Communications and Technology

Looming European Regulations Cast Shadow Over American Tech Innovators

As ALEC cautioned in our recent report, the European Union’s Digital Markets Act (DMA) has now entered into force and is expected to dramatically impact U.S. tech companies offering services in Europe. EU policymakers believe this new regulatory regime will provide an open, fair, and contestable digital market for their citizens and serve as the global standard for technology regulation.

Despite these intentions, the DMA’s onerous regulations threaten innovation and choice throughout the digital marketplace, unfairly target U.S.-based companies, and include problematic provisions that could impact user privacy and cybersecurity. Lawmakers should reject the EU’s approach to fix competition with ever expanding government mandates and instead focus on how to support innovators and bolster the free-market system that resulted in decades of American technology dominance.

A Preview of Coming Attractions

This month, the European Commission is expected to conclude a three-year antitrust investigation into Amazon alleging anti-competitive conduct. Per CNBC, Amazon’s concessions to the EU in this case offer a preview of how the Commission intends to bludgeon American tech firms with regulatory tools like the Digital Markets Act.

Per Sky News, in another chapter of the ongoing EU vs. Twitter saga, EU Commissioner Thierry Breton demanded that Twitter under Elon Musk must adhere to the strict content moderation, disinformation, and targeted advertising standards set forth in Europe’s Digital Services Act, or else risk a total ban of the social media platform within EU countries. Musk has previously stated that Twitter would comply with relevant laws.

These two case studies illustrate how European regulators continue to bring down the hammer on successful American technology firms across multiple fronts. As the core provisions of the DMA begin to take effect next year, scrutiny of U.S. companies will likely intensify.

The Digital Markets Act: What Happens Next?

Earlier this year, the European Parliament and European Council approved the final text of the DMA and the new law entered into force as of November 1, 2022. Many of its key provisions are scheduled to take effect six months after enactment in May 2023.

As highlighted in our report, the DMA allows the European Commission to designate certain providers of “Core Platform Services” as so-called “Gatekeepers,” subjecting such companies to a host of obligations and strict requirements governing their products and services. European regulators have tailored the Gatekeeper designation criteria in such a way to precisely target large U.S.-based technology companies including Amazon, Apple, Google, Meta, and more.

Companies that fulfill the DMA’s quantitative criteria must self-report themselves as Gatekeepers to the Commission no later than July 3, 2023. The Commission then has 45 working days to make the initial round of formal Gatekeeper designations, no later than September 6, 2023. Companies decreed to be Gatekeepers by the EU will then have six months to comply with the DMA’s obligations and prohibitions. Companies that fail to comply by March 6, 2024, may be levied severe fines of up to 10% of total global annual turnover and up to 20% for repeat offenders.

But the process does not stop there. EU regulators have made it clear they intend to use market investigations to justify even further expansion of the Commission’s power over the digital marketplace by “identifying” Gatekeepers who do not meet the quantitative threshold, adding even more services to the list of Core Platform Services covered under the DMA, and “designing additional remedies” for DMA violators. Alarmingly, even if U.S. tech companies provide sufficient evidence to elude the initial round of DMA Gatekeeper designations, Commissioners can simply rewrite the rules until they achieve their desired result.

ALEC encourages U.S. policymakers at the state and federal levels to reject this heavy-handed regulatory approach to technology policy and instead support policies rooted in free market, limited government principles.

For more information on the DMA’s harmful effects on tech innovation and the free-market alternative, read the full report here.