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EU Threatens Breakups and Ten Percent Global Revenue Fines for Big Tech Rulebreakers

Tim Cross  15 December, 2020

Today, the European Commission revealed that large global tech companies could be forced to divest some of their assets, or face fines of up to ten percent of their annual global revenues, for breaking rules outlined in its new Digital Services Act package.

The two new acts within the package  – the Digital Services Act (DSA) and the Digital Markets Act (DMA) – have been in the works for the past year, and represent the EU’s latest effort to rein in the global tech giants.

The DSA sets guidelines around the responsibilities of digital platforms to address the risks faced by their users and to protect their rights. They outline platforms’ responsibilities for protecting users from illegal and harmful content, and for transparency in how they use data to target ads. The number of obligations placed on online service providers depend on the size of the company, with larger companies facing greater obligations.

Among the new specific rules set to be introduced are:

    • New powers to scrutinize how platforms work, including by facilitating access by researchers to key platform data, which will be of particularly interest to the advertising industry and the fear that big tech companies could have unfair advantages when third party cookies are phased out
  • Rules for the removal of illegal goods, services or content online
  • Safeguards for users whose content has been erroneously deleted by platforms
  • New obligations for very large platforms to take “risk-based action” to prevent abuse of their systems
  • New transparency measures around online advertising and on the algorithms used to recommend content to users

These rules will be enforced by ‘Digital Services Coordinators’ set up by individual member states, which will have powers to impose fines and period penalty payments on companies which don’t comply. Individual coordinators will be tasked with imposing “effective, proportionate and dissuasive” fines, which may reach up to six percent of the offending company’s annual global turnover.

The Digital Markets Act meanwhile only applies to the very largest digital businesses, which the Commission calls ‘gatekeepers’. The DMA seeks to make sure that these gatekeepers play fairly, and prevent them from crushing potential competitors before they’re able to properly scale.

The Commission itself will enforce the DMA, and will have some flexibility in deciding which companies are classed as gatekeepers.

But as a basic rule, companies will be judged based on their size, their position as a gateway between large numbers of consumers and businesses, and their durability. And the Commission says that companies which generated above €6.5 billion in the European Economic Area over the last five years (or have a market cap over €64 billion); which have over 45 million monthly active users and 10,000 yearly business users in the EEA; and which have exceeded those thresholds for over three years will be classed as gatekeepers.

Among other things, the DMA will force these gatekeepers to:

  • Give businesses which use their platforms access to any of the data they generate
  • Provide companies advertising on their platform with the tools and information necessary for advertisers and publishers to carry out their own independent verification of ads hosted by the gatekeeper
  • Allow third parties to inter-operate with the gatekeeper’s own services in certain specific situations
  • Abstain from giving their own products and services preferable rankings compared to similar services or products offered by third parties on the gatekeeper’s platform

Gatekeepers found to have broken these rules may face fines of up to ten percent of their global annual turnover. And DMA grants powers to break up repeat offenders by forcing them to divest parts of their businesses.

Traffic Lights for the Internet

These proposals will now be discussed by the European Parliament and EU’s member states.

The Commission hopes that by aligning the laws regulating big tech companies across the EU, the likes of Google, Amazon and Facebook will be more effectively held to account.

The EU’s competition commissioner Margrethe Vestager compared the two new acts to the creation of the first traffic lights.

“The best metaphor I could think of was the first ever traffic lights, which brought order in the streets,” she said at a press conference. “They were invented as a response to a major tech disruption, the invention of the car. And just like back then, now we have a large increase in online traffic, and we need rules that put order into the chaos. That’s what the Digital Services Act is all about.”

But the impact of these rules will depend partly on the appetite from individual countries’ regulators to take on the tech giants. While the EU Commission itself will have the power to impose fines through the DMA, the DSA will be enforced by regional regulators, which can lead to varied interpretations. As we’ve seen with the EU’s General Data Protection Regulation, this can result in a delay between when new rules come into force, and when we actually start seeing fines handed out as a result of those new rules.

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