While You’re Waiting, Can I Offer You Some European Regulation?December 23, 2020
I’ve had to shift focus several times while writing this blog post. No wonder, it’s been a pretty crazy couple of weeks for antitrust and digital platform competition. On Wednesday, a coalition of U.S. state attorneys general filed suit over Google’s market power in online advertising technology. Thursday saw another complaint, this one about Google in the search market, from a different bipartisan coalition of state AGs. And don’t forget the separate complaints from the Federal Trade Commission and state AGs against Facebook just the week prior. Or the Department of Justice’s Google Search complaint in late October. All of those cases are certainly important, but I want to focus on something that might have been missed in last week’s kerfuffle: last Tuesday’s introduction of the European Commission’s Digital Markets Act and Digital Services Act.
Last week, the European Commission announced a sweeping overhaul of its approach to dominant digital platforms. The Commission’s Digital Markets Act (DMA) is all about leveling the competitive playing field for digital businesses reliant on gatekeeper platforms. The Commission’s Digital Services Act (DSA) focuses on consumer protection from illegal and harmful content online and establishes new transparency and takedown obligations for platforms. Neither of these laws is perfect nor can they be simply copy-and-pasted from a European market to an American one. As U.S. legislators prepare their own ideas about how to tackle dominant digital platforms, they should look to the DMA and DSA — particularly their targeted nature, focus on data, and relative speed compared to antitrust litigation.
The Digital Markets Act
The first thing to note about the DMA is that it is extremely targeted. Those opposed to regulation of digital platforms frequently decry how the entities actually hurt by additional regulations are smaller players and start-ups (this line of attack is far from limited to just digital competition proposals). Facebook and Google have the bankroll to jump through any additional regulatory hoops, but a start-up that just got off the ground might not. Thankfully, the DMA avoids this potential pitfall by cabining its new rules and responsibilities to gatekeeper platforms.
The test to determine a gatekeeper platform is a rigorous one with three main components: size, control, and durability of that size and control. First, a gatekeeper must have annual revenue in Europe of 6.5 billion euros (~$8 billion) or a total market capitalization of 65 billion, along with a presence in at least three EU member states. Next, the gatekeeper must control a two-sided platform with at least 45 million end users on one end and 10,000 business users on the other in the EU. Finally, a proposed gatekeeper must have met the above criteria in each of the last three fiscal years. This last point is especially noteworthy as it would give a start-up three years of potential leeway before being subject to the new regulations. How many companies would fit within the definitions has yet to be determined, but it is expected to be in the dozens, not the hundreds.
Once a platform is determined to be a gatekeeper, one is subject to a list of “dos and don’ts” enumerated in the DMA’s Article 5 and 6. Here are the highlights.
Interoperability and Data Portability – Do
One of the great things about a targeted regulation like the DMA is that it can zero in on the lifeblood and secret sauce of a digital platform’s profitability: user data. Many digital platform services are offered “free” to the user, but are then monetized through the massive collection and exploitation of a user’s data, mostly through targeted advertisements. Our searches and social media activity are a goldmine for advertisers, making companies such as Facebook and Google among the most profitable and powerful in the world. As of now, the digital gatekeepers have a massive head start on the depth and breadth of data on you that they would be loath to give up. Interoperability allows would-be competitors the ability to bootstrap themselves to dominant gatekeeper networks, forcing a gatekeeper to compete not just on size, but quality as well. The result should be a competitive market with multiple options, as opposed to the one dominant gatekeeper. Robust data portability lowers the switching cost of leaving a dominant gatekeeper when they do things you don’t like (say, poisoning our political discourse or spreading vaccine misinformation, hypothetically speaking of course).
Anticompetitive Data Misuse – Don’t
A definitional requirement of gatekeepers is that other businesses rely on equitable passage through the digital gatekeeper’s “gate” so as to conduct their business. A competitive problem arises when a competitor, potential or otherwise, must give up sensitive business data to compete on the gatekeeper platform. The DMA’s answer is a blanket ban on the use of any non-public data collected from end business users by the gatekeeper platform. For the U.S., Public Knowledge has proposed a version of this idea focused on anticompetitive uses of the non-public data. We think that we can still achieve pro-competitive benefits while protecting things users like, such as platform recommendation functions.
Transparency – Do
Participating in or doing business with a dominant gatekeeper platform can be something of a one-sided affair. Platforms, sometimes by necessity, know a great deal about their customers, yet users and participants know relatively little about the platforms on which they rely. This problem is especially prominent in online advertising, where sometimes the only information an advertiser can get about how well its ad is doing is from the platform itself. The DMA solves this information asymmetry by forcing gatekeepers to provide access to third-party ad assessments. Users get transparency as well through new abilities to access their data stored by a gatekeeper platform.
A New Market Investigations Tool – Do
The market investigations tool is a perfect example of one of the key advantages regulatory remedies can provide: flexibility. The tool gives the Commission the ability to continually investigate gatekeeper markets and (after proper notice and consultation) the ability to change the details of gatekeeper definitions and responsibilities. A key feature of a digital market is how fast it moves. What’s in vogue today can be outdated tomorrow. Think back 20, 10, even five years ago and ask yourself if you could have predicted what digital platform markets look like today. The mobile phone revolution, the pivot to video, the boom of voice assistants. Who knows who the gatekeepers of tomorrow will be (if you do, now would be a good time to invest!). Regulators need to keep up with fast-moving companies, and the novel strategies they are sure to employ to avoid or water down what they see as heavy-handed regulation. Regulation doesn’t need court approval to adapt to changing circumstances, and having a tool akin to the DMA’s market investigations can lead to regulatory tools meant to last. This ability to iterate and mold remedies after the fact is also one of the reasons Public Knowledge has advocated for a new digital agency in the U.S., not just antitrust enforcement.
Digital Services Act
We’ve written about how content moderation and competition are interlinked, and apparently the European Commission agrees, given the simultaneous introduction of the Digital Services Act. While there’s a lot more to say about the DSA, good and bad, American policymakers can learn from their European counterparts as they think about the proper legal framework for platforms. Like its sister regulation, a hallmark of the DSA is that it is targeted. Four overlapping categories give platforms an increasing number of restrictions and responsibilities. At the zenith of responsibility sit very large online platforms: those reaching more than 10% of the EU’s population with a designation of being “systemically relevant.” These distinctions ensure that consumer protection benefits and potential regulatory inefficiency find their proper balance.
The DSA covers three main areas: advertising and transparency, illegal content, and the traceability of business users and goods. Under the DSA, platforms running online ads must clearly differentiate ads from organic content and must disclose information about why a particular ad was targeted to the user seeing it. Next, a “notice and action” regime is created for takedowns of illegal content that gives users and third parties an avenue to raise concerns while not requiring speech-chilling regulation. Finally, platforms will be required “to know their business customer” to clamp down on the sale of illicit goods and work with law enforcement to make this happen.
Applying principles from the DSA to the United States faces several wrinkles: most notably the First Amendment and Section 230 of the Communications Act. The DSA’s regulatory onus on platforms over the actions of particular users is probably good in that the platform is best suited to a monitoring and takedown role. Incentives are properly aligned under a “Good Samaritan” provision where platforms aren’t punished for attempting to be proactive in taking down illegal or harmful content. European regulators will need to take account of potential tradeoffs between consumer protection and free speech as they tailor the DSA’s proposals to the real and messy world of content moderation and consumer protection.
Why This Matters
While the past few weeks’ antitrust cases certainly have sizzle — Mark Zuckerberg’s emails!, secret Google/Facebook agreements! — the actual steak might be found in the DMA and DSA. For while the coming cases are important, they must be temporally tempered. The Google/DOJ proposed trial date? September 12, 2023. When you factor in the time to an initial decision, along with an expected appeal, it will be several years before consumers see any benefit from the U.S. antitrust cases. Regulatory and legislative proposals aren’t immediate (the DSA and DMA will take a year or more to be approved in member states and implemented), but they can be much faster than a strictly antitrust remedy. And while antitrust cases can only remedy specific violations of law, regulation can address almost any competitive concern. The U.S. passing their own versions of the DSA and DMA should be more of a priority for those looking to hold platforms accountable, not just in one advocate’s blog post-writing.
About Alex Petros
Alex is a Policy Counsel at Public Knowledge, where he focuses on digital platform competition issues. Prior to joining Public Knowledge, Alex worked for Senator Amy Klobuchar, Senator Richard Blumenthal, the House Committee on Oversight and Reform, and Senator Joe Donnelly. Alex received his J.D., cum laude, from Georgetown University Law Center and his B.A. from Yale College in Economics and Political Science with distinction. He was born and raised in Lexington, KY and enjoys Kentucky basketball, trivia, fantasy football, and romantic comedies.