Europe Enters New Era of Tech Regulation With Digital Markets Act

The Digital Markets Act (DMA), the new European Union rules that aim to rewrite how business is done online by regulating how the world’s biggest tech companies operate, take effect today, Thursday, March 7.

The regulation applies to companies with a market value of €75 billion ($81.7 billion) or €7.5 billion ($8.17 billion) 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, including web browsers and virtual assistants.

The DMA will initially apply to six companies, designated as “gatekeepers” for their supposed dominant positions in areas of the digital marketplace: Alphabet, Amazon, Apple, ByteDance, Meta and Microsoft. The EU has also designated 22 core platform services of these tech giants — Meta’s Facebook, Instagram and WhatsApp; ByteDance’s TikTok; Google’s search service, etc. — as coming under the scope of the new regulations.

It will be months, if not years, before the usefulness and the unintended consequences of the EU legislation will become clear, but already the DMA has forced tech giants, from Alphabet to TikTok, to change how they operate in the EU or face the threat of hefty fines. First-time DMA offenders can be penalized up to 10 percent of their company’s total worldwide turnover. For repeat infringements of the law, the EU can levy a 20 percent fine. For Meta, for example, that would mean a fine of $13.4 billion, 10 percent of the company’s 2023 worldwide revenue of $134 billion, for its first offense.

The legislation is one of the world’s toughest pieces of legislation targeting the market clout of tech firms and could mark a sea change in how Europe does regulation.

Instead of waiting to see evidence of market dominance hurting consumers and using traditional antitrust law to correct it — the approach taken by U.S. regulators to reign in big tech — with the DMA, Europe is trying to get ahead of digital markets by erecting guardrails requiring the biggest players in the tech world to open up their systems to competition to ensure, in the words of the European Commission, “a level playing field” for businesses in the digital sector.

EU legislators see antitrust as “too slow” to deal with the rapidly changing digital marketplace, says Enrique Dans, a professor of innovation at Madrid’s IE University and a nonresident fellow with the digital innovation initiative at the think tank the Center for European Policy Analysis (CEPA).

Governments across the globe seem to agree with Brussels. Before Europe’s law even went into effect, and before the full impact of the legislation could be assessed, governments around the globe, from the U.K. to Japan, were rushing to write their own copycat versions of the DMA.

“What we’re seeing,” says CEPA senior fellow Bill Echikson, “is the ‘Brussels Effect,’ the effect of Brussels wanting to be the world’s tech regulator. It happened with the privacy GDPR law in 2018, [which] has been copied around the world. And already we’re seeing copies of this Digital Markets Act, or variations of it, appear in places like Japan, the U.K., Brazil, Mexico, even India. I think, in the democratic world [the DMA] will become the de facto standard.”

Some DMA copycat legislation, like that proposed in Japan, is more targeted and narrower in scope than the DMA, while other governments, notably in the U.K., want tougher regulation. Britain’s proposed Digital Markets Competition and Consumers Bill goes further than the DMA, requiring tech giants, among other things, to open up their data to rival search engines, increase their battle against fake online reviews and overhaul their app stores.

As if to show it means business, the European Union on Monday, March 4, leveled an antitrust penalty against Apple, fining the company nearly $2 billion for breaking competition laws by unfairly favoring its own music streaming service over rivals. The case against Apple was brought by a group of smaller tech companies led by Swedish music streaming service Spotify.

Google recently received a €2.42 billion ($2.64 billion) antitrust fine from the EU for using its own price comparison shopping service to gain an unfair advantage over smaller European rivals. Both Apple and Google are appealing the penalties.

The DMA comes alongside another piece of sweeping EU legislation, the Digital Services Act (DSA), which focuses on consumer protection.

The scope of the DMA and the hefty penalties it allows could mean the legislation will have a major impact on the development of digital industries worldwide. But the EU’s new laws still leave out certain digital markets, including video streaming, from antitrust consideration.