Reining in the tech giants?

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12 February 2019   |   By Eszter Zalan

EU Regulation

Reining in the tech giants?

The EU is attempting to make way for European tech firms through regulation, investment and policing market dominance.

The EU needs a unified approach to enable European companies to compete on a global market

There is often talk in the EU about why there are no European tech companies like Facebook and Google, why do firms like Skype need to go to the US for funding. Mariya Gabriel, the EU commissioner in charge of digital affairs, has talked about Europe playing catch-up with the US and China.

According to the Financial Times, there are no EU companies among the top 15 global digital champions by market capitalization, and just four percent of the leading 200 online platforms are based in EU member states.

Recently, the European Commission set out to build a “digital single market”, trying to boost investment, reach out to the European tech world and pushing back against US tech giants that have created a dominant position in the market.

Competition: EU plays hardball

One obvious front is competition, where the EU has played hardball. The Wall Street Journal named Competition Commissioner Margrethe Vestager the “woman who is reining in America’s technology giants” because of massive fines the Commission imposed on large US firms for allegedly breaking EU rules.

Vestager told the newspaper that she was not out there to get the tech giants because of their nationality. “This is very much about being multinational. Being based in many countries, of course you have obligations wherever you go, with the rules made in those democracies where you do business. It’s not about where you come from, it’s about what you do when outside,” Vestager said.

Many European experts agree with her approach. “Issues that flow from the US companies’ dominant position can be addressed by EU competition authorities aggressively pursuing this monopoly,” one said, speaking on condition of anonymity.

More regulation: Creating a level-playing field

Another streak for the EU to make room for European forms is regulation. The current EU Commission, whose term will end later this year, has put forward 30 proposals as part of the Digital Single Market project. They are aimed at enabling the European industry to grow. So far, 23 have advanced among the other EU institutions, including updating older rules for the new digital reality.

One aim is to create a “level playing field” for European companies and better protection of consumer rights in the digital world. “The EU now really is starting to understand what the EU tech sector needs to be able to grow,” said an official working for a European tech firm, who asked not to be named. “We are starting to see those roadblocks be removed that prevent EU tech companies to be world-beating firms,” the official added, referring partly to barriers within the bloc’s single market.

Flora Coleman, the Estonian-born and UK-based head of public policy and regulatory strategy of the money remittance service TransferWise, said the EU had made an effort to reach out to European companies. “The EU had initiated pioneering legislation for the digital world, thus setting the trends for our competitors.

“Nevertheless, we must say that this mandate has been dominated by crises we haven’t seen before – the Greek one, migration, Brexit, as well as an up-rise of nationalistic parties, the spread of disinformation – all this making it difficult to keep up with the initial course of action,” the Bulgarian member of the European Parliament, Eva Maydell, said on the Commission’s recent work. She pointed out that investment was also key for Europe.

The Commission has put forth a number of proposals in order to enable European companies

Striking the right balance

The American funding culture, which allows for failure and is more flexible, has a distinct advantage over the fragmented capital market of the EU. The bloc is updating its capital market rules to unlock funding potential, while trying to provide funding at EU-level.

MEP Michal Boni, a former Polish minister of digitisation, argued for striking the right balance. He said European companies should have a proper financial environment to develop and not redundant regulation from the European Commission.

Although key pieces of legislations are still in the pipeline, with European elections in May 2019 looming little progress is expected this year on digital issues.

One legislation currently under consideration is Platform-to-Business (P2B). It is aimed at curbing alleged unfair business practices by American platforms such as Apple, Google and Amazon. It tries to rebalance the relationship between apps and firms that are reliant on online platforms to provide their services. Apple’s app store, for instance, gives preferential treatment to its own music service and takes a 30 percent cut on all downloads.

The Commission said that this “opens a scope for certain unilateral trading practices that are harmful”. The draft law the EU executive has presented would require platforms to provide companies with information about how their ranking algorithms work, as well as a formal complaint process if they were demoted or delisted from search results or app stores without sufficient explanation.

Many proposals are controversial among EU states

European tech companies have complained that the draft legislation does not go far enough and lacks teeth. The Commission argues that it is only the beginning of a process, it being the first-ever EU level regulation of online platforms.

“We want to solve the issues before they become big cases,” an EU official said, adding that the was very much geared towards European companies.

On P2B, more so-called Trilogue meetings between the Commission, the European Parliament and the Council of Ministers are scheduled in the coming weeks, and the legislation might still be adopted before European Parliament elections next May.

The proposals on ePrivacy – an attempt to put digital services like Facetime, WhatsApp or Skype under telecoms rules and impose with heavy fines in cases of rule-breaking – are controversial among EU member states, and it will be up the Romanian EU presidency to forge a single position.

However, this is unlikely to happen before the elections. The proposals would update rules for tradition telecommunications firms regarding the confidentiality of online messages and other communication channels. They would also oblige companies to have 112 emergency call options and update them against data privacy rules rolled out earlier in 2018. “There has been lots of lobbying among member states,” said one EU source, admitting that the proposal for now is stuck in the Council of Ministers.

Some countries have been calling for looser rules on how consumers’ personal data can be used and processed. They argue that the General Data Protection Regulation (GDPR) already provides sufficient protection. However, the ePrivacy rules are meant to supplement the GDPR and to further restrict the processing of data.

The Commission’s plan to have the updated ePrivacy rules enter into force in May has been missed.

With the finalisation of EU copyright directive being delayed, US companies can rejoice

Copyright Directive: political consensus reached

Talks on the controversial Copyright Directive made a breakthrough on 13 February 2019, when an agreement was reached between negotiators representing the Council, the Commission and the European Parliament. However, the text of the bill will still need to be formally adopted by members of the European Parliament.

The directive is an update to rules adopted in 2001 and focuses on a better remuneration of copyright holders. Once adopted, member states would have 28 months to implement the new rules.

The debate has essentially centred on two articles. Article 11 of the draft directive would force companies like Facebook and Google to pay publishers every time a content is shown on one of their platforms, even if it is only a snippet. Article 13 of the directive would force companies that make use of user-generated content, such as YouTube or Twitter, to prevent the use of copyrighted postings (Upload Filter).

According to the European Commission, the new law will give “tangible benefits to all creative sectors, specifically creators and actors in the audiovisual and musical sectors, by reinforcing their position vis-à-vis platforms to have more control over the use of their content uploaded by users on these platforms and be remunerated for it.”

It would mark the first time that the principle of an appropriate and proportionate remuneration for authors and performers will be laid down in European copyright law.

Authors will also get access to transparent information on how their works and performances are exploited by their publishers and producers. If publishers or producers fail to exploit the rights that authors and performers have transferred to them, authors and performers would be allowed to revoke their rights, the Commission said.

Users will benefit from the new licencing rules which will allow them to upload copyright protected content on platforms like YouTube or Instagram legally. They will also benefit from safeguards linked to the freedom of expression when they upload videos that contain right holders’ content, i.e. in memes or parodies. According to the Commission, the interests of users will be preserved through “mechanisms to swiftly contest any unjustified removal of their content by the platforms.”

The EU must strike a right balance to allow tech companies flourish

Digital Services Tax on hold

Disinformation is another territory where the EU executive envisages regulation of online platforms such as Facebook. Under its current regime, a platform must remove hate speech or other illegal content, and the Commission is currently monitoring the implementation of a voluntary Code of Conduct signed in 2016. Later, it plans to come forward with a report on compliance by platforms. If results are not satisfactory, new regulations might be forthcoming.

Despite the Commission’s drive to reign in US tech giants in case they abuse their market dominance, some member states fear losing tax revenues and jobs provided by these companies. It is therefore hardly surprising that another proposal, the so-called Digital Services Tax, described as the “real battle” by an EU official, is currently off the table at EU level, following severe disagreements between member states on its scope.

Some EU countries such as Ireland and Luxembourg have fought hard against the proposed 3-percent tax on digital services. As Denmark, Sweden and Ireland also voiced opposition against taxing companies’ revenues, current plans are focusing on a levy on advertising sales which could exclude tech giants such as Amazon and Apple.

France’s government, which has championed the issue, said it would unilaterally impose a tax on big international tech groups such as Google and Facebook if it failed to persuade its EU partners by March 2019 to agree to an EU-wide tax. Austria also announced that it would introduce a 3-percent tax rate on the online profits of net giants that have sales of more than €750 million a year. That levy would come on top of any planned EU digital tax.

The disagreements over the digital tax – for French President Emmanuel Macron a tool to prove to Eurosceptic voters that the EU is indeed working on their behalf – have prompted the European Commission to put forward plans for tax rules without unanimity and instead make them subject to majority voting procedures in the future.

Should US tech giants be deemed as monopolies?

Some in the EU are already comparing US tech giants to the 19th century American Standard Oil company, which the US Supreme Court deemed an illegal monopoly in a 1911 ruling, and there clearly is support for the EU to pursue its role in policing market dominance.

However, others think EU action should not be viewed as an effort against American companies. “We need to avoid a Cold War between US and EU companies,” MEP Boni said, adding that there needed to be real competition between all companies and that the EU should avoid protectionism and shutting US companies out.

In Boni’s opinion, US tech companies should be subject to the same taxation as their EU counterparts, and privacy rules should apply to all players active in European markets. He called for regulation to be balanced between the interests of companies, platforms, state institutions and consumers and argued that pressure on US companies would be counterproductive and might even hamper the growth of European companies.

“It is not clear that the result will be the creation of new EU companies,” Boni said, adding that avoiding monopolistic advantages should be dealt with through the enforcement of the existing rules.

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