Big Tech faces a landmark new regulation in the European Union that includes the possibility of billions of dollars in fines and the liquidation of companies if they fail to comply with the new regulations.
The law on digital services presented by the European Commission on Tuesday and the law on digital markets herald a new era of regulation in Europe. They aim to keep technology platforms at a high standard in terms of the content they host and introduce new pro-competitive measures for online markets.
The two legal acts must be approved by the European Parliament and the Council of Ministers before they come into force.
"The two proposals serve one purpose: to ensure that we, as users, have online access to a wide variety of secure products and services," said Margrethe Vestager, European Commission Executive Vice President and Director of Competition and Digital Policy operate in Europe and can compete freely and fairly online with one another, just as they do offline. "
Tech companies could face hefty fines for non-compliance. For the Digital Services Act, a very large online platform could be fined up to 6% of global sales for a serious breach of the rules. Violating the Digital Markets Act can result in fines equal to 10% of a company's global sales and recurring fines of up to 5% of global sales.
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Under the Digital Services Act, all online platforms have new responsibilities for the content they host. The rules include the removal of illegal goods, services, and content; Advertising transparency measures; and obligations for large platforms to take action against misuse of their systems.
A supervisory structure will also be set up to directly sanction platforms that reach more than 10% of the EU's 45 million users.
The digital services law is expected to have a direct impact on Alphabet, which owns the world's two most popular search engines, Google and YouTube, and Facebook, the largest social media network with more than 2.5 billion monthly active users.
The Digital Markets Act is targeted regulation against the largest tech companies – big tech – which the block calls "gatekeeper" platforms.
The commission has defined what a gatekeeper platform is without naming any of the companies likely to fall under the new alphabet
Gatekeepers in the European Economic Area have achieved annual sales of EUR 6.5 billion or more or a market capitalization of at least EUR 65 billion over the past three years and offer a central platform service in at least three Member States. These companies are also expected to have a solid and lasting position in the marketplace.
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The main concern of regulators in competition is for gatekeepers to manipulate the platforms they host to illegally give preference to their own products and services. This includes the user of data, interoperability – the ability of hardware and software systems of different companies to interact – and self-preference.
For example, pro-competitive reforms could prevent Google from giving preference to its own price comparison tools on search engine sites – the subject of a claim made by a group of 135 companies, including travel company Trivago
and business review website Yelp
The Digital Markets Act also mandates that platforms like Apple must prevent users from uninstalling off-the-shelf software and apps, and platforms like Amazon from using data they collect from other merchants to compete with them.
"With harmonized rules, ex-ante obligations, better oversight, faster enforcement and dissuasive sanctions, we ensure that everyone who offers and uses digital services in Europe benefits from security, trust, innovation and business opportunities," said Thierry Breton, EU commissioner for the internal market.
The commission says "systematic violations" of the Digital Markets Act by gatekeepers could lead to "structural remedial action, such as requiring a gatekeeper to sell a company or parts of it" – leaving open the possibility of breaking into big tech.
More: Google is being targeted by these tech companies and is calling on regulators to take action against the "clear abuse of dominance".
Axel Hefer, managing director of the Germany-based hotel booking website Trivago, told MarketWatch that he welcomed the new regulation.
"The main concern we have is the hotel advertising division of Google, which is getting significant preferential visibility in search results. That should change," said Hefer. "This will allow us to compete more on an equal footing, which should lead to us become more competitive and Google Hotel Ads less competitive. "
Hefer believes that both of the new laws will help spur innovation among tech companies in Europe and enable swift action by regulators rather than the lengthy and expensive investigations of the past – like the four-year struggle for more than € 13 billion in re-taxation from the bloc Apple said guilty to Ireland.
"It's obviously bigger than Trivago, bigger than travel, and there's a systemic problem that I think is now widely recognized," Hefer said. "These market failures are actually going to stop in a way that I think is much, much, much bigger than our individual problem we have with Google."