European Parliament Gives Final Approval to Digital Markets Act and Digital Services Act

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The European Parliament yesterday approved the Digital Markets Act (DMA) and the Digital Services Act (DSA), two expansive new laws that will target the largest tech platforms and likely change the landscape of the digital economy. The initiatives were introduced in late 2020, but the European Commission didn’t reach an agreement on the Acts until March and April of this year.

The DSA is primarily focused on content moderation and advertising. It would impose certain transparency requirements on platforms to disclose how their algorithms operate and curtail the use of targeting advertising, particularly when it comes to minors.

The DMA is no less intrusive and would most notably ban “self-preferencing” by large established platforms. It would likely prohibit Apple from preinstalling its Safari browser or FaceTime app on the iPhone. And Amazon could face penalties for promoting its private-label brand, Amazon Basics, or providing perks on products included under its Prime membership. 

EU Internal Market Commissioner Thierry Breton released a statement celebrating the Acts shortly after their adoption. He points out that the DSA and DMA are the world’s first “comprehensive standard for regulating the digital space.” Considering Breton is responsible for assuring “smooth functioning of the single market,” it’s unclear why there’s a need to regulate digital and non-digital markets differently.

According to Henri Schneider, Deputy CEO of the Swiss Federation of Small and Medium Enterprises, the DMA’s attempt to define digital sector “presupposes a clear separation between digital and non-digital economic activities.” In a paper published by the Competitive Enterprise Institute, he explains that this distinction is economic folly:

This separation makes no empirical sense. Amazon and Uber, for example, rely on the integration of both digital and non-digital resources, while a local bakery can use online services to sell its products or procure ingredients. Rather, digital and non-digital are better understood as complementary channels and not as sectors …

There’s a prospect that the DMA and DSA will set the global standard for tech regulation, but U.S. officials should resist this temptation. Congress has taken a piecemeal approach to regulating big tech, introducing several bills that parallel the European measures. And U.S. and EU lawmakers look eager to collaborate.

Andreas Schwab, lead negotiator on the DMA, met with Sen. Amy Klobuchar (D-MN) while visiting Washington in May. Schwab expressed hopefulness for future partnership on the tech regulation front: “We want this to be done together because it’s a common Western world principle.” Sen. Klobuchar introduced the American Innovation and Choice Online Act (S. 2992), which would implement similar prohibitions on self-preferencing to those of the DMA. 

The European strain of antitrust is one that U.S. officials should not embrace, namely because it seeks to protect competitors rather than consumers. Compliance with the DMA and DSA is expected to be in full swing by 2024. Until then, U.S. officials should be wary of putting a regulatory stranglehold on the country’s tech industry. There’s a reason the U.S. tech industry dwarfs the EU’s, and it has nothing to do with two-hour lunch breaks.