BERLIN — Silicon Valley’s tech giants are routinely lauded at home for their “disruptive” innovations. But in the European Union, they could be entering a period of increased scrutiny — and heavy penalties — from regulators in Brussels for those same acts of disruption.
In a case that turned heads on both sides of the Atlantic, the European Commission — the EU’s executive arm — on Tuesday slapped Google with a record $2.7 billion fine for abusing its dominance of the market for its own shopping offerings in online search results. The company has said it is weighing an appeal, but Google is facing two other high-profile EU investigations into suspected monopolistic practices in its Android mobile operating system and its AdSense ad system.
More penalties for Google and other U.S. tech firms are likely imminent unless they change their business models quickly, an unlikely scenario given how profitable it can be to flout EU regulations, legal analysts say.
“The commission is hoping companies will take note and take the rules more seriously,” said Stephen Kinsella, a partner in antitrust law at Sidley in Brussels. “But I think they will have to have a few more investigations and impose even heavier fines before companies voluntarily play by the rules.”
European politicians have been eyeing Silicon Valley-based tech firms with concern — if not outright trepidation — for years. After European economies missed the explosion of companies that formed in the 1990s and early 2000s with the advent of the internet — no European brand challenges Amazon, Google, Twitter or Facebook — the officials now often charge them with stifling competition.
“What Google has done is illegal under EU antitrust rules,” EU Competition Commissioner Margrethe Vestager said last week in announcing the unprecedented fine. “It denied other companies the chance to compete on the merits and to innovate. Most importantly, it denied European consumers a genuine choice of services and the full benefits of innovation.”
Google, of course, begs to differ.
In a blog post on the company website last week, Google General Counsel Kent Walker denied the company improperly favored its own offerings in online shopping results and said its suggested links are based on years of data on user preferences.
“When you use Google to search for products, we try to give you what you’re looking for,” Mr. Walker wrote. “Our ability to do that well isn’t favoring ourselves, or any particular site or seller — it’s the result of hard work and constant innovation, based on user feedback.”
As far back as 2014, German Vice Chancellor and Economy Minister Sigmar Gabriel warned that Europe needed to act fast if it wanted to ward off dominance by U.S. tech firms.
Europeans had to change their policies for the 21st century or risk becoming “digitally hypnotized subjects of a digital ruler,” Mr. Gabriel wrote in an op-ed published in the Frankfurter Allgemeine Zeitung at the time. “It is the future of democracy in the digital age, and nothing less, that is at stake here, and with it, the freedom, emancipation, participation and self-determination of 500 million people in Europe.”
This backlash against Silicon Valley tech firms reflects the resentment that has developed as a result of Europe’s dependence on U.S. tech products such as search engines and artificial intelligence, said analysts. Many U.S. companies and government officials see the EU crackdown as largely sour grapes — an attempt to win through regulation what European companies failed to achieve in the marketplace.
“We have this resistance against these new technologies because it almost seems like we have no chance to escape,” said Yvonne Hofstetter, a Munich-based author and data scientist who has worked in the German tech scene for over two decades.
That’s because, in contrast to the U.S., where businesses and the government worked in tandem for decades to develop an entrepreneurial culture friendly to startups and high-tech innovation, Europe has never invested as heavily in its own IT infrastructure, she said. Regulators are trying to make up for that neglect.
“What we are observing now is kind of an attempt to claim back our freedom and our rights against the Silicon Valley tech giants,” said Ms. Hofstetter.
Philosophical differences
These disputes are also driven by philosophical differences between the paternalistic culture of European governments and American free market libertarianism, said Jan Oster, a law professor at the University of Leiden in the Netherlands.
“In Europe, you very much have this dignitarian, paternalistic approach, where human beings need to be protected as individuals,” said Mr. Oster. “Now the European Commission is moving slightly into the same direction by saying, ’We as the commission [will] protect you from those evil American companies.”
Still, even some across the Atlantic say Europe’s skepticism and criticisms of the practices of dominant market players such as Google and Facebook have merit.
“A lot of these companies seek monopolies and are using these technologies to seek monopolies,” said Steven Hill, a San Francisco-based author and tech journalist. “Look at the Amazon purchase of Whole Foods — this is a monopoly-seeking company.”
The European Commission doesn’t provide figures on the number of complaints filed against Google, but lawyers said it could be as high as 30.
Many of those complaints have come from U.S.-based competitors such as Microsoft or rival search engines that say their concerns of being excluded from the market aren’t taken seriously in Washington.
“U.S. antitrust enforcement in this area has been pretty weak,” said Mr. Kinsella. “These companies might have gone to the Federal Trade Commission or Department of Justice in the past. But the next obvious place to go is Europe, because we have an enforcer willing to make use of its power in the European Commission.”
Indeed, U.S. tech firms such as the San Francisco-based online ratings site Yelp welcomed the big fine levied against its big rival.
“We applaud the European Commission’s dedication to the issue and commitment to restoring competition in online search to the benefit of consumers,” Yelp said in a statement.
The EU’s findings also could serve as a blueprint for similar enforcement actions in the U.S. and “should compel the FTC to undertake action to protect American consumers from search manipulation,” the company said.
Still, while regulation may curtail some of the market abuses of Silicon Valley tech firms, Europe ultimately will have to develop its own tech infrastructure if it wants its own values to flourish in the digital age, analysts said.
“If Europe wants to keep its own values, it has come up with its own products,” Ms. Hofstetter said. “I always say to European entrepreneurs: ’Think ahead to what can be the next thing that will come in the 2020s and 2030s.’”
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