EU vs. Big Tech: A Battle of Giants and the Quest for Digital Sovereignty

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Luca Zorloni

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The European Union Challenges Major Tech Firms, Faces Potential Overpowerment

This narrative initially emerged in WIRED Italia, translated from the Italian language.

The European Commission has recently declared another confrontation, this time targeting Bing, the search engine developed by Microsoft. The authorities in Brussels are concerned that the Redmond, Washington-based behemoth has not adequately regulated the content generated by its AI systems, including Bing, Copilot, and Image Creator. This oversight could potentially breach the Digital Services Act (DSA), a new piece of digital legislation in Europe.

On May 17, leaders at the EU summit called for Microsoft to submit relevant documents to examine the company's approach in managing the dissemination of AI-generated misinformation, including hallucinatory responses, deepfakes, and any attempts to sway the imminent European Parliament elections improperly. In the upcoming elections at the start of June, citizens from across the 27 European Union member states will cast their votes to elect their European Parliament representatives, amid growing concerns about the potential for technological abuse to influence election results. The commission has set a deadline of May 27 for Microsoft to provide an answer, mere days before the election takes place. Should there be any need for adjustments, the timing suggests it might be too late to implement them effectively.

Europe's Approach

In recent months, the European Commission has taken a more assertive stance against major tech companies, predominantly from the US and China. This approach isn't new. Back in 2022, the European Union imposed a €4.1 billion fine on Google for its monopolistic practices through its Android operating system, concluding an investigation that began in 2015. Then in 2023, it fined Meta €1.2 billion for breaching the EU's data protection laws, known as the GDPR. Additionally, in March, Apple was hit with a €1.8 billion penalty.

In a recent shift of tactics, it seems the European Commission is adjusting its approach towards the regulation of Big Tech firms. While the possibility of sanctions remains on the table for companies that resist compliance, the focus now is on a more proactive and involved examination of how these corporations function. The goal is to identify and address issues before resorting to financial penalties. An illustrative example of this strategy is the implementation of the Digital Services Act in Europe, which seeks to enhance transparency regarding algorithms and advertising practices, combat online bullying and misinformation, safeguard young users, prevent the profiling of users, and eradicate deceptive design tactics that influence user decisions online.

In 2023, Brussels pinpointed 22 multinational corporations for early regulatory attention due to their vast scale. These included Google and its principal services (search, shopping, maps, and play), YouTube, Meta (notably Instagram and Facebook), Bing, X (previously known as Twitter), Snapchat, Pinterest, LinkedIn, Amazon, Booking, Wikipedia, Apple’s App Store, TikTok, Alibaba, Zalando, and adult entertainment websites such as Pornhub, XVideos, and Stripchat. Following this identification, Brussels has been exerting pressure on these entities to align with its regulatory framework.

Just one day prior to publicizing the investigation into Bing, the regulatory body initiated a separate inquiry into Meta. This probe aims to uncover how the global entity is safeguarding young users on platforms like Facebook and Instagram from the enticing yet potentially harmful cascade of continuously engaging content, often referred to as the "rabbit hole" phenomenon. This particular issue was also the reason behind their decision to halt the introduction of TikTok Lite across Europe, criticizing its model of encouraging user interaction as risky and potentially fostering addictive behavior. Moreover, the authority has requested Company X to bolster its moderation of content, demanded LinkedIn provide clarity on the workings of its advertising mechanisms, and called on AliExpress to justify its policies on refunds and handling complaints.

A Tower of Regulations…

On one side, it seems the overarching theme is that Brussels' influence is inescapable. Conversely, under the leadership of President Ursula von der Leyen, the European Commission is tasked with proving that the plethora of digital legislations and policies effectively bring about beneficial outcomes. Beyond the DSA, there's the Digital Markets Act (DMA), crafted to mitigate the overpowering influence of Big Tech in digital marketplaces; the AI Act, which stands as Europe’s premier regulation concerning artificial intelligence; along with the Data Governance Act (DGA) and the Data Act, both of which delve into issues of data protection and the utilization of data across both public and private sectors. Other key initiatives include the revised cybersecurity measures, NIS2 (Network and Information Security); the Digital Operational Resilience Act, targeting the financial and insurance sectors; and the digital identity framework under eIDAS 2. Still undergoing formulation are policies regarding health data management and controversial proposals that would enable law enforcement and platforms to sift through private communications of individuals for indications of child pornography.

Brussels has launched significant measures targeting the tech giants from the United States and China, managing to score some wins like ByteDance halting the gamification aspect of TikTok Lite in France and Spain. However, the path ahead remains murky and complex. Although these probes garner attention from the press, navigating the EU's extensive and intricate digital regulatory framework proves challenging.

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On February 17, the Digital Services Act (DSA) was enacted, affecting a broad range of online service platforms including cloud and hosting services, search engines, e-commerce sites, and various online platforms. However, the oversight of this law is not directly managed by the European Commission, leading to the requirement for each member state to establish a local regulatory body to oversee digital services. Five months following the enactment, Brussels had to issue a formal reminder to six member states – Cyprus, Czech Republic, Estonia, Poland, Portugal, and Slovakia – to nominate and properly authorize their respective digital services oversight bodies. These nations have been given a two-month deadline to meet this requirement before facing potential intervention from Brussels. Additionally, there are other countries that haven't fully met their obligations under the DSA. For instance, Italy's digital services regulatory agency, known as AGCOM (Autorità per le Garanzie nelle Comunicazioni), has identified a need to hire 23 new staff members to complete its team. According to a statement to WIRED Italy from the agency, it anticipates accomplishing these hires by the middle of June.

The Digital Services Act (DSA) has also introduced the concept of "trusted flaggers," which include individuals or groups such as academic institutions, professional bodies, and fact-checking organizations dedicated to fighting against online hate speech, cyberbullying, illegal content, and the dissemination of scams and misinformation. It is expected that their contributions are reliable. The responsibility for choosing trusted flaggers lies with local governments. However, as of now, only Finland has officially designated such an entity, naming the Copyright Information and Anti-Piracy Center (Tekijänoikeuden tiedotus- ja valvontakeskus ry) as a trusted flagger. The center's director, Jaana Pihkala, shared with WIRED Italy that their primary role is to compile reports on copyright violations, leveraging the organization's four decades of expertise in this area. Since being recognized as a trusted flagger, the center's two legal experts have issued 816 notifications aimed at safeguarding movies, TV shows, and books for Finnish copyright owners.

… and an Avalanche of Information

In order to gain the trust of all 27 member states, the commission swiftly launched the DSA monitoring framework. However, the officials in Brussels are now faced with a massive volume of research that needs to be undertaken. On one front, there's the creation of an anonymous tip-off service, which the commission believes will help compile comprehensive profiles on various platforms using insights from those within. Major controversies that have rocked Meta were brought to light by ex-employees like Christopher Wylie, who exposed Cambridge Analytica's attempts to sway the US elections, and Frances Haugen, who divulged information about how Instagram and Facebook affect the mental health of young users. The DSA's goal is to strengthen and financially support the commission, enabling it to deploy its own specialists who can delve into the piles of documents and data, assess the findings, and determine the necessary course of action.

The committee highlights that the Digital Services Act (DSA) will mandate platforms to maintain transparency. It has already marked some achievements. For instance, it has exposed the shockingly low number of moderators that platforms employ. Recent data from last November shows these moderators are insufficient for covering all languages within the European Union. It was revealed that a particular platform had merely two individuals reviewing content in Italian, which is spoken by 9.1 million of its users. Additionally, languages like Greek, Finnish, and Romanian, each with over 2 million speakers, had no dedicated moderators. AliExpress handles all moderation in English and relies on automated translation tools for other languages. LinkedIn, on the other hand, moderates content in only 12 of the European Union's official languages, covering merely half of them.

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Simultaneously, the commission has mandated that major online platforms harmonize their reporting of moderation actions, contributing to a vast database that, at the time this document was authored, holds over 18.2 billion entries. Of these incidents, automation resolved 69 percent. Intriguingly, 92 percent of these issues were related to Google Shopping. The reason lies in the platform's use of multiple criteria to assess if a product meets the standards for listing, such as the risk of counterfeit, compliance with site policies, forbidden items, hazardous substances, among other factors. Consequently, a single product could trigger multiple alerts, each recorded individually in the DSA database, leading to a significant inflation in the reported numbers for shopping-related interventions. This influx of data presents a challenge for the EU's ambition towards complete transparency.

Zalando's Financial Obligations and Disputes

Amidst the backdrop of a legal standoff, major technology firms are contesting the fees imposed by the regulatory commission, fees intended to finance its oversight operations. Among these, Meta, TikTok, and Zalando have lodged objections to these charges, despite having made payments. Specifically, Zalando, the lone European entity identified by the commission as a major platform, disputes this classification, arguing that it does not fulfill the criteria set by the regulatory bodies in Brussels. For instance, to be categorized under this list, a platform must garner a minimum of 45 million monthly European users. The commission claims Zalando attracts 83 million users, a figure that includes users from non-target markets like Portugal, which Zalando insists should be excluded from the tally. By Zalando's own analysis, only 31 million users are engaged in activities relevant to the Digital Services Act (DSA), falling below the required threshold. However, when the commission calculated Zalando's fee, it estimated the user base at 47.5 million, significantly less than the 83 million initially cited but still above Zalando's count. In response, Zalando has initiated legal proceedings against the commission, aiming to secure a fair and transparent evaluation process.

This is merely an example of one regulation, known as the DSA. Additionally, the commission has introduced the Digital Markets Act (DMA), a set of rules designed to diminish the overwhelming influence of major tech corporations. This act mandates that certain services must be compatible with those offered by competing firms, allows for pre-installed applications on devices to be removed, and necessitates that data gathered by large platforms be accessible to smaller and medium-sized businesses. The initiative to enforce these regulations initially targets the leading companies: Alphabet, Amazon, Apple, Meta, ByteDance, and Microsoft. In May, Booking.com was also included in this category.

Big Tech's Reaction

Tech giants are beginning to acknowledge the European Union's demands, albeit with tepid outcomes. For example, WhatsApp has updated its platform to enable cross-app communication while maintaining its hallmark end-to-end encryption, safeguarding user privacy and security. Yet, it remains to be seen who will be open to establishing connections with it. WIRED US contacted 10 messaging services, such as Google, Telegram, Viber, and Signal, to inquire about their plans for interoperability and any collaboration with WhatsApp's initiative. Most did not reply to the inquiry. Among those who did, Snap and Discord, indicated they had no information to share. Apple was compelled to allow sideloading, meaning users can now download and update apps on iPhones or iPads from marketplaces other than the official one. However, the first alternative to emerge, AltStore, currently hosts a limited selection of apps. Additionally, it faced criticism for declining to host the latest update of Spotify’s app, even after the music streaming service removed a direct subscription link from its website.

The Digital Markets Act (DMA) has the capacity to challenge the supremacy of major technology corporations, yet achieving this is not guaranteed. Addressing surveillance concerns, the European Commission is equipped to cover the wages for 80 staff members, which falls short of the 120 personnel recommended by Internal Market Commissioner Thierry Breton and significantly below the 220 personnel suggested by the European Parliament, as outlined by Bruegel in 2022. Furthermore, on the Center for European Policy Analysis (CEPA) website, Adam Kovacevich, the founder and CEO of Chamber of Progress, a tech industry group with a liberal orientation (which includes all the tech behemoths that also provide funding to CEPA), argued that the DMA is designed more to bolster competitors than to benefit consumers. He expressed concerns that the DMA would degrade the quality, security, and family-friendliness of tech giants' services, leading to a poorer user experience for Europeans in comparison to Americans and citizens from other regions outside Europe.

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Kovacevich is a spokesperson for an organization funded by several of the firms targeted by the DMA, and there's a common concern that the DMA might make the market more complex, ultimately favoring a select few companies, possibly not the ones most threatened by Silicon Valley's control. Success of EU regulations won't be judged merely on legal actions and penalties, but also on how they're perceived by the public and corporate entities. The outcomes might take longer to materialize than Brussels hopes, as new laws are often met with initial skepticism.

Understanding the Impact of GDPR and Gaia-X

The General Data Protection Regulation (GDPR) has set a new benchmark worldwide, compelling digital businesses to modify their data management practices. However, ask any average person about it, and they're likely to refer to it as just another pop-up asking for cookie permissions or as a regulation that has led businesses to hire specialized consultants for compliance. Few recognize it as the comprehensive privacy protection mechanism it truly is. Despite its significant influence on enhancing online privacy, its implementation has faced hurdles, as highlighted by the digital rights group Noyb. The regulatory authorities in Ireland and Luxembourg, preferred locations for many internet companies due to tax advantages, have encountered difficulties in probing breaches. Ireland's Data Protection Commission (DPC) reports receiving 19,581 complaints over five years but has only reached 38 formal conclusions, with a mere eight originating from complaints. Noyb's recent survey involving 1,000 data protection officers found that 74% believe that a typical investigation into European businesses would uncover at least one GDPR breach.

The GDPR also sparked an attempt that ultimately didn't succeed: trying to create a separate European cloud to protect EU citizens' data from the reach of the US Cloud Act. In 2019, with much publicity, France and Germany launched Gaia-X, a joint effort aimed at safeguarding the region and offering an alternative to the cloud computing market dominated by the US and China. However, five years on, the initiative has stalled due to difficulties in setting up standards, particularly after the involvement of the very companies it intended to challenge, including tech behemoths like Microsoft, Amazon, Google, and Chinese giants Huawei and Alibaba, along with the contentious US firm Palantir, known for its data analysis in defense. This situation pushed some of its original members, such as French cloud provider Scaleway, to withdraw. This shift in dynamics brought the European Parliament into focus, prompting the commission to initiate a new project, the European Alliance for Industrial Data, Edge, and Cloud. This new alliance has 49 members, 26 of which were part of Gaia-X, excluding the non-EU tech giants, and it receives financial backing from the EU.

As a response to European demands, major technology companies have taken significant steps by massively investing in the establishment of data centers within the European Union. A report by the consulting agency Roland Berger highlighted that there were 34 data center deals completed in 2023, with an impressive growth rate of 29.7 percent annually since 2019. Market research firm Mordor Intelligence forecasts that the European data center market size will expand from €35.4 billion in 2024 to about €57.7 billion by 2029. Recently, Amazon Web Services declared an investment of €7.8 billion in Germany. Furthermore, WIRED Italy covered Amazon's efforts to become an approved entity for hosting critical data for the Italian public administration, aiming to join the ranks of Microsoft, Google, and Oracle who are already on the list. Despite its initial stance on sovereignty, the European Union has had to accept the reality that the cloud computing sector is dominated by American tech giants, who have significantly outpaced their Chinese rivals especially after diplomatic tensions between Beijing and the European Union have intensified.

The AI Frontier

Artificial intelligence represents the latest battleground in the realm of digital technology. The European Union has taken the lead by introducing the AI Act, marking the first attempt at legislating the varied uses of AI and delineating what is allowed and what is not, based on evaluations of risk. The commission is eager to avoid previous errors. Recalling the introduction of the GDPR in 2018, which forced businesses to rush to ensure compliance, it aims to guide entities through a stage of optional adaptation. To date, 400 companies have expressed their willingness to participate in this initiative, IBM being among them.

Meanwhile, Brussels is tasked with establishing several key entities to ensure the successful implementation of the AI Act. The first entity to be set up is the AI Council, which will comprise a representative from each member state and will be split into two dedicated groups. One will focus on fostering market growth, while the other will concentrate on the deployment of AI in the public sector. This council will be supported by both a team of technical advisors and an independent panel of scientists and experts, akin to the model used by the UN Climate Committee. The second key entity is the AI Office, which will operate under the Directorate-General Connect, the unit responsible for overseeing digital technology. This office will handle the administrative duties related to the AI Act, ensuring consistent application across the board, investigating any reported breaches, developing ethical guidelines, and categorizing AI systems that could present a systemic threat. With the foundational regulations in place, further research into novel technologies can advance. When fully staffed, the office is expected to employ 100 individuals, drawing from both current Directorate-General Connect staff and new recruits. Currently, the office is in the process of recruiting six administrative employees and an unspecified number of technology specialists.

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On May 29, the deadline for the initial batch of proposals aimed at supporting regulation came to an end. These proposals featured the AI Innovation Accelerator, a hub dedicated to offering training, establishing technical standards, and providing software and resources. Its goal is to foster research, aid startups and small to medium enterprises, and offer support to governmental bodies responsible for overseeing AI. A budget of €6 million has been allocated for this purpose. Additionally, €2 million is earmarked for operational management, and €1.5 million will support the European Union’s AI testing facilities. These facilities are tasked with evaluating AI models and products in the marketplace on behalf of national competition authorities, ensuring they meet EU regulations.

Tracking Financial Investments

A sum of €54 million has been allocated for various commercial projects. The EU acknowledges its current position behind the curve. A report from April by the research service of the European Parliament, which aids legislative processes through data and analysis, highlighted the global AI market's value at €130 billion in 2023, with projections suggesting it will soar to nearly €1.9 trillion by 2030. The majority of this investment is seen in the United States, which secured €44 billion in private funds in 2022, with China trailing at €12 billion. The European Union, along with the United Kingdom, managed to draw in €10.2 billion during the same timeframe. Research from Eurochamber indicates that from 2018 up to the third quarter of 2023, American AI firms garnered €120 billion in funding, while their European counterparts received €32.5 billion.

Europe is aiming to challenge the rise of the latest AI powerhouses by adopting an open-source approach. Additionally, it's offering its supercomputer network to startups and educational institutions for algorithm training. However, this required an initial adjustment to meet industry demands, involving a nearly €400 million investment in graphics cards. Due to the current surge in demand, these essential components are expected to face delivery delays.

In an effort to bolster the AI sector within Europe, the commission has allocated €24 million towards the establishment of a Language Technology Alliance. This initiative aims to unite enterprises across various countries to create a competitive generative AI that could rival ChatGPT and similar platforms, drawing inspiration from Gaia-X. Additionally, €25 million is designated for the development of a comprehensive open-source language model. This resource is intended for use by European entities to forge new services and undertake research endeavors. The commission plans to finance a range of models, with the ultimate goal of selecting the most fitting one for Europe's specific requirements. From 2021 to 2027, the Digital Europe Program is set to invest €2.1 billion in AI initiatives. While this investment is noteworthy, it is significantly overshadowed by the €10 billion that Microsoft has poured into OpenAI, highlighting the scale of global competition in the AI domain.

Allocating the €25 million earmarked for the significant European language model project across numerous smaller initiatives may not effectively counter the €15 million investment by Microsoft to integrate Mistral, the most prominently discussed AI startup in Europe, into its portfolio. With the AI Act now officially sanctioned, major AI frameworks are poised to establish their presence in Brussels imminently. Essentially, the commission is signaling through various means that there's a new authority in play. However, the question remains: Are the officials in Brussels sufficiently equipped to challenge the dominance of Big Tech? One thing is for sure—this challenge will not be straightforward.

The narrative was rendered into English by John Newton.

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