Tech Giants Face New Rules in Europe, Backed by Huge Fines – The Wall Street Journal

European officials want new powers to oversee internal workings at large technology companies such as

Facebook Inc.,


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backed by threats of multibillion-dollar fines, as they seek to expand their role as global tech enforcers.

The European Union’s executive arm proposed two bills Tuesday—one focused on illegal content, the other on anticompetitive behavior—that would empower regulators in some cases to levy fines of up to 6% or 10% of annual world-wide revenue, or break up big tech companies to stop certain competitive abuses.

The bills don’t mention any specific company but, as drafted, one or both would likely apply to several large U.S. tech companies including

Alphabet Inc.’s


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Google,

Amazon.com Inc.


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Apple Inc.

and Facebook.

At the same time, the U.K., which has exited the bloc, said Tuesday that it is advancing similar legislation covering what it calls “online harms.” It would create a duty of care requiring social-media companies and search engines to take measures to prevent a range of illegal or potentially harmful material from spreading on their platforms, or face fines of up to 10% of annual global revenue.

The U.K. is also pursuing new competition rules for dominant online platforms, including powers for a new digital-markets unit of its competition regulator to suspend, block or reverse tech giants’ decisions and impose fines for noncompliance.

Together, the two strands of legislation amount to the biggest potential expansion of global tech regulation in years. They aim to update decades-old laws that have largely shielded tech companies from liability for their users’ activities. The measures would also create a new set of competition rules for a cadre of digital giants that have been accused of wielding their control of online marketplaces to entrench their own positions and snuff out competitors.

“We need to make rules that can bring order into chaos,”

Margrethe Vestager,

the EU’s digital-policy and antitrust czar, said Tuesday.

The EU’s pair of proposals will now begin months or years of haggling over their scope and details, similar to the four years of debate before the EU passed its privacy law, the General Data Protection Regulation, in 2016. Each bill must be approved by both the European Council, representing the bloc’s 27 national governments, and the directly elected European Parliament to become law.

Tech companies reacted cautiously to the new proposals, which still could be reshaped or scrapped. Previously, some have warned against creating a new set of competition rules that could hobble innovation, or onerous content-moderation obligations that could push companies to remove legal content, stifling free expression.

But Facebook, which has complained about Germany’s content-moderation rules, said Tuesday that it welcomed harmonization of EU rules on the issue. The proposals are “on the right track to help preserve what is good about the internet,” Facebook said.

The European Union’s General Data Protection Regulation on data privacy came into force on May 25, 2018. This video explains how it could affect you, even if you don’t live in the EU. (Originally Published May 16, 2018)

Karan Bhatia,

Google’s vice president of government affairs and public policy, said he is concerned the proposals “appear to specifically target a handful of companies and make it harder to develop new products to support small businesses in Europe.”

An Amazon spokesman declined to comment but pointed to a blog post in which the company said the bloc should ensure “the same rules apply to all companies.”

“We hope the future negotiations will seek to make the EU a leader in digital innovation, not just in digital regulation,” said

Christian Borggreen,

vice president and head of the Brussels office at the Computer & Communications Industry Association, which represents companies including Amazon, Facebook and Google.

One victory for tech companies and their lobbyists is that the EU proposal keeps intact—for now—the basic liability shield protecting digital intermediaries from responsibility for the content on their services provided they make good-faith efforts to address problems. But the proposals add increasing layers of obligations for online intermediaries, based on their role in the digital ecosystem and their number of clients.

The European legislative proposals provide a counterpoint to similar discussions in the U.S., where the internet industry’s similar liability shield—Section 230 of the Communications Decency Act—has faced criticism from lawmakers. But prospects for a competition-law overhaul in Washington remain unclear. In October, a Democratic-led House panel suggested several legislative changes to rein in the power of big tech platforms.

More on the EU’s Legislation

Separately, the federal government has filed two major antitrust lawsuits against Google and Facebook in recent months.

One of the EU’s two proposed bills, the Digital Services Act, would require large tech platforms that reach more than 10% of the EU’s population each month to actively look for and mitigate risks from illegal content and goods available via their services. It would require yearly external audits and impose new transparency requirements toward users and regulators.

Large platforms could be ordered to change their behavior following such audits and could face significant fines if they don’t comply—with a higher maximum than the EU’s GDPR privacy law.

The Digital Services Act would also empower regulators to apply local laws on illegal content. A city that requires home rentals to be registered could, for instance, order a home-sharing app to remove a listing for an unregistered property or demand information about a host who isn’t paying taxes, an EU official said in a presentation about the law.

The other EU bill, the Digital Markets Act, would pre-emptively ban certain behavior by what it deems to be gatekeepers—defined as companies with European revenue of at least 6.5 billion euros, equivalent to about $7.9 billion, or a market capitalization of at least 65 billion euros (some $79 billion), and which serve more than 10,000 active business customers and 45 million active end users in the bloc.

Such companies could, for instance, be blocked under the bill from tying the ability to access one of their services to purchasing for another core service from the gatekeeper. The law would also create other obligations toward smaller firms and end users, such as offering price transparency for online advertisers and allowing data portability for end users.

“We will never say that we believe that this company or that company is too big,” said

Thierry Breton,

the European commissioner for the internal market said Tuesday. “But we will say that the bigger they are, the more obligations they have to fulfill.”

Lobbyists are preparing to fight over the bills. Internet Society, a nonprofit that promotes the open internet, said it is concerned that the proposals, if enacted, would create different sets of rules that could contribute to fracturing the internet, said senior director

Konstantinos Komaitis.

“The internet is not going to die of one cut. It’s going to die of 1,000 cuts,” he said.

Some other groups say that more regulation targeting big tech companies is overdue.

Raegan MacDonald,

head of public policy at Mozilla, the nonprofit behind the Firefox web browser, said she supports new provisions for transparency around online advertising for internet users in the content bill.

BEUC, an umbrella organization for European consumer-rights groups, said the new competition rules in the digital markets bill should provoke a rebalancing.

“Competition investigations can be too slow to prevent irreparable harm on the market,” said

Monique Goyens,

the group’s director general. “It is the right move to prohibit some practices up front, instead of picking up the pieces afterwards.”

Write to Sam Schechner at sam.schechner@wsj.com

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