E.U. Takes Aim at Big Tech’s Power With Landmark Digital Act
GÖTTINGEN, Germany — The European Union was finalizing one of the world’s most far-reaching laws to address the power of the biggest tech companies, putting in place rules that will affect app stores, online advertising, e-commerce, messaging services and other everyday digital tools.
The law, called the Digital Markets Act, would be the most sweeping piece of digital policy since the bloc put the world’s toughest rules to protect people’s online data into effect in 2018. The legislation is aimed at stopping the largest tech platforms from using their interlocking services and considerable resources to box in users and squash emerging rivals, creating room for new entrants and fostering more competition.
What that means practically is that companies like Google could no longer collect data from different services to offer targeted ads without users’ consent and that Apple might have to allow alternatives to its App Store on iPhones and iPads. Violators of the law, which would most likely take effect early next year, could face significant fines.
The Digital Markets Act is part of a one-two punch by European regulators. As early as next month, the European Union is expected to reach an agreement on a law that would force social media companies such as Meta, the owner of Facebook and Instagram, to police their platforms more aggressively.
With these actions, Europe is cementing its leadership as the most assertive regulator of tech companies such as Apple, Google, Amazon, Meta and Microsoft. European standards are often adopted worldwide, and the latest legislation further raises the bar by potentially bringing the companies under a new era of oversight — just like health care, transportation and banking industries.
“Faced with big online platforms behaving like they were ‘too big to care,’ Europe has put its foot down,” said Thierry Breton, one of the top digital officials in the European Commission. “We are putting an end to the so-called Wild West dominating our information space. A new framework that can become a reference for democracies worldwide.”
On Thursday, representatives from the European Parliament and European Council were working behind closed doors in Brussels to strike a final deal. Their agreement would come after about 16 months of talks — a speedy pace for the E.U. bureaucracy — and set the stage for a final vote in Parliament and among representatives from the 27 countries in the union. That final approval is viewed as a formality.
Europe’s moves contrast with the lack of activity in the United States. While Republicans and Democrats have held several high-profile congressional hearings to scrutinize Meta, Twitter and others in recent years, and U.S. regulators have filed antitrust cases against Google and Meta, no new federal laws have been passed to address what many see as the tech companies’ unchecked power.
Europe’s new rules could offer a preview of what’s to come elsewhere in the world. The region’s 2018 privacy law, the General Data Protection Regulation, which restricts the online collection and sharing of personal data, has served as a model in countries from Japan to Brazil.
The path of the Digital Markets Act faced hurdles. Policymakers dealt with what watchdogs said was one of the fiercest lobbying efforts ever seen in Brussels as industry groups tried to water down the new law. They also brushed aside concerns raised by the Biden administration that the rules unfairly targeted American companies.
Questions remain about how the new law would work in practice. Companies are expected to look for ways to diminish its impact through the courts. And regulators will need new funding to pay for their expanded oversight responsibilities, when budgets are under strain from the pandemic.
“The pressure will be intense to show results, and fast,” said Thomas Vinje, a veteran antitrust lawyer in Brussels who has represented Amazon, Microsoft and Spotify.
The Digital Markets Act is expected to apply to so-called gatekeeper platforms with a market value of more than 75 billion euros, or about $82 billion, which include Alphabet, the owner of Google, and YouTube, Amazon, Apple, Microsoft and Meta.
Specifics of the law read like a wish list for rivals of the biggest companies.
Apple and Google, which make the operating systems that run on nearly every smartphone, would be required to loosen their grip. Apple would most likely have to allow alternative app stores for the first time. The law is also expected to let companies such as Spotify and Epic Games use alternative payment to Apple’s in the App Store, which charges a 30 percent commission.
On Android devices, Google would most likely have to give customers options to use other email and search services on handsets in Europe, similar to what it has already been doing in response to a previous E.U. antitrust judgment. On Wednesday, Google announced that Spotify and some other app developers would be allowed to offer alternative payment methods to Google’s within its app store.
Amazon is expected to be barred from using data collected from outside sellers on its services so that it could offer competing products, a practice that is the subject of a separate E.U. antitrust investigation. Meta also could not collect data about competitors to develop rival services.
The law may result in major changes for messaging apps. WhatsApp, which is owned by Meta, could be required to offer a way for users of rival services like Signal or Telegram to send and receive messages to somebody using WhatsApp. Those rival services would have the option to make their products interoperable with WhatsApp.
The largest sellers of online advertising, Meta and Google, would most likely be limited from offering targeted ads without consent. Offering ads based on data collected from people as they move between YouTube and Google Search, or Instagram and Facebook, is immensely lucrative for both companies.
Policymakers were also considering including a provision that could give publishers in Europe the ability to negotiate new compensation with Google and Meta for articles posted on their platforms. A showdown over this issue in Australia briefly led Facebook to stop letting news organization post articles inside the country.
“Large gatekeeper platforms have prevented businesses and consumers from the benefits of competitive digital markets,” said Margrethe Vestager, the executive vice president of the European Commission overseeing digital and competition policy, in a statement. The companies, she said, will now “have to comply with a well-defined set of obligations and prohibitions.”
Meta, Microsoft and Amazon declined to comment. Google and Apple did not respond to requests for comment.
Anu Bradford, a Columbia University law professor who coined the term “Brussels Effect” about the influence of E.U. law, said European rules often became global standards because it was easier for companies to apply them across their entire organization rather than one geography.
“Everyone is watching the D.M.A., be it the leading tech companies, their rivals or foreign governments,” Ms. Bradford said, referring to the Digital Markets Act. “It is possible that even the U.S. Congress will now conclude that they are done watching from the sidelines when the E.U. regulates U.S. tech companies and will move from talking about legislative reform to actually legislating.”
President Biden has appointed Lina Khan, a prominent Amazon critic, to lead the Federal Trade Commission and a lawyer critical of the tech giants, Jonathan Kanter, to head the antitrust division of the Department of Justice.
But efforts to change American antitrust laws have moved slowly. Congressional committees have endorsed bills that would stop tech platforms from favoring their own products or buying smaller companies. It is unclear whether the measures have enough support to pass the full House and Senate.
European regulators are now faced with enforcing the new law. G.D.P.R. has been criticized for lack of enforcement.
The European Commission, the executive branch of the bloc, will also have to hire scores of new employees to investigate the tech companies. Years of litigation are expected as companies mount court challenges of future penalties issued as a result of the new law.
“The gatekeepers,” said Mr. Vinje, the Brussels antitrust lawyer, “will not be entirely without defenses.”
David McCabe contributed reporting from Washington.