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The EU’s Regulatory Gamble Deserves Transatlantic Scrutiny

· April 8, 2021

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This week, House Judiciary Antitrust Subcommittee Chairman David N. Cicilline and Member of European Parliament (MEP) Stéphanie Yon-Courtin joined an event to discuss transatlantic cooperation around competition policy. But the important goal of EU-U.S. collaboration shouldn’t prevent the U.S. government, including Chairman Cicilline, from carefully scrutinizing a proposed EU law designed to meet EU concerns about digital platforms in the European context, that ultimately would single out individual (U.S.) companies for discriminatory treatment.

Europe’s policy decisions have not succeeded in creating the breadth of globally competitive technology companies that exist in the U.S. Many digital platforms born in Europe, like Booking.com and Unity Technologies, have flourished in the U.S. because of policy decisions made by previous U.S. administrations. These include, but are not limited to, the U.S. approach to competition policy, which has long protected the competitive process in the interest of consumers, not competitors. This has allowed consumer-focused digital services to flourish, while forcing inefficient or uncompetitive firms to adapt. U.S. policymakers should preserve what has worked so well, and avoid importing foreign experiments ill-suited for the U.S. environment. 

Competition policy works best when it does not discriminate between different sectors of the economy and does not target specific companies. However, regulatory experiments to restructure antitrust enforcement by targeting tech firms and leaving other sectors untouched have recently begun to crop up in foreign markets. In addition to recent measures in Australia, Germany, and the UK, one region taking the spotlight in this debate is the EU. A recent panel featuring Chairman Cicilline and MEP Yon-Courtin illustrated the dangers of mistranslation. While Chairman Cicilline advocated for a broader interpretation of the consumer welfare standard, MEP Yon-Courtin advocated for the power to break-up ‘big tech’. But Europe already employs a wide interpretation of consumer welfare (sometimes considered too wide), and U.S. enforcers are already seeking company separations in court. While governments certainly should strive for greater cooperation on competition policy, the same policy changes aren’t necessary or suitable for every jurisdiction. For the U.S., a European approach — which is circumscribed for a handful of U.S. technology companies and prioritizes competitors over competition — should not be a model.

Speakers discussed ongoing efforts in their respective jurisdictions, with MEP Yon-Courtin extolling the virtues of the Digital Markets Act (DMA) and Chairman Cicilline reminding everyone of his series of CEO hearings. One of MEP Yon-Courtin’s clearest statements was her advocacy for the DMA as a global blueprint for competition policy, making the EU a standard setter in this new era.

However, MEP Yon-Courtin and others did not grapple with critiques that the DMA represents a regulatory experiment that will end up stifling innovation in Europe and beyond. Rather than promoting competition, the DMA risks distorting competition between in-scope U.S. companies and their out-of-scope European rivals in the cloud, streaming, e-commerce, and advertising sectors. The DMA would vest the European Commission with gatekeeping authority over digital innovations, product integrations, and engineering designs of tech companies — and in some cases would compel the forced sharing of trade secrets and other valuable resources directly with EU competitors. It is doubtful that this form of industrial policy will be replicated elsewhere, as it is unlikely to encourage the creation of the kinds of innovative and dynamically competitive global technology leaders that Europe seeks. 

In addition to these substantive concerns, the DMA also represents a shift away from due process and other norms. In her opening remarks, MEP Yon-Courtin argued that the EU should draw up ex ante rules to “speed up” competition enforcement, while arguing that the European Commission’s DMA proposal wasn’t sufficiently aggressive towards gatekeepers, which she defined as the ‘GAFA’ companies. She stated she would be in favor of reversing the burden of proof, making it companies’ positions to reverse any evidence brought forth that they are gatekeepers or prove that their practices are positive to competition, and not vice versa as is the case here in the U.S. But under the framework of enforcement proposed by the DMA, this would result in broad executive discretion to protect local incumbents from digital disruption, with limited judicial review. In fact, as currently structured, the DMA does not even contemplate giving in-scope companies an opportunity to show why certain practices may be pro-consumer or pro-competitive — there is no meaningful process or regulatory dialogue, a point which MEP Yon-Courtin criticized. 

MEP Yon-Courtin advocated for greater, more prescriptive regulation “with teeth that aren’t shy to bite” and Chairman Cicilline agreed, declaring that the U.S. requires stronger regulatory agencies as well. Chairman Cicilline also referenced Senator Amy Klobuchar’s competition proposals as part of the overall fight. However, it should be noted that these U.S. proposals differ significantly from the DMA insofar as they involve general updates to broad competition rules and legal standards, as opposed to rules that are circumscribed for a handful of companies.

The U.S.’s regulatory structure allows for the courts to be able to make decisions on unique cases and to address the distinct complexities of antitrust concerns arising in different situations. This structure showcases the flexibility of the U.S. antitrust system. The U.S. antitrust framework has proven over the past 100 years that courts and agencies can strike the right balance between protecting consumers and ensuring there is room to innovate and evolve without requiring amendments to the laws every number of years. Furthermore, the consumer welfare standard, one of the internationally recognized barometers for effective competition enforcement — along with other tools such as private rights of action and agencies’ investigative process — ensures the U.S. can address harms and achieve a competitive marketplace without posing a risk to the competitive process through ex ante regulation. To be clear, antitrust agencies can benefit from increased funding and transparency. However, shifting the burden of proof from government agencies to firms to defend their actions would give any company attempting to innovate a reason to pause — and would be overly burdensome on smaller firms who haven’t already carved out a place for themselves in the market. Furthermore, U.S. constitutional freedoms would make it challenging to adopt EU-style ex ante rules that infringe private property rights or force companies to enter into supply agreements with competitors.

Finally, the virtues of global cooperation and coalescence on antitrust concerns were extolled by both MEP Yon-Courtin and Chairman Cicilline. Global cooperation is a laudable goal and should be pursued; however, the standard for cooperation should not be rooted in a targeted and potentially discriminatory framework that threatens to hamper competition and innovation on a global scale. DisCo has previously discussed implementation and implications of the DMA, outlining concerns about its potential impact on competition and future innovation. While some jurisdictions may prefer to slow the pace of digital innovation and the competitiveness of the digital sector, that is not the approach that has led to U.S. technological leadership. The U.S. is a bastion for competition and innovation due to its regulatory structure which allows for competition and innovation to flourish. Importing Europe’s experimental DMA framework would likely damage that severely.

European Union

DisCo is dedicated to examining technology and policy at a global scale.  Developments in the European Union play a considerable role in shaping both European and global technology markets.  EU regulations related to copyright, competition, privacy, innovation, and trade all affect the international development of technology and tech markets.