Google and Apple suddenly realise that doing business in EU is tough?

Participation of Margrethe Vestager, Member of the EC in charge of Competition at the 70th session of the United Nations General Assembly (EC Audiovisual Services, 30/09/2015)

Participation of Margrethe Vestager, Member of the EC in charge of Competition at the 70th session of the United Nations General Assembly (EC Audiovisual Services, 30/09/2015)

Last week was definitely a reference for digital European Union. For those who have felt that the European Commission has specifically targeted Google for some reason, or are particularly interested in the impact that regulators can have on big companies like Google last week must have truly paid off in terms of newsfeed.

The Google bias?

Let’s start with Google’s story. Last week, European Competition Commissioner Margrethe Vestager dismissed accusations of any kind that she is biased against American companies operating in the European Union. The latter allegation has been heavily endorsed by very American media outlets in Brussels and beyond. “Some claim that our cases involving Internet giants such as Apple or Google are evidence of bias: well, that is a fallacy”, Commissioner stressed during her speech at the Foreign Policy Association in New York.

Europe’s antitrust chief felt like defending herself and the work of her colleagues in Brussels since she had been broadly criticized by U.S. media over her decision to go after Google for abusing its predominant position against competitors, on the one hand, and Apple over an Irish tax “deal”, on the other. Commissioner Vestager has always denied such accusations, and she now openly rejects criticism, making clear that the “nationality” of companies investigated “played no role in her assessment”.

“Yes, US companies are often involved when we investigate the digital industry, but you will also see many Japanese firms in our car-part cartel cases”, she further underscored, as reported by Reuters last Friday.

EU under criticism again

Indeed, some critics, not only from the other side of the Atlantic, have accused the European Union’s regulators of seeking to protect European companies from US competitors, in order to try to keep the European market “safe”. It is also the alleged difference between the EU and US regulation that keeps fuelling the dispute.

Indeed, the Federal Trade Commission of the United States basically agrees with Google, when the Mountain View, California-based company says that no format by the American tech giant is anti-competitive. Already in 2013, it concluded that Google did not violate any antitrust rules in its web-based search service.

The European Commission, on the other hand, is now studying Google’s response to antitrust charges of favouring the company’s Google Shopping service over competitive ones. Recently, the American tech giant officially dismissed all accusations, and underlined in a statement published last month by Kent Walker, Senior Vice President and General Counsel, that all preliminary conclusions filed by the European Commission are “wrong as a matter of fact, law, and economics”.

In addition, the EU is also investigating the company’s popular Android operating systems for smartphones. If found guilty of violating EU law, Google could face fines of up to €6 billion, roughly 10 percent of the company’s operating revenue.

Data Protection tsunami

On a separate note, last week was an important one “digitally speaking” because of the evolutions in EU data protection issue. The European Court of Justice has finally reached a judgement on data protection legislation in the case against the Slovakian property site Weltimmo. That is a landmark ruling that could have again big implications for tech companies operating in multiple countries in Europe such as Apple and Facebook.

The case was brought by the Hungarian data protection authority against the property website Weltimmo, who run a property website in Hungary while being based in Slovakia. After an appeal, the case reached a higher level, and that was when the ECJ decided that the Slovakian small firm could be liable for fines because of infringing Hungarian national data protection laws. At that moment, the ECJ was basically deciding on whether it was legitimate to apply a country’s data protection laws to a company registered and operating in another EU state.

ECJ’s ruling

The European Court of Justice thus last week decided that “each Member State must apply the provisions it adopted pursuant to the directive where the data processing is carried out in the context of the activities conducted on its territory by an establishment of the controller”.

In a few words, the ECJ ruled that data protection legislation of a Member State may be applied to a foreign company which does business in that State, despite the fact that the company may not be headquartered in the country itself. That will happen if a company operates a service in the native language of a country and has representatives in that country, as specified by the ECJ. In addition, the court found that “the concept of ‘establishment’ extends to any real and effective activity – even a minimal one.

A thorough change

Case C-230/14, or “Weltimmo”, is bound to be broadly discussed in the future. It is evident how the ECJ’s ruling will impact, or at least “draw the attention”, of many US companies such as Amazon and Apple which have established their headquarters in Ireland, for instance, because they once believed that data protection law in Ireland is more favourable to them than in other EU countries.

Before this recent regulation, all those companies had “naively” thought that they were subject to regulation only within that country. Hence they could then operate in any EU member state by just having gained regulatory approval only in Ireland – in that case -, and not in each country. The new ruling could potentially change radically that scene, and lead to an unprecedented rise of compliance costs.

Ashley Winton, UK Head of Data Protection and Privacy at law firm Paul Hastings reportedly said: “We expect that this case will be welcomed by data protection authorities”. He also added that, as a result, “social media and e-commerce multinationals will need to urgently consider their European data protection compliance strategies”, and this will be just the first little change that Weltimmo case and all the other little tsunamis of last week.

Europe is tough

All in all, it seems that foreign digital companies, be it American or Indian, will urgently need to budget additional and substantial costs to be able to run business in Europe. It can be said that this is the price to be paid to enter or grow in an extraordinarily mature market like the EU. In this developed part of the world even the native startups struggle to survive or even die, be it due to limited to non existent supportive legislation for them, zero funding, or the wide “wannabe employee” mindset of the Europeans who crave for social security, steady salaries and 9 to 5 commitments.

In any case, Europe is very tough to do business in. The other side of the Atlantic will have to come to terms with that sooner than later.

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