Can new law set a precedent to promote healthy competition?

The European Union has decided to impose tough regulations on major tech firms. There is a need to closely monitor the impact of the EU’s move to see if it can promote healthy competition in the information technology sector.

The EU has agreed to enact the “Digital Markets Act” to restrict the behavior of tech giants. The new law is expected to take effect as early as October this year.

The bloc has taken a strong stance in the past, including imposing fines totaling more than ¥1 trillion on U.S. firm Google for violating antitrust rules designed to prevent competition from being hindered by monopolies or oligopolies.

However, antitrust investigations have been conducted after problems have occurred, and then penalties and other measures imposed. In many cases, it has taken several years from the start of the investigations to the imposition of fines.

The new EU law is characterized by its shift to so-called ex-ante regulation — a world-first repositioning — that clearly specifies prohibited acts in advance and imposes fines if violations occur. It is understandable that the aim is to respond quickly to unfair practices in the rapidly changing IT sector.

The new law prohibits companies from giving preferential treatment to their products and services on their websites, such as online shopping and search functions, and from using the personal information of users obtained through their sites for other services, among other points. Firms face fines of up to 10% of global sales for violations.

The law is expected to be applied to IT companies that have at least 45 million monthly users, earn at least €7.5 billion (about ¥1 trillion) in annual revenue in the EU bloc and have a market value of at least €75 billion. It will likely target companies such as U.S. tech firms, including Google, Apple and Microsoft.

IT giants make huge profits from the vast amounts of data they collect from users in exchange for providing services such as search functionality for free. The more users they have, the better the services become, and thus oligopolies can easily develop.

Criticism of the tech giants is mounting around the world over their information monopoly and unfair trading practices based on the firms’ dominant bargaining positions. In response to the EU’s new law, other countries might also begin to consider similar regulations.

In Japan, a new law went into effect in February last year to promote transparency in transactions involving IT companies, mainly with regard to online shopping and app-market commissions. Internet advertising is expected to be added to the targets of the regulations.

The law requires IT companies to regularly report the status of their business to the central government, in effect, on a voluntary basis. However, it has been pointed out that it is difficult to solve the problem if the system is unenforceable.

The Japanese government also needs to discuss whether the current regulations are sufficient, while examining the effects and side effects of the EU law. An effective framework for ensuring a healthy, competitive environment and protecting users is desired.

(From The Yomiuri Shimbun, April 15, 2022)