Europe Is Becoming a Bigger Problem for Silicon Valley

By Sam Schechner in Paris and Natalia Drozdiak in Brussels Features Dow Jones Newswires

A deep cultural divide between the U.S. and Europe over their approaches to Silicon Valley has thrust European officials into the role of global tech-industry cops.

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The result is that many of the most heated battles over whether or how regulators should protect car makers, news organizations and other industries from the disruptive effects of tech giants are playing out first in Brussels, Paris and Berlin instead of Washington or San Francisco.

Just Friday, Germany approved new legislation imposing EUR50 million fines on social-media companies that fail to quickly remove hate speech and terrorist content -- over strident opposition from Facebook Inc. and other tech companies, which advocate self-regulation to tackle those problems. That followed the EUR2.42 billion ($2.76 billion) fine that the European Union's executive arm levied this week against Alphabet Inc.'s Google for abusing its dominance as a search engine.

These decisions have significant implications for the companies in Europe, one of their most important markets with its 500 million consumers. The rulings also influence regulators, courts and officials globally. This week, South Korea's antitrust chief told the Yonhap News agency he will examine how to curb the market control of Google and Facebook.

Google said it "respectfully disagrees" with the EU decision and will consider an appeal, and didn't immediately responded to requests for comment on South Korea's plans. Facebook declined to comment.

Some of these issues are coming to a head in the U.S., too, though at a slower place. American policymakers in some cases are rethinking policies that were designed to nurture the tech industry in its early days now that these companies are touching every sector of the economy.

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The companies also are coming to terms with the loss of a strong ally in the White House in former President Barack Obama. When Republicans took charge in January, GOP lawmakers set out to roll back several big Obama-era policies that favored tech companies. That included the "net neutrality" regulations that prevented broadband providers from prioritizing certain internet content, and recent privacy rules that hit telecom companies but not tech firms.

Up to now, though, the U.S. generally has favored a lighter approach, driven partly by American's aversion to restrictions on free speech. Across the Atlantic, the more tightly controlled approach is illustrated by Europeans' war-hardened devotion to personal privacy and restricting hate speech.

"It stems from very different economic traditions in how much of a role the state should have in resolving problems," says James Waterworth, vice president for Europe at the U.S.-based Computer & Communications Industry Association, a lobby group that represents U.S. tech companies including Facebook and Google. "In a globalized world, with large transnational companies, these things increasingly come into conflict."

Some free-market supporters in the U.S. and Europe view the moves by regulators as cover for political interventions and even protectionism. Europe dominated the early mobile-phone era but now has no tech companies on the scale of Google or Facebook.

Mr. Obama in 2015 said the EU's investigations into big U.S. tech companies were "more commercially driven than anything else," suggesting the EU was trying to help out European competitors.

EU officials deny such accusations but frequently say that if large tech companies, which are primarily American, want access to the bloc, they must "play by the EU's rules."

The EU's antitrust watchdog is still investigating other aspects of Google's business and Qualcomm Inc. for allegedly abusing their market positions. The watchdog also has been probing whether Amazon.com Inc. paid appropriate taxes in Luxembourg. The companies all deny wrongdoing.

Meanwhile, the EU is considering proposing more rules for internet platforms to prevent them from offering unfair terms to small businesses that use their services to sell or promote products.

And Europe's national privacy regulators -- who next May will get the power to issue fat fines for privacy rule violations -- are coordinating multiple investigations into Facebook's handling of personal information from chat service WhatsApp.

"These companies have become so dominant, so powerful, when [they] demote rivals, who puts the limit?" said Ramon Tremosa i Balcells, a liberal lawmaker from Spain who backed the European Parliament's resolution in 2014 calling for a breakup of Google.

Regulatory scrutiny in the U.S. may never match that of Europe, but some American politicians have raised concerns about the size of tech companies and their power in the market. President Donald Trump's nominee to be the Justice Department's antitrust chief, Makan Delrahim, has promised to "investigate and vigorously enforce the antitrust laws with respect to online platforms."

One factor in the change has been tech firms' disruption of traditional industrial giants in Europe. In response, many legacy players have lobbied for new rules and tougher enforcement against the interlopers -- and found open ears. European telecom firms, angry about seeing their revenue from text messages undercut by chat apps, were among the first to advocate new legislation to mandate a "level playing field."

More recently, European car makers have lobbied EU officials to support industry proposals that car makers should be the primary gateway for drivers to share car data. Some executives fear Silicon Valley firms could hoard vehicle data, turning cars into low-margin devices like many mobile phones, one auto executive said. German publishers also lobbied for copyright proposals that would help them seek remuneration from Google and other news aggregators for snippets of articles used on their websites.

News Corp, owner of The Wall Street Journal, has formally complained to the EU about Google's handling of news articles in search results.

"The revenues generated by creators, performers and those that invest in creative content are accruing disproportionately to a few large players who themselves do not engage in content creation," Günther Oettinger, the EU's German commissioner and former digital chief, said in November, defending the commission's proposed new copyright rules.

--Eun-Young Jeong in Seoul and John D. McKinnon in Washington contributed to this article.

Write to Sam Schechner at sam.schechner@wsj.com and Natalia Drozdiak at natalia.drozdiak@wsj.com

(END) Dow Jones Newswires

June 30, 2017 15:21 ET (19:21 GMT)