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EU's Silicon Valley envoy seeks to build new relationship with Big Tech
27 September 2022 11:01
The EU’s new envoy for digital, who will run a new EU office in San Francisco, is looking to pave the way towards a more cooperative relationship with the likes of Google, Apple, Meta Platforms and Amazon.
Several weeks into his new job, Gerard de Graaf sat down for an interview with MLex to discuss the role of the new office, the bloc’s landmark legislation targeting tech platforms, the EU-US relationship and the future of the internet.
We met last week on the 23rd-floor office of the Irish Consulate in San Francisco, with its panoramic views of the city. From here, among the skyscrapers of the financial district, we can look down Market Street, the arterial road that cuts southwest all the way to the vibrant Castro neighborhood.
This co-living arrangement with the Irish consular staff is temporary, De Graaf explains. He arrived just under a month ago, and his team has just doubled from two to four. “We will never be a big outfit, but we will have more.”
De Graaf is leading an outpost of the EU’s diplomatic mission in DC, and the tall Dutchman notes the time adjustment for San Francisco. California residents are waking up when the rest of the world is already well through the workday.
“I have become a morning person, which I was not,” he jokes. “I was a night owl but now I’m an early bird.”
De Graaf has spent more than three decades working for the European Commission, most recently at DG Connect, the digital department that was at the heart of the work on the new Digital Markets Act and Digital Services Act — landmark legislation passed this year that sets out broad new rules for online platforms aimed at boosting competition and improving content moderation.
He knows the legislation inside-out, and his arrival in Silicon Valley comes as the likes of Google, Apple, Meta and Amazon are figuring out how they can come into compliance with the new rules. De Graaf’s former directorate is now tasked with enforcing them in coordination with the commission's competition arm.
Here to stay
I start by asking De Graaf why he’s here. What role are he and his team going to play in this new regulatory landscape? Is the mission time-limited?
As a diplomat, he explains, he isn’t here as an enforcer, and “we are not just here to talk to Big Tech.” He’s here to talk to startups and follow major technological developments, such as the arrival of the metaverse and the development of AI technology (AI legislation is also in the EU’s pipeline). They also want to connect with the local universities, Stanford and Berkeley — Petri dishes for the tech companies of the future.
There is also the venture capital industry, concentrated on Silicon Valley’s storied Sand Hill Road, where the likes of Andreessen Horowitz and Sequoia Capital are pumping money into the next generation of technology, such as crypto. Partners at these firms still sit at the boardroom tables of some of the huge companies that will fall under the EU’s regulatory shadow. “So creating connections with venture capital industry, Sand Hill Road, is also very important,” De Graaf says.
While the office is not just here to oversee the implementation of the DMA and the DSA, right now, both are prominent on De Graaf’s agenda. “It’s now becoming real,” he says. “The implementation enforcement will start. The DSA is slightly behind. It will probably be entering into force in November.”
Brave New World
The arrival of the DMA and the DSA, De Graaf explains, marks a new era for the relationship between the EU and the biggest tech companies. The EU's competition department, under its tech-busting Executive Vice President Margrethe Vestager, has so far set the agenda with its conveyor belt of probes against Big Tech firms.
Now, the question, at least in principle, is of working together to enforce new sector-wide rules, as opposed to the case-by-case policing of regular antitrust enforcement. “And that relationship is different from the relationship that you have in a competition enforcement context,” De Graaf says. The list of do’s and don’ts for the 'gatekeepers' now requires a different sort of dialogue to ensure that they come into compliance.
“This isn’t just about legal issues. This is about very practical issues,” he says. “Software will need to be redesigned and reengineered, so you need to get engineers who are being told by business people, lawyers: ‘Well, this is the way we do it at the moment, and this is the way you will need to redesign this software in order to comply with the European Union DMA or DSA.’ "
“Therefore, this discussion cannot be postponed until the rubber really hits the road, which will be about one year from now,” he says. Companies need to be coming up with proposals for how they will comply right now.
Apple, for example, will need to adjust the carefully closed model of its App Store — which critics say has allowed it to monopolize a key pipeline for digital services and reap massive profits by keeping rival stores off the iOS ecosystem.
“These things take time … if you have to redesign an app store … this is complicated,” De Graaf says. “If you have to enable sideloading, and at the same time, of course, make sure that the security and the privacy requirements are fulfilled.”
In effect, De Graaf is here to bypass the armies of lobbyists and lawyers in Brussels and go straight to the top leadership of the companies. Recently, he notes, Roberto Viola, director general at DG Connect,* was visiting. “This is a good opportunity to interact with the leadership of some of these companies to make sure there’s no misunderstanding, that we know where the important issues, where they are, where there’s a further need for clarification,” De Graaf says.
Rubber hits the road
It’s clear, then, that Silicon Valley’s biggest companies have a lot of work to do. While it’s admittedly early days, I ask De Graaf what sort of response he has received so far.
“What’s the mood here, what have we found? I think, obviously, there’s strong interest, I think there’s a recognition that this is important, this is impactful, it matters. It needs the highest level of attention,” he replies. “Europe is on the map in Silicon Valley.”
“Second thing is, I think there’s a recognition that the negotiations are over,” he continues. “They may not like necessarily everything that’s in the DSA or the DMA, but we’ve had a democratic process, everybody had an opportunity to have their say, and then there was a compromise at the end and so we are in compliance mode. We are not in reopening or rediscussing ‘this is not good, that is not good’ mode.”
The speedy passage of the legislation, and its equally rapid implementation, mean the next few months will be critical.
“I mean, the proof of the pudding is not going to be served until about one year from now,” De Graaf says. “The first step is these platforms, these companies — potential gatekeepers — need to send us information about their market capitalization, about the user numbers, the criteria that define at least the rebuttable presumption that you are a gatekeeper,” he explains.
“This is something that they will need to do, say, starting towards the end of this year, beginning of next year,” he adds. “Then the commission has a limited amount of time then to take these decisions.”
Between April and June of next year, companies can expect to find out whether they are designated as gatekeepers and therefore bound by the new rules. Four to six months after that, the DMA will fully kick in. I ask how many companies we can expect to fall within the DMA’s scope.
“How many is a bit hard to predict, but between 10 and 15, most likely,” he replies. The DSA, which sets out content moderation rules, will be broader. The “Very Large Online Platforms, as we define them [in the DSA], is also a bit more of a straightforward definition … There will be more — 20, 30, maybe a few more.”
The discourse around the DMA has tended to view it as targeted at the ‘big five’ US tech firms — known as ‘GAFAM’ for Google (Alphabet), Amazon, Facebook (Meta), Apple and Microsoft.
Ten to 15 sounds like a lot, I suggest.
“It’s more than GAFAM,” De Graaf replies. “This was also the argument that we’ve had: ‘Is this a measure just targeted exclusively at GAFAM?’ And the answer is no, it’s not targeted exclusively at GAFAM because we see similar behavior from companies that aren’t GAFAM. Not many, but more than GAFAM.”
“There are going to be some, no doubt, Chinese companies, there are going to be a few European companies, maybe the odd Japanese company … We’ll have to see,” he says.
At a US Senate hearing recently, Federal Trade Commission Chair Lina Khan mentioned that her staff lawyers were outnumbered roughly 10 to one. Does De Graaf feel outnumbered?
He describes a meeting in Brussels with one unnamed company, before the new laws were passed, with 25 lawyers present. “I’m sure in the commission we can find multiples of 25 lawyers,” De Graaf jokes. “But also we are efficient. We try not to come to meetings with more people than absolutely necessary.”
“It’s not just a matter of numbers, I mean, we will be ready, as the commissioners have said, to assume the responsibilities that come with the enforcement of the DMA and the DSA, and we will have very, very qualified people,” De Graaf says.
A team of roughly 100 staff in Brussels will be dedicated to the enforcement of the new rules. I ask him whether part of his role would involve looking for talent here in Silicon Valley to join them.
“Obviously, we are looking for good people wherever they are,” he says. “If they are here in Silicon Valley, and they want to come back to Europe and work for the European Commission, and they are good, then we’d be delighted to welcome them.” Whether people working at these huge tech firms will be enticed by the commission’s pay scales is another matter, he remarks.
I ask De Graaf whether he expects a legal fight over the implementation of the new rules. Court challenges, I suggest, could determine whether a company counts as a ‘gatekeeper’ according to the regulatory criteria, or whether the EU even has the power to issue such sweeping rules under its guiding treaties.
While Amazon has come to the negotiating table with the EU to resolve a probe into its use of third-party seller data, a question remains about how reconciliatory these companies are feeling towards regulators. Apple, for example, incurred repeated fines from the Dutch competition regulator over an allegedly sub-par response to an app market order.
De Graaf recalls those 25 lawyers in Brussels. “I think we all know what the business model of lawyers is,” he says. “I mean, they may well recommend that they think there’s a good chance to attack, circumvent, or whatever, find a way around some provisions that maybe the companies aren’t too enthusiastic about. We’ll have to see.”
He’s confident, though, that the treaty basis for the regulation — Article 114 of the Treaty on the Functioning of the European Union — is sound.
“We will not issue proposals where we are not secure ourselves about the legal basis. The commission is not stupid.” Both the Council of the EU — the national government delegations — and the European Parliament have had their lawyers examine the text, he says.
“We are very confident that 114 is the right legal base both for the DSA and the DMA,” De Graaf says. A court challenge would be “very, very unlikely” to succeed. Nor would it suspend the application of the new rules while any court challenge is pending at the EU Court of Justice, a process that takes several years.
Ultimately, he says, the ball is in the court of the companies themselves. “Those are choices that these companies will have to make: What type of relationship would they prefer with the regulator? From our side, we want a constructive relationship, not an adversarial relationship.”
We turn to the question of the EU-US relationship. I put it to De Graaf that, in public at least, US President Joe Biden's administration has been quiet about the bloc's new digital legislation.
In December 2021, before the DMA and DSA were passed, Commerce Secretary Gina Raimondo voiced concerns that they would disproportionately affect US firms. Raimondo echoed sentiments expressed in 2015 by President Barack Obama, who suggested that the EU’s probes into the biggest tech companies were driven by commercial rivalry.
De Graaf replies that the EU has had extensive discussions with the administration. “It’s important to avoid misunderstandings,” he says.
“It was two-way, because we are of course also interested in following what happens in the US and also what the executive agencies, what the FTC is doing,” he explains. The idea that the EU is going after only US companies, he says, is exactly the sort of “myth” he is seeking to bust.
“I think on the problem analysis, I think we see eye to eye with the US,” he says, citing a six-point statement of principles from the White House this month for enhancing competition and platform accountability in the tech sector.
“It wasn’t fleshed out. It was a one-page document, but this could have come out of Brussels quite easily,” De Graaf says. “I think maybe that also explains why we haven’t heard very critical noises from the US — I mean, there was a little bit also from Congress, particularly on this perception that somehow we were targeting only GAFAM, but I think we’ve successfully managed to clarify that that is not the case and that these criteria which we have developed are objective and definitely also capture non-GAFAM companies.”
Tim Wu, Biden’s competition adviser, who was instrumental in the Executive Order on Competition issued last year, has been a “very important interlocutor.”
Wu is “very present” and “actively involved” in meetings of the US-EU Trade and Technology Council, De Graaf says, particularly Working Group 5, which covers data governance and tech platforms. De Graaf himself used to co-chair two of the 10 working groups.
“We are very much in touch with him. We send each other messages over Signal,” De Graaf says with a smile, pointing to his phone.
A heap of bills aimed at curbing the power of the biggest tech companies are currently awaiting floor votes in the US Congress, including the American Choice and Innovation Online Act, which would have an impact similar to the DMA on some Big Tech business models.
Rare bipartisan consensus over the need to pass federal laws has met the harsh reality of Congressional horse-trading, with elections looming and the companies pouring millions into lobbying efforts.
Talking to US counterparts, “we ask the question: What do you think are the chances of this passing? And what we then deduce is that these chances aren’t great. And certainly not in the short term when you have the midterm elections. But I mean I am not sufficiently qualified to answer that question,” De Graaf says.
What’s interesting, though, is that the bills seem to borrow heavily from the EU’s DMA and DSA, he notes, including some wording that has “literally been cut and pasted” from the EU texts.
“At the end of the day, you need a majority,” he says. “In Europe, it has been possible to find those majorities without too much difficulty. In the US, not so.”
If legislation appears to have hit a roadblock at the federal level, there are signs the states are looking to act. Recently, California Attorney General Rob Bonta, announcing a major antitrust lawsuit against Amazon for preventing merchants on its platform from selling cheaper elsewhere, said he was in active talks with lawmakers about introducing new “guardrails” into California law to prevent abuses by tech platforms.
A bipartisan measure also passed the legislature recently asking the state Law Revision Commission to assess whether the state’s century-old antitrust law needs updating. California was also one of the first states to introduce a privacy law in 2018.
For De Graaf, these are promising signs. While he has “barely got his feet under the desk,” he says he is already hearing from state congressional staffers asking to meet and discuss the EU’s new laws.
“If not much happens at the federal level, of course, what happens at the state level becomes more relevant,” he observes. “And if the EU has been the global trailblazer for digital policies and regulations, I think the analogy is that California has been that trailblazer in the US.”
But these state-level initiatives also create a risk of fragmentation, De Graaf adds, noting that on a recent panel, he heard that some 17 states have already introduced laws relating to AI, with 4 or 5 already passed. For the tech companies, this provides a case for federal-level legislation.
“Maybe they don’t like everything in the legislation, but at least they can be sure that there is one set of rules for one market,” he says. The same thinking drove the EU’s adoption of a bloc-wide regulation.
Change in the wind
We turn to the future. How does he see the bloc’s relationship developing with the businesses in the coming years?
De Graaf reflects on his time in the EU’s delegation to the US more than 20 years ago. Back then, he says, he would repeatedly hear the mantra: “the business of business is to do business.” Or in other words, the industry was adamant that “the only accountability I have is to my shareholders.”
This has changed. Repeated scandals, whether over personal data abuses, bullying of smaller companies, or even more perfidious accusations of undermining democracy, have tarnished the image of tech companies that were once thought best left to their own devices.
“A large part of this is driven from within, employees not wanting to work for companies that are the source of scandals, and it’s also driven from without, users demanding protections and policymakers, with Europe maybe in the lead, also requiring them to take these public policy issues seriously,” De Graaf says.
“There is something bigger at stake in the world — how the internet operates in a democratic society,” he says. The EU and the US are at the forefront of pushing a concept based on fundamental rights and values. The hope is that other countries in a new multipolar world will follow suit.
“Our aim, of course, is to get these countries to look for solutions which are inspired by fundamental rights and values for fundamental systems — rather than to opt for the other side, which is the Chinese-Russian model,” De Graaf says.
He is also hopeful about Europe’s potential as a home for innovative companies, with the new regulation enabling innovation and competition. He points to sectors such as green tech, mobility, health, fintech, education, audio-visual and video games as areas where the EU can compete head-to-head with US tech companies.
“I always call this the second half of the football game,” he says. “First half is social media, marketplaces. And Europe is behind 2-0, maybe 3-1. But there’s still a whole half to play. And as we know, if you play against the Germans or Dutch, they can always snatch the game away from you at the last minute.”
Our interview is coming to an end. I ask De Graaf what his message is for Silicon Valley companies.
“We are here to listen, to learn, and to clarify, and to support,” he says. “That’s why we are here. So all, in a way, positive. We are not here to lecture. We are not here to police. We are not here to enforce. We are not here to write fines.”
*Corrected on Sept. 27, 2022 at 14:56 GMT: The original version of this item incorrectly said Viola is director general at the EU's competition agency,
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