EU platform regulations may hurt consumers and European startups and lock in dominance of U.S. companies

In the response we at the R Street Institute provided to the European Commission’s survey on “Digital Single Market” regulation of what the commission calls “online platforms,” we challenged the commission’s definition of the term as overly broad and raised questions about possible unintended consequences.

As defined by the commission, “online platforms” would include any commercial or non-commercial enterprise that uses the Internet. Such a broad definition is problematic, because regulations of online platforms will extend to an impossibly large set of actors.

The definition also is redundant with so-called “Internet society services,” which already are regulated under a number of EU directives, including the E-Commerce Directive, InfoSec and ePrivacy directives. The proposed definition is so similar to that for Internet society services that it’s unclear whether the services themselves would be able to discern whether they count as “online platforms.”

Moreover, consumers could be harmed by premature and overly broad platform regulations. As we wrote:

Consumers may be unaware that online platforms have been compelled to remove historical, lawfully published data. It is important that consumers be made aware of the full reach of online platforms’ implementation of ‘right to be forgotten’ or ‘right to be de-indexed,’ since overbroad compliance with such regulations, especially by smaller, less economically advantaged platform providers, may diminish or erase the historical record by modifying the records of publicly reported news and events.

R Street argued for the advantages of reputation systems:

Reputation systems have dramatically democratized the way that we consume. By indexing a huge variety of services, from service providers large and small and geographically diverse, online platforms flatten the barrier of entry for competition in an already global economy. By allowing products to be discoverable based on customer reviews, platforms let people discover services based on what other people actually liked and found useful…. This decreases the role and importance of expensive corporate advertising and allows smaller businesses and individuals to compete based on the quality of their services rather than their advertising budget. Reviews are inherently subjective, but by generating large samples of reviews in a way that only large online platforms are able to do, the reviews attain a level of accuracy akin to statistical sampling. In addition, the free-form descriptions that most online platforms encourage in their review section, people are able to get more detailed views of what goods and services will provide, which allows consumers to find more specialized services that suit their needs. The review section, which many platforms take very seriously as a quality-control mechanism for the goods and services that travel across them, allow for a mechanism of responsiveness to customer satisfaction that compensates for the lack of competition among certain platforms.

With regard to user-provided personal information, we argued that where proper consent and contract frameworks are in place, online platforms should be free to use lawfully disclosed information. In fact, this information can serve to empower individuals “to seek and to impart information,” as is broadly allowed by international human-rights instruments. R Street added:

Regulators should be aware that efforts to engage in post-hoc erasure of publicly shared information may in fact infringe on citizens’ rights to seek, receive, and impart information of all kinds as provided for, e.g., by the International Covenant on Civil and Political Rights.

Pushes for “portability” of business data and individual data should be shaped primarily by open standards. The best way to ensure businesses and individuals retain the right to choose among competitive online services is to maintain an open environment in which it’s easy for services to launch and operate online. With multiple services to choose among, users have the opportunity to demand and exercise data-portability options, as services that allow for easy data portability become more attractive. Heavy government-imposed data portability standards would restrict such an environment.

Online services have a strong incentive to comply with industry standards for data formats and allow for data portability because it makes them more attractive than other services that lock consumers in. We noted that providers such as Google and Facebook already give their users the option to export and download their data in standard formats. Stricter government-mandated standards would create an inflexible environment for new market competitors.

In addition, we noted consumers already have the right “to transfer data from one electronic processing system to and into another” and “the right to obtain from the controller those data in a structured and commonly used electronic format” under Article 18 of the General Data Protection Regulation. There is also already a legal mechanism within the EU to take action against services that refuse to facilitate data-portability functions as an abuse of dominance, under Article 102 of the Treaty on the Functioning of the European Union (TFEU). The current data-portability regulations already are the strongest in the world. Finally, there need to be certain constraints on data-portability regulations to protect the freedom of expression and privacy rights of other users. People should not be allowed to extract or erase the sensitive information or creative expression of other users under data-portability laws.

R Street’s comments emphasized that regulations designed to curb any perceived unfair market dominance by platform operators based outside the European Union may have the unintended consequence of locking in the dominance of those very companies, including companies in the United States. Extensive regulations will, by necessity, be designed to govern the platform-economy model as it currently stands. It will freeze the current model, leaving U.S. companies dominant in some platform sectors. Only the largest companies will have the legal resources needed to comply with regulations and stay in the game.

Regulations that make it more difficult to operate in Europe than in other markets around the world — such as the United States, Canada, Japan and Australia — will simply push technology out of Europe. It would be a disservice to European residents for the EU to enforce regulations that would prohibit a European company that accords to European values of privacy, data protection and anonymity from equaling or surpassing the success enjoyed by Google, Amazon and Facebook.