Antitrust regulators in the EU and USA have Big Tech firms in their crosshairs. The EU wants to curb Google’s dominance in the adtech market, while the US Federal Trade Commission has managed to halt – so far temporarily – Microsoft’s plans to acquire Activision Blizzard. Meanwhile, trilogues on the proposed AI Act have begun in Europe.
Let’s get started. Stephanie and the Digital Watch team
// HIGHLIGHT //
EU takes aim at Google: Company could be forced to sell off adtech arm
The European Commission is quite unhappy with Google’s role in the adtech business. The company, at the centre of an ongoing antitrust investigation, is dominant on both sides of the market (see the explainer below), making it a prime target for the Commission to order tough remedies if suspicions of abusive patterns are confirmed.
Not just tough, but tougher. When the European Commission announced last week that it couldn’t see any other solution, we knew it was quite serious for Google.
What stood out in last week’s press conference was that European Commissioner for Competition Margrethe Vestager described Google’s dominance as pervasive, singling it out as the company with the most ubiquitous presence across markets. What this means in practice is that it’s not just a matter of one company being dominant in a particular market, but a more extensive dominance by one company. It’s a situation that will test the Commission’s resolve in correcting market distortions, and will determine whether existing rules fit this situation.
It also appears that every time the Commission flagged undesired behaviour, Google swiftly tweaked its actions in subtle ways to comply with the letter of the law, while still accomplishing the same results. The creature stayed the same; only its spots changed. This certainly does not help its cause. As Vestager said, the ‘learning curve is somewhat flat’ for dominant companies: Big Tech has failed to recognise that it’s acceptable to lead a market, but unacceptable to exploit it.
How it started. The EU investigation into Google’s behaviour in the adtech business started a few years ago. Since Google is dominant across the whole value chain, it can be pretty tough to detect specific behaviours. So throughout its preliminary investigation, the commission roped in other competition authorities to investigate practices in arguably one of the most complex technical markets out there. That includes cooperating with the US Department of Justice, itself investigating Google on multiple accounts of alleged antitrust violations.
There’s no other solution. The Commission has touted the notion of divestiture before in other cases, but there were less intrusive measures available. It now appears that when it comes to the adtech market, the market distortions from Google’s dominance in a two-sided market can’t be solved in any other way: You just can’t have ownership of the entire value chain.
How this could affect Google. There’s no other way to describe it: A request for the company to sell off its adtech arm would be a strong blow to the company. It would mean a major shake-up of the company’s digital advertising empire, and, potentially, a significant restructuring of Google’s business model.
The formal investigation, launched last week, will determine whether Google violated EU antitrust rules. But the million-dollar question is: Is it a matter of arguing that all other alternatives have been exhausted, or that no other alternative can adequately address this market distortion?
If the Commission believes that the time for behavioural remedies is up, Google’s only solution is to persuade the Commission that the situation can be remedied by alternative methods. But if the Commission thinks that Google’s dominance in a two-sided market can’t be fixed in any other way, the Commission has a complex task ahead to justify an adtech break-up.
How does adtech work?
Behind the scenes, complex algorithms race to decide which ad to display to each of us as we browse. There are three parts to this process:
First, advertisers want to place their ads in the hope that they attract our attention.
Second, publishers want to sell online space (think of it as digital real estate) to display those ads.
Third, an intermediary applies their (theoretically unbiased) algorithms to determine the best match between each user and the ads they might be interested in – all of this taking place in real-time.
Google offers services in all these three parts of the process. It’s on both the buy-side and the sell-side of a two-sided market, and it’s also in the middle, where the buyer and seller meet. The problem is that in acting as intermediary, it appears to be abusing its dominant position by favouring its own services over those of competing intermediaries.
Alberto Bacchiega, director of Digital Platforms at the Commission’s Directorate-General for Competition, explains it well in the video ‘Statement of Objections to Google Over Abusive Practices in Online Adtech’.
Digital policy roundup (13–19 June)
// AI GOVERNANCE //
EU Parliament advances AI Act, trilogues start
All eyes were on the European Parliament last week in anticipation of the lawmakers’ crucial vote on the EU’s proposed AI Act. Receiving a resounding 499 votes in favour, with 28 against, and 93 abstentions, the Parliament’s text made it through plenary and will now be used as a foundation for negotiations with the EU Council.
The trilogues – tripartite negotiations among the EU’s lawmaking institutions – have already started.
Why is it relevant? For a second, we thought there might be hiccups. But there was too much at stake for European lawmakers to jeopardise the process. So there’s one less hurdle for the AI Act to reach its destination: the coming into effect of new rules that address the risks from AI systems based on their risk level. Yet, it won’t be smooth sailing: biometric-related risks will be a major bone of contention.
Here’s where we are now: Parliament has approved its draft text in plenary, advancing the AI Act to the trilogue talks (the dotted red line). The EU Council’s negotiating text was approved in December. Source: Based on a diagram from artificialintelligenceact.eu
UN Secretary-General calls on the international community to act now on digital technologies
The recent warnings on AI’s threat to humanity did not land on deaf ears. Last week, UN Secretary-General Antonio Guterrez urged governments to heed to these warnings. ‘Alarm bells over the latest form of artificial intelligence – generative AI – are deafening. And they are loudest from the developers who designed it. These scientists and experts have called on the world to act, declaring AI an existential threat to humanity on a par with the risk of nuclear war. We must take those warnings seriously.’
Was this newsletter forwarded to you, and you’d like to see more?
US judge temporarily blocks Microsoft’s Activision acquisition
It’s not just Google having antitrust issues of late. Microsoft’s takeover of video game maker Activision Blizzard has suffered a setback after a US judge granted the Federal Trade Commission’s (FTC) request to temporarily block the acquisition. The judge has scheduled a two-day evidentiary hearing for this week on the FTC’s request for a preliminary injunction.
The FTC is arguing that the transaction would give Microsoft’s video game console Xbox, exclusive access to Activision games, leaving Nintendo and Sony Group’s PlayStation out in the cold.
Why is it relevant? First, without a court order, Microsoft could have closed the USD69 billion (EUR63 billion) deal as early as last week. The company will now have to wait for this week’s hearing. Second, the merger faces a legal battle in August, when an FTC judge is set to hear the case.
The FTC’s actions stand in contrast with the European Commission’s approval of the merger in May. No doubt the UK’s Competition Authority, which denied approval of the deal citing concerns over the potential impact on competition in the video game industry, is watching closely.
// CYBERSECURITY //
Amid soaring tensions, US official warns of cyber sabotage from China
Chinese hackers are all but sure to disrupt US critical infrastructures, such as pipelines and railways, in the event of a conflict with the USA, a senior US cybersecurity official has warned. Tensions between the two countries have soared.
The Director of the Cybersecurity and Infrastructure Security Agency, Jen Easterly, emphasised during a recent event that China is significantly investing in its capability to sabotage US infrastructures. With the possibility of Chinese hackers compromising current security measures (given the recent cyberattacks by Chinese state-sponsored hacking group Volt Typhon), Easterly warned that prioritising resilience and strengthening defences is paramount to being prepared.
// DATA PROTECTION //
Swedish data protection watchdog fines Spotify over GDPR breaches
The Swedish Data Protection Authority has imposed a EUR5 million (USD5.5 million) fine on digital music service company Spotify for breaching several GDPR provisions a few years ago. According to the authority, Spotify failed to provide clear information to users regarding the purposes of its data processing, categories of personal data involved, and data storage periods, among other infringements.
As with many European legal actions concerning data protection, the complaint against Spotify was filed by Austrian non-profit NOYB, which also took the Swedish Data Protection Authority to court for not wanting to investigate the case.
Why is it relevant? The ruling serves as a reminder for organisations operating in the EU to provide clear and transparent information about their data processing practices (and for data protection authorities to investigate every complaint).
The week ahead (19–26 June)
19–21 June: The 2023 edition of Europe’s foremost regional internet governance gathering – EuroDIG – is underway in Finland and online. The theme – Internet in troubled times: Risks, resilience, hope. We’ll use our latest AI tool, DiploGPT, to draft reports that reflect the discussions throughout the meeting. (By the way, here’s DiploGPT in action).
6 July: A discussion on the report on the relationship between human rights and technical standard-setting processes for new and emerging digital technologies and the practical application of the Guiding Principles on Business and Human Rights (A/HRC/53/42)
3 July: A panel discussion on the role of digital, media, and information literacy in the promotion and enjoyment of the right to freedom of opinion and expression (HRC res. 50/15)
20–21 June: The Ad Hoc Committee on Cybercrime, tasked with advancing a new cybercrime convention, is holding the fifth intersessional stakeholder consultation in Vienna and online.
21–22 June: The annual Cybersec Forum and Expo features discussions among policymakers and the industry on cybersecurity and resilience, across four streams: state, defence, business, and future technologies. Takes place in Poland, onsite only.
23 June: It’s the last day to propose a session for UNCTAD’s eWeek (known until recently as eCommerce Week). It will take place in December in Geneva and online.
Not really. According to the Reuters Institute’s annual Digital News Report 2023, which surveyed around 94,000 adults across 46 markets, people are sceptical of algorithms determining news selection based on what our friends have read or read (19% agree, 42% disagree) and based on what we ourselves have read or seen in the past (30% agree, equal numbers disagree).
How about the sources we choose to stay informed? Facebook, which was once dominant as a primary network for news, has been surpassed by rivals such as YouTube and TikTok. Read the full report.
