Tech

EU targets U.S. tech giants with a new rulebook aimed at curbing their dominance

Key Points
  • The European Parliament and EU member states reached an historic deal on the Digital Markets Act.
  • A key aim of the reforms is to prevent tech giants from abusing their market position to harm smaller rivals.
  • So-called "gatekeepers" that violate the DMA face potential fines of up to 10% of their global revenues.

In this article

Executive Vice President of the European Commission for a Europe Fit for the Digital Age Margrethe Vestager.
Thierry Monasse | Getty Images News | Getty Images

The European Union agreed on landmark new antitrust regulations that could reshape the business models of U.S. technology giants Meta, Apple, Amazon and Google dramatically. The rules are expected to come into force as early as October.

The European Parliament and EU member states on Thursday reached an historic deal on the Digital Markets Act, a sweeping set of rules aimed at curbing the market power of firms with a tight grip on the internet economy.

The rules will apply to so-called "gatekeepers," tech companies with a market capitalization of at least 75 billion euros ($83 billion) or annual revenues within the EU of at least 7.5 billion euros in the past three years. They must also have at least 45 million monthly users or 10,000 business users in the EU.

The legislation has not passed. A finalized version is yet to be officially adopted by the European Parliament and the 27 countries that make up the EU.

Margrethe Vestager, the EU's competition chief, said she expects the rules will come into force "sometime in October." She compared the DMA to historic antitrust reforms to the banking, energy and telecom sectors.

"What we have learned over these years is that we can correct in specific cases, we can punish illegal behavior," Vestager said at a press conference Friday morning.

"But when things become systemic, then we need regulation as well because, if there is a systemic misbehavior, if there are entrenched positions, then we need regulation to come in."

"For companies that play the role as gatekeepers, now the Digital Markets Act will set the rules of the game," she added.

What it means for Big Tech

A key aim of the reforms is to prevent tech giants from abusing their market position to harm smaller rivals. Large internet companies are often criticized for operating "walled gardens," closed systems that make it harder for a user to ditch one provider for another.

Firms that qualify as gatekeepers will be required to avoid setting their most important software — say, Google's Chrome web browser — as the default option when a user sets up their device. They will also be prohibited from giving preference to their own services over others.

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In addition, gatekeepers must ensure "interoperability" — or the ability for different apps to work with each other — between instant messaging services. That could mean Apple's iMessage being forced to exchange data with Meta's Facebook Messenger or WhatsApp, for example.

"Big Tech is being forced to embrace interoperability, which will unleash a new era of innovation," said Amandine Le Pape, chief operating officer of encrypted messaging app Element. "Consumers and businesses will have more choice, better features and improved privacy."

Apple said it is concerned some elements of the DMA will lead to "unnecessary privacy and security vulnerabilities" for users and "prohibit us from charging for intellectual property."

"We believe deeply in competition and in creating thriving competitive markets around the world, and we will continue to work with stakeholders throughout Europe in the hopes of mitigating these vulnerabilities."

Meta and Amazon declined to comment on the EU agreement. Google was not immediately available for comment when contacted by CNBC.

'Gargantuan' rule book

The consequences for breaking the rules could be severe. Gatekeepers that violate the DMA face potential fines of up to 10% of their global revenues. For repeat offenders, this will increase to 20%. To put that into context, that would be as much as $23 billion for a company like Meta.

Gatekeepers that break the rules at least three times in eight years risk facing a market investigation and, if necessary, "behavioral" or "structural" remedies, including a possible breakup of the companies.

"Europe is keen to take a leading role in digital enforcement," said Bernd Meyring, a partner at law firm Linklaters.

"Eyes will now turn to how the Commission implements what is a gargantuan new rule book for the digital sector, while gatekeepers and other market participants will need to start grappling with how the rules will be applied in practice."