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EU moves forward, US pulls back on regulation

Posted on by darion

While the European Union is introducing new digital regulations, the US is moving in the opposite direction, limiting the regulatory powers of federal agencies. Nevertheless, the EU’s actions could force tech giants to fundamentally change their operating models.

This week, EU regulators found that social media giant Meta’s “pay or agree” advertising model violates the Digital Markets Act (DMA), a law that requires companies designated as gatekeepers to open up their ecosystems and create greater interoperability with third parties. The European Commission, the EU’s executive arm, also found that Apple violated the DMA with its App Store rules.

The DMA aims to create a more equitable and competitive environment among digital platforms by streamlining what the EU considers closed operating models, which allow companies like Meta, Apple and Google to control aspects of how a platform operates, such as data collection and product placement. Because the DMA is likely to introduce significant changes to how tech giants operate, the United States could see some of the same changes by default, said Tom Wheeler, a research fellow at the Brookings Institution.

Still, he argued, that shouldn’t stop the U.S. from pushing its own digital policies. Without a U.S. policy, others like the EU are taking the lead on regulation, he said. Recent Supreme Court rulings that have weakened the regulatory powers of federal agencies suggest that regulating big tech may be a long way off for the U.S.

“Congress is forced to anticipate future events, and agencies are limited in their ability to address future events, which means we’re stuck with industrial-age regulations,” Wheeler said. “That means other countries, like the EU and the U.K., and the states, will ultimately be the ones making the regulations.”

EU rules to change tech giants’ operating models

The DMA currently applies to seven companies that provide 24 core platform services that the EU has designated as gatekeepers: Meta, Apple, Alphabet, ByteDance, Microsoft, Amazon, and Booking. Designated gatekeepers were required to submit DMA compliance plans by March 2024.

The EU has questioned both Meta’s and Apple’s efforts to comply with the DMA. In its preliminary findings, the EU found that Meta introduced a “pay or agree” offer in November 2023 as an attempt to comply with the DMA. The offer would ask users to choose between paying for an ad-free version of their social networks or accessing the networks for free but with ads.

The EU said this model is not DMA-compliant because it does not allow users to choose a service that uses less of their data. For Meta to comply with the DMA, “users who do not consent should still have access to an equivalent service that uses less of their personal data, in this case for advertising personalization.”

For the past 25 years, big tech companies have been making the rules and creating them to profit from. The US government has failed to do so.

Tom WheelerGuest contributor, Brookings Institution

The EU also found that Apple did not comply with the DMA because its App Store rules prevent app developers from freely communicating with consumers about channels outside the App Store to offer deals and content. Apple has long barred other app stores from its operating model, citing privacy concerns.

The initial compliance plans of companies like Apple and Meta outlined how they planned to comply with rules that the EU inevitably had problems with, Wheeler said. The EU set standards through the DMA that it now expects big tech companies to follow, he said.

Wheeler said one reason the EU has moved forward with the DMA to regulate big tech is that existing laws, including antitrust, have failed to test their strength. Regulatory measures like the DMA attempt to consider what supervision looks like in a digital environment, rather than “clone industrial supervision,” which he said was designed to address the challenges of the industrial age.

Wheeler said the European Commission is making it clear that tech companies no longer have the ability to apply their own rules.

“For the last 25 years, big tech companies have been making the rules and making the rules to profit from them,” Wheeler said. “The U.S. government has failed to do that.”

The EU will have to face the challenges

Some people disagree with the EU’s approach to regulating digital markets.

While Meta offered European users the choice of using Facebook and Instagram with ads or paying for an ad-free version of the app, the EU wants Meta to offer a version that is both free and ad-free. Forcing companies to offer online services without a subscription fee and targeted ads would create a “huge free-for-all” in which users around the world pay into the costs of providing services to the EU, Daniel Castro, vice president of the Information Technology and Innovation Foundation, said in a statement.

“If non-EU regions were to implement similar policies, internet services would quickly enter a death spiral of unsustainable costs relative to revenues,” he said. “The United States should vigorously defend the interests of American companies that have been unfairly subjected to EU regulation, and the Biden administration should formally object to this preliminary finding by the European Commission.”

The EU investigation into Meta and Apple for non-compliance will continue over the next year. If the companies fail to comply, they could be hit with fines of up to 10% of their total annual turnover. Further DMA violations could lead to additional remedies, including structural remedies such as requiring the companies to sell parts of their businesses.

Makenzie Holland is a senior reporter covering big tech and federal regulation. Before joining TechTarget Editorial, she was a general assignment reporter Wilmington Star News and a reporter covering crime and education in Wabash Plain Salesman.