Brussels to the Bay: Opening Digital Markets for Innovation

“Digital markets need competition.” This was the central message of last week’s “Brussels to the Bay” event at San Francisco’s Ireland House, which focused on the EU policy toolbox and recent decisions in digital markets policy. Representatives from EU institutions and tech businesses discussed recent developments and the outlook for tech regulation in the coming years. The panelists included Gerard de Graaf (Special Envoy to the U.S. for Digital and Head of the EU Office in San Francisco), Carlota Reyners (Director for IT, Communication and Media at the European Commission’s DG CONNECT), Aaron Schur (Chief Legal Officer at Yelp), and moderator Mike Masnick, CEO of the Techdirt blog. 

The discussion was preceded by an overview of recent EU antitrust and digital markets policy by Joanna Smolinska, Deputy Head of the EU Office in San Francisco. Smolinska began with a central claim: digital markets, due to their unique nature, require a novel approach to antitrust and regulation. This uniqueness is based on three key elements. First, digital markets differ from traditional forms of exchange and commerce due to unprecedented network effects. This connects to the second element, scale, which has seen major digital market players achieve market valuations comparable to the economic output of entire countries. Finally, according to Smolinska, it is the economic power of digital markets which requires new regulatory frameworks and conditions. 

Smolinska then outlined the general differences between EU and U.S. regulatory approaches to digital markets, focusing on EU antitrust law and the Digital Markets Act (DMA) on the one hand, and the U.S. model of federal and state-level laws on the other. She highlighted EU efforts to incorporate explicit pro-innovation requirements into European antitrust regulation. These include interoperability obligations for large “gatekeeper” platforms, requiring them to open services such as messaging, app stores, and payment systems to third parties in order to foster competition and user choice. Unbundling – the requirement to separate “all-in-one” digital service packages – and the prohibition of self-preferencing are further elements of the EU’s pro-innovation framework, according to Smolinska. She concluded by outlining the conditions a tech company must meet to be designated a “gatekeeper” and thus be subject to DMA requirements. Put simply, a “gatekeeper” must meet strict economic (€7.5 billion in EU turnover or a €75 billion market capitalization) and user thresholds (at least 45 million monthly EU users). Companies currently designated as gatekeepers include Alphabet (Google), Amazon, Apple, ByteDance (TikTok), Meta (Facebook, Instagram, WhatsApp), Microsoft (LinkedIn, Windows), and Booking.com. 

The panel discussion centered on the definition of a successful digital market and the potential effects of the DMA on European and U.S. tech innovation. Commission representative Carlota Reyners emphasized that, from the perspective of Brussels regulators, a successful digital market is one characterized by greater competition and increased consumer choice – a view shared by the other panelists. Gerard de Graaf, Head of the EU Office in San Francisco, noted that while not all Silicon Valley entrepreneurs may view monopolies negatively, they in fact pose obstacles to innovation and place a burden on consumers. Speaking from the perspective of a tech entrepreneur, Yelp Chief Legal Officer Aaron Schur outlined what he sees as the dangers posed by unregulated gatekeepers, arguing that Google’s self-preferencing practices contributed to Yelp’s decision to withdraw from the European market in 2016, as the company was unable to build sufficient network effects. In his view, the Digital Markets Act holds significant promise for creating more competitive markets but will require strong enforcement to achieve its objectives. 

 

Responding to concerns that EU antitrust legislation could limit innovation and growth within the European tech sector, Reyners and de Graaf stressed that the DMA and related digital markets legislation can instead pave the way for increased innovation and entrepreneurship by strengthening competition within the Single Market. They expressed hope that the EU’s regulatory toolbox will create a more level playing field and better opportunities for smaller tech entrepreneurs in the years ahead. 

Overall, the event underscored the growing importance of transatlantic dialogue on digital markets policy at a time when regulatory approaches on both sides of the Atlantic continue to evolve. By bringing together policymakers and industry representatives, “Brussels to the Bay” highlighted both the challenges and opportunities of regulating digital markets in a way that promotes competition, innovation, and consumer welfare. 

For more information on this event and similar events, please sign up to DWIH San Francisco’s newsletter here.