European Commission's antritrust arm in the summer of 2021 related to how Microsoft runs its licensing ops. Another complaint about Microsoft's bundling of its OS with online services was lodged with the EC by Nextcloud in November.

Bernd Meyring, partner at law firm Linklaters, said: "The DMA has made it through the EU legislative process far faster and with significantly less amendment than many imagined when the commission published its original proposal in December 2020.

"Rather than diluting the proposal, the co-legislators are broadening its scope and strengthening the obligations for gatekeepers. Europe is keen to take a leading role in digital enforcement and eyes will now turn to how the commission implements what is in a gargantuan new rule book for the digital sector, while gatekeepers and other market participants will need to start to start grappling with how the rules will be applied in practice.

In a statement, Google said: "While we support many of the DMA's ambitions around consumer choice and interoperability, we're worried that some of these rules could reduce innovation and the choice available to Europeans. We'll now take some time to study the final text, talk with the regulator and work out what we need to do to comply."

Apple said in a statement that it remains "concerned that some 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 great deal." ®

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