How Big Tech lost the antitrust battle with Europe

Andy Yen has big dreams for ProtonMail, the secure email service he founded in 2014 that now has 50mn users worldwide. One day, he hopes, it could be a rival to Gmail, the communications behemoth owned by Google, which boasts over 1.5bn users.

But he says Proton can never be a true competitor to Google while the internet continues to be an unregulated wild west. “We grow based on the goodwill of tech giants,” Yen says from his head office in Geneva. In fact, he says, the same goes for his company’s very existence. “Tech giants could today remove us from the internet with zero legal or financial repercussions.”

Like Proton, millions of companies in Europe are pinning their hopes on the Digital Markets Act (DMA), the EU’s first overhaul of the rules that govern competition on the internet in 20 years. It is one of two major pieces of technology legislation in the works in Brussels; the other is the Digital Services Act (DSA), which will cover areas such as privacy and data use.

It is the DMA which presents the greatest immediate threat to the digital empires built by so-called gatekeepers such as Google, Apple, Facebook, Amazon and Microsoft over the past two decades. Lawmakers are expected to finalise the act’s wording and scope as soon as this week, in a push to open up markets captured by big tech and allow local rivals to flourish.

The antitrust legislation has the potential to transform completely how these giant companies do business, disabling their core strategy of integration that has allowed them to tie in users, dominate markets, and capture billions of euros in revenues.

Aimed at firms with an individual market capitalisation above €65bn, the act will set out for the first time the rules of how large online platforms must compete in the EU’s market. It could, for example, force Google to give users the choice of alternative email providers when installing a new smartphone, or Apple to open its app store to competing services.

It also gives regulators much sharper teeth — granting them broad investigatory powers, with the ability to hand out fines of up to 10 per cent of global turnover for infringements, or even in extreme circumstances to force repeat offenders to break up their businesses.

Kim van Sparrentak, a Dutch MEP who sits on the European parliament’s internal market and consumer protection committee, describes the legislation as a milestone in reining in big tech. “We are finally talking about [how] they are too big, about interoperability, something they really, really didn’t want. These are big, big wins.”

For decades, antitrust bodies in Europe and the US have been perceived as ineffective and too slow to react. Even though the European Commission has stepped up its antitrust actions in recent years, the fines that it has imposed are seen as simply the cost of doing business.

For example, Margrethe Vestager, the EU’s competition commissioner, has handed out roughly €10bn in fines to Google over a decade, with what rivals claim has had little effect on opening up markets. Google is still contesting all the fines even after judges at the EU’s court in Luxembourg ruled the search engine giant was favouring its own services over competing offers. The company is appealing against the decision.

Now, the EU is dramatically escalating its antitrust war on big tech, and the Silicon Valley giants have been frantically trying to shape it to their own ends. According to the independently funded Brussels-based campaign group Corporate Europe Observatory, more than 150 meetings between big tech and EU officials have been logged since the start of the current European Commission in late 2019, involving 103 organisations.

But interviews with EU officials, lawmakers and others suggest their efforts have been ham-fisted and largely in vain — and major companies are now shifting their attention to how they might comply with the legislation, rather than derail it.

“There is no stopping or derailing the new rules,” says Thomas Vinje, a Brussels-based partner at Clifford Chance, the law firm, which has represented rivals of big tech but also large players. “Big tech lost the legislative battle.”

Under the influence

The significance of the legislation is evident from the extraordinary blizzard of lobbying it has provoked in Brussels ever since plans for the new technology laws were unveiled in December 2020.

Google, in particular, has stood out in the way it has targeted senior officials to try to steer the regulation its way. According to Corporate Europe Observatory, the company tops the list of lobbyists who have met with senior officials at the European Commission, and has also met the most MEPs.

The company planned an aggressive campaign directly aimed at Thierry Breton, the internal markets commissioner who has been instrumental in drawing up the tough new rules against large tech companies.

An internal company document laying out the lobbying strategy called for a more intense “pushback” against Breton, who has proposed breaking up companies that constantly ignore EU rules, and “weakening support” for the draft legislation among lawmakers in Brussels.

But the move backfired and Google’s chief executive, Sundar Pichai, ended up apologising to the French commissioner as he promised that such lobbying was “not the way we operate”.

Yet the company has continued in its efforts to seek out lawmakers. Van Sparrentak says she recently received an invitation from Google to meet to discuss a potential ban on targeted advertising and promising to adapt to her visit schedule. She didn’t reply.

But ineffective lobbying is seen across the board and it has not been exclusive to Google, say multiple lawmakers and EU officials with direct involvement in the last-minute talks to approve the legislation.

A common thread in opposition to the law is the perceived threat to innovation. Nick Clegg, president of global affairs for Facebook’s parent company Meta, has warned the DMA “risks fossilising how products work and preventing the constant iteration and experimentation that drives technological progress”.

A 2021 assessment by US-based consultancy the Berkeley Research Group, paid for by Google, found that the DMA is likely to have a “chilling effect on research and development and innovation”.

The report adds: “This is basic economics. The DMA requirements encourage free riding on the investments of others, and this discourages parties from making those investments. Europe’s innovative potential is better secured through autonomous development of dynamic capabilities.”

It is not only companies attempting to shape the legislation, though. Parts of the Biden administration have also been lobbying hard against what they see as a targeted attack against US companies. A series of letters seen by the Financial Times show how the White House has lobbied Andreas Schwab, a German MEP and key powerbroker, in efforts to dilute the effects on the business of large online platforms.

One document, signed by Arun Venkataraman, counsellor to US commerce secretary Gina Raimondo, said Brussels should take into account security concerns when regulating big tech. But Schwab pushed back, arguing that security concerns should not be used as a pretext to water down the upcoming rules.

In recent weeks, ahead of approval of the regulation, big tech lobbyists have continued to request last-minute meetings to try to influence its outcome with little to no result. “I tell big tech companies to not even bother sending me anything,” Schwab says. “It’s over.”

In the line of fire

Regulators already have a list of possible cases they will pursue against big tech even before the rules come into force, sometime next year. Facebook and Google are likely to face scrutiny first, according to people with intimate knowledge of the matter.

Officials in Brussels are preparing to go after Google for alleged anti-competitive practices, accusing the tech giant of abusing its powerful position to direct users to its own services, ahead of those of its rivals, a practice that’s expected to be banned outright in the DMA.

The case would mirror an antitrust action already brought forward by the European Commission under existing EU law, in which it argued the tech giant favours its own comparison shopping services over rivals instead of offering the best results for consumers.

Google says it already made the necessary changes back in 2017 and it is appealing a court ruling in favour of the commission’s actions. In its communication with lawmakers, it has emphasised how it is looking after the interests of local businesses.

But Richard Stables, the chief executive of Kelkoo, a comparison shopping site that claims to have been affected by Google’s alleged anti-competitive actions for years, is concerned the new regulation may not go far enough.

His fear is that the concessions Google has already made, which he says are insufficient, may be used as a blueprint for the DMA. “We believe the [existing] legislation is a simplistic way of dealing with this. Our concern is that if you don’t [resolve] the antitrust case, Google will run the argument that it is already complying.” If it’s a different law, he adds, “therefore you have to act differently.”

Even though smaller tech companies are excited at the potential of the act to level out the playing field, many are waiting to see what will be in the final legislation. “The sentiment of the legislation is great, but if it’s not implemented correctly, what is the point?” Stables asks.

Even at this late stage there is still political haggling over some of the key proposals, including what kind of restrictions to impose on targeted advertising and how much so-called interoperability should be allowed between competing services.

Sources close to the debate say the discussion is centred on degrees of obligations, rather than whether there should be restrictions at all.

The Brussels effect

There’s already a sense in Europe that the mood music for big tech has changed. Antitrust bodies in member states have been empowered to target major technology companies even before the rules come into force in Brussels.

The Dutch competition authority, for example, levied a series of fines on Apple in January and February, for allegedly giving app creators no alternatives to using its payment system, which takes commissions of 30 per cent for the US company.

In Germany, the country’s competition watchdog was recently given more powers to go after abusive practices and single out those that are dominating a specific market. The Germans already have the ability to ban actors such as Google and Facebook from giving preferential treatment to their own services and products, even before DMA becomes law.

Beyond the EU’s borders, the UK is also working on creating its own tech watchdog focused on market dominance — though it is not likely to gain powers until well after the Brussels rules are in place.

EU officials say they are already in touch with a handful of other countries to give their expertise on how the rules can be adapted locally. “The DMA is already showing its effectiveness even though it is not yet a rule book,” says Schwab, the German MEP. “In the future, it will be up to the gatekeepers to prove the fairness of their business model, and not for the regulator to prove the market distortion.”

Despite its efforts to influence the DMA, the Biden administration is very much in favour of what Brussels is doing. It has signalled tougher enforcement measures in the US that mirror the initiatives in Brussels, and has put critics of big tech in influential positions — none more so than Lina Khan, the head of the Federal Trade Commission who made her name by arguing that Amazon should be broken up.

The US Congress has also set its sights on new legislation similar to the DMA. The American Innovation and Choice Online Act, introduced by Republican senator Chuck Grassley and Democrat Amy Klobuchar, has bipartisan support but has only recently begun its journey towards becoming law and few expect progress before November’s midterm elections.

In Europe, however, there is a feeling among tech companies that the battle has already been lost. Legal teams at Google, Apple and Amazon are already considering ways to implement the new rules as part of doing business, including the creation of a new compliance unit.

Asked to come out publicly to defend the sector, lobbyists are declining the opportunity. “It’s over,” says one, who represents the interest of big tech and declined to speak on the record. “I don’t want to be the last one standing, crying. It was a done deal from the start. It’s been an artificial battle. The sector was always going to lose after fighting against the entire establishment.”

Stables sees it not as a political stitch-up but a logical result of market sentiment. “What [big tech firms] do is anti-competitive — it hurts consumers, it kills industries,” he says. “This is not difficult to argue. Politicians are trying to do what is good for consumers. Ultimately people have woken up.”

What is yet to emerge, as the DMA becomes law and companies adjust their business models to react to it, is just how transformative this legislation will be. A system that has delivered enormous leaps and bounds in technological progress — for worse, but sometimes for better — might never be the same again.

Let’s hope consumers who have grown fond of the services provided by Silicon Valley’s giants are ready for those changes, says one seasoned antitrust lawyer who has worked on behalf of big tech in Brussels and London. “These rules are throwing sand in the system, putting lawyers in charge and not the engineers,” he says. “But will beautiful flowers emerge?”

Source: Financial Times