What the EU’s DMA can teach us about proposed U.S. legislative action targeting “Big Tech”
In light of upcoming debates in Washington, D.C. on proposed new U.S. legislation that takes aim at the U.S. technology sector, today seems like a good day to start addressing growing concerns about the potentially harmful impact that these bills could have on U.S. innovation, global competitiveness, and national security. Part of that conversation will touch on how Europe’s newly minted Digital Markets Act (DMA) can help us catch a glimpse of which aspects of these bills could be helpful, and which could cause more harm than good.
This will not be a pro versus anti regulation discussion. Markets and industries need rules and clearly defined lanes to function properly and fairly, and I believe in the necessity and value of healthy, cautious, responsible regulatory regimes designed to adapt to evolving market conditions. Properly crafted adaptations and change are not at issue here. My worry is that in an effort to bring well-meaning but radical changes to U.S. law and regulation, lawmakers and political appointees will end up overcorrecting, and in doing so, breaking the very system that they aim to improve. If this were to happen, it would likely 1) cause a swell of unintended harm to an ecosystem that has, to this day, been as beneficial to consumers as it has to inventors, investors, and governments, and 2) undermine the very foundations of the future of the U.S. economy.
I cannot stress enough the critical importance to the U.S. economy and to the technology sector of maintaining and nurturing healthy IP and competition regimes in the United States. That is because the same balanced IP and competition ecosystem that fueled the rise and growth of companies like Apple, Microsoft, Amazon, Google, Qualcomm, and Intel will enable the next generations of tech giants that will deliver new waves of innovation, progress, job growth, and socioeconomic opportunity. If we throw a wrench into a model that has, by all metrics, worked exceedingly well for the U.S. tech sector and consumers at large for decades, today’s most innovative startups might never again get the opportunity to grow and disrupt incumbent technology companies like they have until now. In other words, caution ahead. Take a breath. Lawmakers and regulators must consider the unintended consequences of forcing radical shifts on a model that is, at best, in need of a small handful of judiciously-applied micro-adjustments.
To make these legislative and regulatory discussions a bit easier to follow from here on out, here are three of the primary themes that they will tend to break down into:
Data and Privacy: Many agree that consumers should have more control over how technology companies may capture and use their data, and have called on regulators to resolve their privacy concerns through more transparent data use disclosures, clearer terms of service, and more choice about how user data is to be used and not used. Others, meanwhile, argue that data and privacy are not only the currency of the digital economy but also the lifeblood of its ecosystem of data-driven applications. Therefore, giving users the ability to block access to data that these applications need in order to deliver valuable services to them diminishes the quality of the user experience and chips away at both the utility and value of those services.
Both sides make good points, but as a proponent of consumer protections, transparency and choice, I tend to side more with empowering users to choose how their data will be used and not used. On this, I feel that empowering users to make the most of their experience is a better business model than exploiting or misleading them. While determining whether or not it is even the government’s role to step in and force digital platforms to empower rather than exploit users can be an entertaining philosophical exercise, a more useful and practical question focuses on how far governments, in their efforts to protect consumers from exploitation and potential harm, should insert themselves into the relationship between digital platforms and their users? Perhaps a better way to approach the problem is to ask if we can somehow come to a consensus on basic requirements guiding transparency, consent, and opt-in vs opt-out when it comes to data, privacy regulations, and making digital platforms’ terms of service contracts more user-centric?
Competition and M&As: Concern that very large platforms sometimes see promising but still vulnerable startups as potential future competitors and conspire to acquire them in an effort to “neutralize” them, is also driving proposed legislation in the U.S.
The counterpoint to that concern is that platform companies tend to grow and improve their services and capabilities through strategic M&As. Because acquisitions, when executed in good faith like this, are not examples of anticompetitive behavior, legislators and regulators should exercise extreme caution while considering new rules that may ultimately hinder large U.S. tech companies’ ability to grow and remain globally competitive.
Another unintended consequence of enacting regulatory overcorrections of this type is that they could also pump the brakes on venture capital backing promising startups. Here’s why: If investors no longer believe that startups whose ultimate business aim is to be acquired by a tech giant are likely to achieve that objective, why invest in them at all? If investors no longer see tech startups as viable ROI channels and move into other areas, the impact on the U.S. innovation pipeline, and consequently on the U.S. tech sector as a whole, and U.S. competitiveness, could be dire. Not to mention that without a lively ocean of properly funded startups driving tech innovation, only incumbent tech giants will have the funding to continue to innovate anymore, which will result in less competition, not more competition, and therefore will achieve the precise opposite result from the intended objective of said regulations.
As dangerous as this would be for the U.S. technology ecosystem and for the massive economic engine that it fuels, it pales in comparison to the negative impact that a cooling off of investment in U.S. innovation would have on U.S. national security and global competitiveness with regards to China. The ripple effects of an overcorrection here could be catastrophic.
Intellectual Property (IP) protections: Many also fear that a change in U.S. policy towards I.P., and particularly SEPs (standard essential patents), could also negatively impact U.S. innovation and, again, leave the U.S. and its allies vulnerable to perilous encroachments by Chinese technology firms. While this topic may not seem as interesting on its face as privacy and M&As, it is equally, if not more vital to the future of U.S. innovation, and we cannot afford to overlook efforts to undermine SEP protections.
All of this to say that we can’t talk about the U.S. tech sector without also talking about IP, antitrust legislation, and policy. And with new legislative and regulatory proposals on the way in Washington D.C., we may need to spend a little bit of time in the next few months discussing the threats and opportunities that come with them.
To that end, I very recently had the opportunity to moderate LeadershIP’s EU DMA vs. US Legislative Proposals: Lessons and Path Forward panel, which focused on new legislation in Europe and the U.S. aimed at addressing these very challenges. Specifically: competition, consumer protection, and privacy challenges posed by the unprecedented scale and reach of very large technology platforms like Amazon, Google, and Apple. The informative fireside chat between Michael König, advisor for Digital Markets Act with the European Commission, and Leah Nylen of Bloomberg News, laid a solid foundation for our discussion.
The experts I had the privilege of chatting with are Gene Burrus, director of global competition policy at Spotify; Alexandre de Streel, director of CERRE and professor at the University of Namur; Marco Iansiti, professor at Harvard Business School; and Amanda Lewis of Cuneo, Gilbert & LaDuca, LLP. We discussed how Europe’s new Digital Markets Act (DMA) aims to tackle many of these novel problems, and how proposed U.S. legislation and regulatory policies aim to solve many of the DMA’s objectives in the United States.
Perhaps most critical to me was the part of the conversation that focused the pros and cons of bringing DMA-like regulations to the U.S., and how two U.S. bills specifically — the American Innovation and Choice Online Act and the Open App Markets Act — might serve that purpose (or not). We touched on some of the most critical points of focus of these bills, from self-preferencing, interoperability, and data portability to sideloading, security, and privacy.
We also had a chance to talk briefly about the so-called “Brussels effect,” in which the practical effects of the EU’s DMA might be felt outside of the EU regardless of U.S. legislative or regulatory action. The theory behind this is that designated platforms will find it easier to comply with the DMA’s obligations (or at least some of them) on a global basis instead of trying to operate differently in Europe than everywhere else. The prevailing logic, assuming that the Brussels effect is real, is that if European regulations force major tech platforms to change the way they operate, perhaps other markets, like the United States, could just sit back and let Europe do most (if not all) of the regulatory heavy lifting.
The principal counterpoints to the “Brussels effect” theory are, in no particular order:
- Hoping that European law will impact platforms’ behavior worldwide isn’t exactly a sound legislative or regulatory strategy for countries and markets outside of the European Union.
- Hoping that European law will shape platforms’ behavior globally won’t provide countries like the United States the requisite legal arguments in court, should those platforms decide to deviate from European regulations outside of the EU.
- Allowing Europe to shape legislation and regulations robs U.S. agencies, U.S. lawmakers, and U.S. courts of their initiative and authority.
In other words, it makes sense for the U.S. to create its own regulatory and legislative regime regarding tech platform behaviors separate from what the European Commission decides to do. The more potent question, in my view, is whether seeking to harmonize U.S. and European regulations on these matters is preferable to the U.S. diverging from the DMA’s model to create regulations better suited for the U.S. market. On the one hand, I understand the value of harmonizing platform behaviors across major markets and of making global enforcement simpler. On the other hand, given the United States’ very different view of competition, patent protections, and freedom of speech from Europe’s, harmonization with Europe should not be a priority for U.S. legislators and regulators, nor should it take precedence over the U.S. market’s specific needs. Noble intentions aside, the risk of applying European regulatory thinking to U.S. markets isn’t just that the U.S. will surrender its regulatory independence to Brussels. That’s a secondary political argument. The real and immediate threat of applying European regulatory thinking to U.S. markets is that it could force an unnecessary and harmful shock to the tech industry, and therefore pull the rug out from under the U.S. economy.
On the one hand, U.S. lawmakers and regulators should therefore feel free to carefully, thoughtfully, and strategically adapt some of the DMA’s least disruptive provisions to their regulatory language, with the aim to disrupt the U.S. tech sector as little as possible. On the other hand, they should take deliberate care to ensure that they do not also adopt provisions that will inadvertently harm competition, innovation, and investment in the U.S. tech sector. This means not trying to rush bills through Congress just to score political points, and taking a more deliberate, piecemeal, and negotiation-centric approach to an eventual (and perhaps partial) bilateral harmonization with Europe. Better to get this right than botch it in the name of expediency.
A perfect example of where this type of approach should be applied immediately is with proposed DMA-aligned M&A legislation: Because it could simultaneously facilitate and harm competition in the U.S., its language and provisions need a few more passes in committee as well as more opportunities to be reviewed externally before it will be legitimately ready to be voted on, let alone enacted. We started discussing this point during the panel but didn’t quite have time to go as deep with it as I would have liked. I hope to pick this up again with my panelists soon. Until then, look for that specific exchange towards the end of our discussion.
The replay of both the fireside chat and the panel can be accessed here. I encourage you to watch and bookmark both sessions, as the topics they cover will become increasingly relevant in the next few months.