European Regulators Act to Choke Tech Innovation, and Some in U.S. Want To Follow Suit

Europe recently approved regulations that its officials believe will “curb the power” of large technology companies they identify as internet gatekeepers. While the Digital Markets Act may do that to some extent, it will also prevent innovative ideas from emerging while punishing primarily American firms. Unfortunately, some U.S. politicians want to follow Europe’s example. Europe and America have different approaches to regulating technology, innovation, and market power. Europe believes in an “obtain permission first” approach, while the United States seeks “permissionless innovation.” When it comes to competition, Europe focuses on competitors within a market, while the United States focuses on the consumer. The primary difference between the two systems is that while regulators in Europe prefer to direct outcomes, the U.S. government primarily trusts consumers to choose what services and products will be successful.European regulators are focused on so-called gatekeepers — something of a euphemistic term that essentially means “large, American technology companies.” As noted by the Center for Strategic and International Studies, the purpose of the DMA is to benefit “European incumbents and subsidize Chinese competitors.” Led by Margrethe Vestager, who helps set digital and competition policy in Europe, regulators believe that the gatekeeper platforms “have prevented businesses and consumers from the benefits of competitive digital markets.” The DMA defines a gatekeeper as any technology firm with a market capitalization of “at least 75 billion euros [$83 billion] or annual revenues within the EU of at least 7.5 billion euros in the past three years,” according to CNBC. “They must also have at least 45 million monthly users or 10,000 business users in the EU.” There is a large gap between Europe and the United States when it comes to innovative technology companies, with some estimating that for every billion-dollar technology company from Europe, there are eight in the United States. A researcher who measures trends such as global internet market capitalization, Mary Meeker, says the largest such European company is Spotify, which ranks at 30th. By comparison, United States companies hold 12 of the top 15 spots, among them Microsoft, Amazon, Apple, Adobe, PayPal, and Booking.com. The DMA will fundamentally transform the nature of innovation by working to lock current iterations of technology into place and creating cybersecurity-related problems. Among other things, it would end self-preferencing, which benefits consumers by allowing them to type in a simple search for a restaurant, say, on a Google smartphone and receive suggestions from Google about choices nearby in addition to reviews and directions. In Europe, that type of convenience will soon be anti-competitive. Google will have to instead start offering alternatives, such as reviews from Yelp or TripAdvisor, and directions from the likes of Mapquest or Bing. Also, the DMA would mandate interoperability, which is a huge cybersecurity risk. The European regulators would require developers to include backdoors in their products in the name of ensuring they could work with other products. The problem is, bad actors or governments could exploit these backdoors to spy on consumers, or worse. The Cambridge Analytical scandal arose from interoperability, as Facebook (now Meta) allowed other products to integrate into Newsfeed and collect data on subscribers.These aspects of the DMA are much more than just a distant threat to American innovation. Some U.S. lawmakers seem keen to follow Europe’s permission-required approach to emerging technologies. Senator Klobuchar has proposed legislation that would import into American law several of the DMA’s anti-innovation reforms, such as an end to self-preferencing and mandating interoperability. Ms. Klobuchar and some of the Republicans who have signed on to support her bill are marketing it as a way to push back against big tech, with Senator Grassley stating that technology companies “have continued to become a larger part of our everyday lives and the global economy, controlling what we see and how we engage on the internet…. Big Tech needs to be held accountable if they behave in a discriminatory manner.”Whatever problems exist with big tech, reforming competition laws and making it hard to bring innovative services to the consumers is not the way to go. America should not follow Europe but learn from its example.

European Regulators Act to Choke Tech Innovation, and Some in U.S. Want To Follow Suit

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