Tech Giants Face New Rules in Europe, Backed by Huge Fines

The bills don’t mention any specific company but, as drafted, one or both would likely apply to several large U.S. tech companies including Alphabet Inc.’s Google, Amazon.com Inc. Apple Inc. and Facebook.

At the same time, the U.K., which has exited the bloc, said Tuesday that it is advancing similar legislation covering what it calls Online Harms. It would create a duty of care requiring social-media companies and search engines to take measures to prevent a range of illegal or potentially harmful material from being distributed on their platforms, or face fines of up to 10% of annual global revenue.

That comes as the U.K. is also pursuing new competition rules for dominant online platforms, including powers for a new digital-markets unit of its competition regulator to suspend, block or reverse decisions by tech giants, and impose fines in case of noncompliance.

Together, the two strands of legislation amount to the biggest potential expansion of global tech regulation in years. They aim to update decades-old laws that have largely shielded tech companies from liability for what their users do online. They would also create a new set of competition rules for a cadre of digital giants who have been accused of wielding their control of digital marketplaces to entrench their own positions and snuff out competitors.

The EU’s pair of proposals will now begin months or years of haggling over their scope and details, similar to the four years of debate before the EU’s 2016 passage of the bloc’s privacy law, the General Data Protection Regulation, or GDPR. Each bill must be approved by both the European Council, representing the bloc’s 27 national governments, and the directly elected European Parliament to become law.

Tech companies reacted cautiously to the new proposals, which still could be reshaped or scrapped. Previously, some have warned against creating a new set of competition rules that could hobble innovation, or onerous content-moderation obligations that could push companies to remove legal content, stifling free expression.

But Facebook, which has complained about harsh content-moderation rules in Germany on Tuesday said that it welcomed harmonization of EU rules on the issue. The proposals are “on the right track to help preserve what is good about the internet,” Facebook said

An Amazon spokesman declined to comment, but pointed to a blog post in which the company said the bloc should ensure “the same rules apply to all companies.”

“We hope the future negotiations will seek to make the EU a leader in digital innovation, not just in digital regulation,” said Christian Borggreen, vice president and head of the Brussels office at the Computer & Communications Industry Association, which represents companies including Amazon, Facebook and Google.

One victory for tech companies and their lobbyists is that the EU proposal keeps intact—for now at least—the basic liability shield that protects digital intermediaries from responsibility for the content on their services and from their good-faith efforts to address problems. But the proposals add increasing layers of obligations for online intermediaries, based on their role in the digital ecosystem, and their number of clients.

The European legislative proposals provide a counterpoint to similar discussions in the U.S., where the internet industry’s similar liability shield—Section 230 of the Communications Decency Act—faces a potential overhaul. But prospects for a competition-law overhaul in Washington remain unclear. In October, a Democrat-led panel in the House of Representatives suggested several legislative changes to rein in the power of big tech platforms.

Separately, the federal government has in recent months filed two major antitrust lawsuits against Google and Facebook Inc.

One of the EU’s two proposed bills, the Digital Services Act, would require large tech platforms that reach more than 10% of the EU’s population to actively look for and mitigate risks from illegal content and goods available via their services. It requires yearly external audits and imposes new transparency requirements toward users and regulators.

Large platforms could be ordered to change their behavior following such audits, and if they don’t comply, they could face significant fines—with a higher maximum than the EU’s GDPR privacy law.

The Digital Services Act would also empower regulators to apply local laws on illegal content. A city that requires home rentals to be registered could, for instance, order a home-sharing app to remove a listing for an unregistered home, or demand information about a host who isn’t paying taxes, an EU official said in a presentation about the law.

The other EU bill, the Digital Markets Act, would pre-emptively block companies with large numbers of business customers and consumers from a blacklist of actions deemed to be anticompetitive, such as forcing a company wanting access to one core platform service to subscribe or pay for another such service. The law would also create other obligations toward smaller firms and end users, such as offering price transparency for online advertisers and allowing data portability for end-users.

Lobbyists are preparing to fight over the bills.

Internet Society, a nonprofit that promotes the open internet, said it is concerned that the proposals, if enacted, could contribute to the fracturing of the internet dividing places with different rules, said senior director Konstantinos Komaitis.

“The internet is not going to die of one cut. It’s going to die of 1,000 cuts,” he said.

But some other groups say that more regulation targeting big tech companies is overdue. Raegan MacDonald, head of public policy at Mozilla, the nonprofit behind the Firefox web browser, said that she supports new provisions for transparency around online advertising for internet users in the content bill.

BEUC, an umbrella organization for European consumer-rights groups, said the new competition rules in the digital markets bill should help rebalance the digital marketplace.

“Competition investigations can be too slow to prevent irreparable harm on the market,” said Monique Goyens, the group’s director general. “It is the right move to prohibit some practices up front instead of picking up the pieces afterwards.”

—Stu Woo contributed to this article.

Write to Sam Schechner at [email protected]