clock menu more-arrow no yes mobile

Filed under:

Europe Is on a Mission to Tame Silicon Valley

Why tech companies grow unabated in the U.S. but are curtailed across the pond

Ringer illustration
Ringer illustration

Google may have met its match in the Iron Lady of Denmark. After years of breakneck global growth that was only occasionally curtailed by a regulatory wrist slap, the search giant now faces a raft of antitrust litigation in Europe, one of its most important markets. Leading the barrage is Margrethe Vestager, the European Union’s commissioner for competition and the former Danish deputy prime minister. Vestager is not playing around — the hard-nosed regulator, who The Economist refers to simply as “the enforcer,” has brought a series of antitrust cases against the company.

This is one of the many serious headaches that Silicon Valley giants have had to contend with in Europe over the past year. Tax havens are drying up. A “right to be forgotten” online movement has been enshrined into law. Privacy suits are popping up around the continent. All of it points to a future where the internet of the United States may not be the same as the one that’s across the pond. Does that mean European regulators are overextending their powers, or rather that American officials are turning a blind eye to theirs? The answer lies in both the legal code and the customs of the two continents.

Though Europe is gung-ho about it now, the United States invented modern antitrust law, with the Sherman Act in 1890. The law, which banned firms from monopolizing markets and restricted acquisitions that limit trade, was used to order the break up some of the most dominant companies of the 20th century, including Standard Oil in 1911, AT&T in 1982, and Microsoft in 2000 (the Microsoft decision was later overturned in an appeals court). More recently, the Department of Justice has brought some smaller antitrust cases against tech firms, including a case against Apple in which a judge concluded the company conspired to raise e-book prices, but none have been as existentially threatening as the litigation Google is currently facing in Europe.

“European competition law allows the European Commission to be a little more aggressive than U.S. antitrust law, at least at the present moment,” says Harry First, a law professor at New York University. “If a firm with a monopoly in one market tries to engage in anticompetitive activity in what they call an adjacent market … the European Commission is much freer to move against them than a U.S. enforcement agency is.”

That, in a nutshell, is why Google is in hot water. The search giant controls 90 percent of the search market in Europe and, according to the EU Commission, it has unfairly used that dominance to favor results for its own services. When a user searches for a hotel, results custom-built by Google will appear above a Yelp result, for example, or an item from Google’s shopping website might get precedence over a local e-commerce site in a results listing for dog food. “That would be an example of leveraging into a separate market — comparison sites or a bunch of other vertical search sites,” First says. “In the U.S., you’d have to show there was a strong chance they’d gain a monopoly in that market, but you don’t have that high an evidentiary requirement in Europe.”

A separate investigation into Android alleges that Google incentivized phone manufacturers to include Google-developed apps like Search and YouTube on their devices to the detriment of competitors. Google says its practices aren’t anticompetitive because users are only “one click away” from competing services, but European regulators tend to place a high value on protecting competitors and consumers alike, experts say.

The high value placed on digital privacy in Europe also hurts Google and other tech firms, especially following revelations by Edward Snowden regarding Silicon Valley’s cooperation with the NSA. While Americans have the Bill of Rights, wherein the First Amendment in particular grants online interactions a wide berth, Europeans have a code of online rights, which ensures protection of data and the “right to be forgotten,” or have negative articles about an individual scrubbed from a search engine’s results. Generally, Europeans citizens online privacy is more protected. Earlier this year Germany launched an antitrust investigation into Facebook’s data-collection practices.

“They are trying to see whether abuses that affect consumer privacy might be considered an abuse of dominance,” First says. “That’s probably beyond where the U.S. is now in terms of the legal structure.”

The next antitrust wrinkle could be a closer examination of how tech giants acquiring high-potential startups hinders competition. For example, in The New York Times, Steven Davidoff Solomon argues that Walmart’s recent acquisition of e-commerce startup may hinder competition in the long run because it removes a would-be rival for Amazon from the market. “The antitrust system results in the increasing oligopoly that we have, where a few companies dominate major industries, accruing the wealth and power that go with it as potential disrupters are swallowed at birth, the way Cronus, the titan in Greek mythology, ate his young to prevent their uprising,” he writes.

It’s not yet clear whether any of the ongoing investigations will force tech giants to change their practices. The suits against Google could cost the company 10 percent of its annual revenue in fines, and Facebook has already faced small fines in Germany for failing to comply with court demands that it alter its privacy policy. The companies will try to fend off bigger threats with lobbying efforts. Google, already one of the biggest corporate lobbyists in Washington, has launched a $450 million “soft lobbying” campaign, through which it tries to change hearts and minds of regular citizens by paying for digital training for teachers, virtual reality exhibits for museums, and funding for news outlets.

“The Europeans have been a little more skeptical about whether markets are going to work out perfectly, and are a little more positively inclined toward the government’s ability to make things better,” First says. “We’ve run through a long period — maybe even in the Obama administration — [where] we have this general reflex in favor of markets.” With so many regulatory efforts in place abroad, and scant few in the United States (Google dodged an antitrust suit from the Federal Trade Commission, even though staffers recommended bringing one), the schism between how American and European governments approach increasingly powerful tech giants will likely only continue to grow.