Illustration by Sarah Kim / The Current

How the EU’s new digital regulations could shake up Big Tech

July 14, 20224 minute read

Illustration by Sarah Kim / The Current

Last week, European lawmakers approved two new pieces of legislation — the Digital Markets Act (DMA) and the Digital Services Act (DSA) — designed to curb the market power of dominant “gatekeeper” platforms as well as introduce new rules for online platforms to remove illegal content on their site. The laws create a new digital rulebook that bolsters the European Union’s role as a global tech regulator.

These sweeping new rules, hailed by The Wall Street Journal as “the most far-reaching Western efforts to rein in technology companies in at least a generation,” have been welcomed by marketers in Europe and the U.K. “We believe both regulations are a crucial step toward creating a fairer and safer online environment for businesses, consumers, and society at large, repairing some of the structural shortcomings of today’s digital economy,” Gabrielle Robitaille, the senior digital policy manager at the World Federation of Advertisers, tells The Current.

Industry insiders predict that the new EU rules will likely establish a blueprint for similar legislation beyond Europe, in the United States and other markets. “Much like GDPR inspired data protection and privacy regulation across the world, the Digital Services Act and Digital Markets Act are likely to have an impact beyond the EU’s borders, and we already know that regulators in major markets such as the U.S., U.K., and Australia are considering introducing similar laws,” says Robitaille.

This kind of emulation has been dubbed “the Brussels effect,” according to Greg Mroczkowski, the director of public policy at the Interactive Advertising Bureau (IAB) Europe. He represented the advertising industry in Europe on inputs into the DSA piece of this legislation, which he says is designed to complement, but not overlap, the privacy and data protection laws of the General Data Protection Regulation (GDPR). This legislation, he asserts, is more about “content moderation” that will require online platforms to filter illegal content as well as allow users more meaningful transparency regarding the ads they see.

The GDPR, which went into effect in 2018, was designed to enhance individuals’ control and rights over their personal data, which means that any business processing personal data must ask explicit permission to engage in such processing. The DSA sets clear obligations for digital service providers, such as social networks or online marketplaces, to tackle the spread of illegal content, online disinformation, and other societal risks. The DMA is targeted toward large platforms whose dominant positions may allow them to monopolize the marketplace.

From the U.S. perspective, the most-watched part of the EU legislation is likely the DMA rule, with its stated aim “to establish a level playing field to foster innovation, growth, and competitiveness, both in the European Single Market and globally.” In the United States, Google faces pressure from the Justice Department, which has reportedly been investigating whether the tech giant has engaged in anticompetitive conduct as both broker and auctioneer of digital ads. Just last week, Google reportedly offered concessions to spin off its ad auctions business into a separate Alphabet-owned company to fend off the potential lawsuit. In addition to the probe by the Justice Department, the company also faces scrutiny in the EU, U.K., as well as a lawsuit led by Texas and filed by over a dozen U.S. states.

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Marketers have largely welcomed the broad aims of the EU’s Digital Markets Act, alongside parallel reviews of digital advertising markets taking place in the U.K., U.S., and other countries.

“Never before in the history of capitalist economies have a small number of companies been able to control the buy and sell sides of a market, as well as own their own inventory and act as the gatekeeper to the consumer in every sector of the economy. By controlling all aspects of the advertising market, these companies are able to set prices, favor their own inventory, and aggregate data across platforms,” Chris Combemale, the CEO of the U.K.-based trade organization Data and Marketing Association, tells The Current.

“The DMA addresses these monopolies with proposals to prohibit combining user data across products without explicit consent, obligations to be transparent to advertisers on how prices are set in the market, obligations to provide fair, reasonable and nondiscriminatory access to app stores, and other measures that will increase transparency and competition,” he adds.

The EU says these rules will be enforced across the continent, rather than on a country-by-country basis, and they are backed by heavy penalties for noncompliance, with fines of up to 10 percent of a company’s total worldwide turnover. However, critics often cite the problem of enforcing such broad rules. In the meantime, trade bodies like the IAB are working to “aid the industry in terms of compliance, for instance, to help that advertising transparency materialize,” says Mroczkowski.

By Damian Fowler