(Bloomberg) -- Tech giants face sweeping changes to how they operate in the European Union after the bloc hammered out a deal on a new law that paves the way for multibillion euro fines and acquisition bans for the worst transgressors.
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The new Digital Markets Act, agreed on by negotiators in Brussels late Thursday, targets so-called gatekeeper companies -- platforms like Facebook and Google -- with the power to control distribution in their markets.
Key rules lawmakers set for gatekeepers include:
Making their messaging apps interoperable to prevent users being tied to one network
Letting users choose a default search engine, web browser and virtual assistant when they buy a new smartphone
Ensuring fair access conditions for their app stores
Gaining explicit consent to combine personal data to target ads
Banning the companies from ranking their own products higher than others
Fines of as much as 10% of a company’s global annual sales will apply for an initial breach of the law, rising to 20% for repeat infringements. Companies that routinely violate the rules will be temporarily banned from conducting mergers and acquisitions.
Negotiators agreed that “gatekeepers” include companies with a market value of 75 billion euros ($82.6 billion) or 7.5 billion euros 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 legislation, which is likely to take effect early next year, will apply to companies such as Amazon.com Inc., Facebook parent Meta Platforms Inc., Google parent Alphabet Inc., Microsoft Corp., Apple Inc. and Booking Holdings Inc. Online marketplaces Zalando and Alibaba could also be affected.
“The gatekeepers will now have to comply with a well-defined set of obligations and prohibitions,” Margrethe Vestager, the EU’s competition chief, said in a statement. “This regulation, together with strong competition law enforcement, will bring fairer conditions to consumers and businesses for many digital services across the EU.”
Prodigious web companies such as Amazon and Google have long been targets of antitrust investigations from Brussels, but these cases drag out for years in the courts and have had little impact on the behavior of the companies.
To successfully break what the EU says is a stranglehold on digital ecosystems by a handful of giants, officials say they need new tools like the Digital Markets Act.
“From now on, digital companies must show that they allow fair competition on the internet,” Andreas Schwab, the parliamentarian in charge of writing the rules, said in a statement. “That can be enforced more easily with the new rules. This means that the time of long antitrust cases, during which the authorities were lagging behind the big tech companies, is over.”
Some of the industry’s leaders warned that the law will cause problems for users and be a financial hit for companies. An Apple spokesperson wrote after the agreement that the company remains concerned that some provisions of the DMA will create “unnecessary privacy and security vulnerabilities for our users while others will prohibit us from charging for intellectual property in which we invest a great deal.”
Concern has also been raised that by setting the market value threshold of 75 billion euros, European competitors to U.S. tech giants won’t be bound by the new rules. In a press conference on Friday, Schwab said this is not the case.
“My proposal was to start with 100 billion, the commission was much lower at 50 billion, and we’re now at 75 billion, which is a compromise,” he said. “With the growth rates in stock markets there will be plenty of newcomers entering that zone.”
He also downplayed concern that the 80 people the European Commission anticipates working on enforcing the rules would be enough. “If the people they have at their disposal will not be enough then we will provide them with more,” he said.
Thierry Breton, the EU’s internal market commissioner, said resources would be addressed during a European budgetary debate.
Others have warned that forcing messaging apps such as WhatsApp or iMessage to be interoperable will affect encryption, or stifle iterative product design that is a hallmark of Silicon Valley entrepreneurship. Breton said on Friday that full interoperability would take years to implement fully.
Nick Clegg, Meta’s president of global affairs, criticized the proposal last May, saying “what happens in the next two years will define the next 20 years,” and that “some of the DMA’s fine print suggests policy makers could find themselves deep in the weeds of product design.”
(Updates with press conference quotes from 13th paragraph.)
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