Big Tech Firms Face EU Fines Of 10 Percent Of Turnover

Image credit: European Commission

Yearly checks on tech firm compliance over harmful content, plus stiff financial penalties part of EU’s proposed regulation of digital markets

The regulatory clampdown on big name tech firms continues after the European Union this week officially unveiled its proposals for digital market regulations.

The EU announcement reveals that tech giants could be fined up to 10 percent of their annual turnover for breaching new EU rules concerning protection of customer data, as well as fines of 2 percent of their global turnover for breaching EU cybersecurity rules.

The Digital Services Act (DSA) and Digital Market Act (DMA) rules in particular target “very large” companies such as Google, Facebook or Amazon.

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Consumer protection

The EU stated these new rules are designed to “better protect consumers and their fundamental rights online, and will lead to fairer and more open digital markets for everyone.”

“The two proposals serve one purpose: to make sure that we, as users, have access to a wide choice of safe products and services online,” explained Margrethe Vestager, executive VP said: “And that businesses operating in Europe can freely and fairly compete online just as they do offline. This is one world. We should be able to do our shopping in a safe manner and trust the news we read. Because what is illegal offline is equally illegal online.”

Another official also noted the role that technology now plays in people’s every day lives.

“Many online platforms have come to play a central role in the lives of our citizens and businesses, and even our society and democracy at large,” said Commissioner for Internal Market Thierry Breton.

“With today’s proposals, we are organising our digital space for the next decades,” said Breton. “With harmonised rules, ex ante obligations, better oversight, speedy enforcement, and deterrent sanctions, we will ensure that anyone offering and using digital services in Europe benefits from security, trust, innovation and business opportunities.”

But what exactly are the two pieces of regulation that the EU are proposing?

Digital Services Act (DSA)

The DSA targets tech platforms that are used “as a vehicle for disseminating illegal content, or selling illegal goods or services online.”

“Under the Digital Services Act, binding EU-wide obligations will apply to all digital services that connect consumers to goods, services, or content, including new procedures for faster removal of illegal content as well as comprehensive protection for users’ fundamental rights online,” said the EU.

“”The Digital Services Act will introduce a series of new, harmonised EU-wide obligations for digital services,” it said.

  • This means rules for the removal of illegal goods, services or content online;
  • Safeguards for users whose content has been erroneously deleted by platforms;
  • New obligations for tech firms to take risk-based action to prevent abuse of their systems;
  • Transparency measures, including on online advertising and on the algorithms used to recommend content to users;
  • Powers to scrutinize how platforms work, including by facilitating access by researchers to key platform data;
  • Rules on traceability of business users in online market places, to help track down sellers of illegal goods or services;
  • A co-operation process among public authorities to ensure effective enforcement across the single market.

Digital Markets Act

The DMA on the other hand will “addresses the negative consequences arising from certain behaviours by platforms acting as digital ‘gatekeepers’ to the single market.”

It targets those “gatekeeper” firms that engage in unfair business practices.

Specifically, the Digital Markets Act will:

  • Apply only to core platform services most prone to unfair practices, such as search engines, social networks or online intermediation services;
  • Define quantitative thresholds as a basis to identify presumed gatekeepers. The Commission will also have powers to designate companies as gatekeepers following a market investigation;
  • Prohibit a number of practices which are clearly unfair, such as blocking users from un-installing any pre-installed software or apps;
  • Require gatekeepers to proactively put in place certain measures, such as targeted measures allowing the software of third parties to properly function and interoperate with their own services;
  • Impose sanctions for non-compliance, which could include fines of up to 10% of the gatekeeper’s worldwide turnover, to ensure the effectiveness of the new rules. For recurrent infringers, these sanctions may also involve the obligation to take structural measures, potentially extending to divestiture of certain businesses, where no other equally effective alternative measure is available to ensure compliance;
  • Allow the Commission to carry out targeted market investigations to assess whether new gatekeeper practices and services need to be added to these rules, in order to ensure that the new gatekeeper rules keep up with the fast pace of digital markets.

The proposal will have to be approved by EU member states and the European Parliament before it can go into effect, a process which could take several years.