(Bloomberg) — U.S. tech giants are bracing for details of a new law that could force sweeping changes to how they operate in Europe, with significant fines or, in extreme cases, banning the worst offenders from acquisitions.
The new Digital Markets Act, set to be agreed by European Union negotiators as soon as Thursday, targets so-called gatekeeper companies, platforms like Facebook and Google with the power to control distribution in their markets.
Key rules lawmakers set for gatekeepers are likely to include:
- Making their messaging apps interoperable to prevent users being tied to one network
- Allowing users to choose a default search engine, web browser and virtual assistant when they buy a new smartphone
- Ensuring fair access conditions for their app stores
Fines of as much as 10% of a company’s global annual sales could apply for an initial breach of the law, rising to 20% for repeat infringements. Companies that routinely violate the rules could be temporarily banned from conducting mergers and acquisitions.
The legislation is set to apply to companies such as Amazon, Facebook, Google, Microsoft and Apple; very large platforms like Booking.com are likely to be included, too. But the EU hasn’t announced exactly how it will decide which other businesses must comply.
It’s one of the most contentious issues, as there’s little clarity yet about how businesses teetering on the threshold of inclusion will be impacted. Online marketplaces Zalando and Alibaba, for instance, could be included depending on where the EU sets the cut-off point.
Negotiators expect that point to be companies with a market value of 75 billion euros ($82.4 billion) or 7.5 billion euros in annual revenue within the EU, and at least 45 million monthly end users and 10,000 yearly business users of at least one core platform.
Ahead of the announcement, Thierry Breton, the EU’s internal market commissioner, said the EU’s approach is “innovative in the way we identify gatekeepers.”
“Not only on the basis of their user base and turnover, but also their market capitalization,” he said in a statement. “Because the strength of many of those big players does not lie in their income but in the expectations of the market regarding their potential.”
Prodigious web companies such as Amazon.com Inc. and Alphabet Inc.’s Google have long been targets of antitrust investigations from Brussels but these cases drag out for years in the courts and have had little impact on big tech’s behavior.
To successfully break what the EU says is a stranglehold on digital ecosystems by a handful of giants, officials say they need new tools like the Digital Markets Act.
Another contentious example is forcing a messaging platform, such as WhatsApp or iMessage, to be interoperable. Concerns include how this would affect encryption, or stifle iterative product design that’s a hallmark of Silicon Valley entrepreneurship.
Any implementation of interoperability will be extraordinarily complex and technically challenging. Nick Clegg, Meta’s president of global affairs, said in May that “what happens in the next two years will define the next 20 years” and that “some of the DMA’s fine print suggests policymakers could find themselves deep in the weeds of product design.”
Still, negotiators have faced criticism that the final agreement won’t actually go far enough in curtailing tech giants’ dominance. Some progressive lawmakers are upset that the Digital Markets Act will not do more to limit targeted advertising — an idea aimed at improving privacy and reining in Google and Facebook’s business models.
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