Facebook, Google risk fines up to 6% revenue under new EU rules

Social media and other tech platforms could face fines as high as 6% of global revenue if they don’t comply with orders to remove terror propaganda or other illegal posts, according to a draft of European Union regulations seen by Bloomberg.

The plans by the EU come as regulators around the world crack down on powerful tech giants in an effort to restore competition to their markets. On Wednesday, Facebook Inc. was sued by U.S. antitrust officials and a coalition of states that want to unwind its acquisitions of Instagram and WhatsApp, alleging the deals were designed to illegally squash competition.

The measures to be unveiled by the European Commission on Dec. 15 are an attempt to force tech companies to take responsibility for illegal content posted or products sold on their sites. Tech platforms will also have to provide regulators with information about how they tackle other harmful content, according to the draft.

If Facebook was to be fined the maximum 6% under the new rules, it could cost the social network $4.2 billion, based on 2019 revenue. The new rules would still need approval by member states and European lawmakers. The Financial Times first reported the Digital Services Act draft document.

Facebook and Alphabet Inc.’s Google have come under intense scrutiny for the dissemination of hate speech and terror propaganda, alongside failing to halt the spread of disinformation during the 2016 U.S. presidential election and the U.K.’s Brexit vote.

European officials expect the regulatory revamp will curtail the proliferation of harmful posts, including those that incite violence, a concern that has only deepened in the wake of recent terror attacks in France and Austria.

The announcement of the so-called Digital Services Act on Tuesday will force platforms to comply with orders by authorities to remove any piece of illegal content, including violent hate speech, and to maintain a notification system for users to flag such posts, at which point the companies could be liable for not removing it.

Key Points

• The EU said it would maintain longstanding legal protections that shield platforms from liability for user posts if they haven’t been made aware of illegal content.
• EU member states will determine rules around penalties, though they won’t be allowed to exceed 6% of a company’s annual income.
• In cases involving “very large platforms” -- more than 45 million users -- the commission could impose the fines directly and order an immediate stop to any harmful behavior by the company.
• The EU said the user threshold defining a very large platform would be subject to regular updates to ensure it always represents around 10% of the European Union’s population.
• Very large platforms would face additional obligations. They will be obliged to carry out assessments identifying systemic risks, including how their services may be manipulated by inauthentic accounts, and will also be required to publish information around ads the platform has displayed.
• Most platforms will also be obliged to collect identification information from merchants selling to users on its platform and to tell users who has paid for an online advertisement and why that user is being targeted.
• Companies will have to appoint a European-based representative to ensure compliance with the new obligations.

The EU is also set to unveil a proposed “gatekeeper” regulation, under which large platforms could face fines or break-ups in Europe if they misuse competitor data or engage in other anti-competitive behavior.Some EU countries, including Germany and France, have already pushed ahead with their own laws on illegal content but the EU is seeking to create an even set of standards across the bloc with its new measures. The EU will establish a new board in charge of supporting national authorities to monitor tech companies’ compliance with the rules, according to the draft.