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Down and dirty

This year promises epic legal battles between Silicon Valley and the European Union

Silicon Valley and the EU are going to have epic legal battles this year

If you thought the relationship between the U.S. and Europe was fraught in 2016, get ready for 2017.

There is upheaval on both sides of the Atlantic as Donald Trump prepares to take office in the U.S., the U.K inches toward its Brexit from the EU, terror attacks increase, and nativism and nationalism gain support. With this level of uncertainty — and the accompanying fear — the lives of millions of people could be thrown into (greater) disarray. For the world’s biggest technology firms, none of which are European but all of which have large user bases there, the next 12 months promise even more disruption.

While Trump has brought up the possibility of repatriating U.S. tech company profits currently squirreled away abroad at lower tax rates, the fallout from the changes in Europe are unlikely to be so positive. Because the details of how and when Brexit will proceed are still up in the air, it is adding to the confusion over privacy, data retention, and regulation, while the rise in the threat from terror groups means an increased scrutiny on companies trading in users’ data — which today means most of America’s tech giants.

The power held by a small handful of U.S.-based companies has never been so great — and in Europe, that is very much viewed as a negative.

“We are seeing an extraordinary concentration of power over web-based services into the hands of a few U.S. companies, and the dominant business model is surveillance-based,” said Emily Taylor, an associate fellow at U.K. think tank Chatham House. “If these trends continue, it may be problematic for U.S.-EU relationships in 2017.”

Europe and its regulators see these companies as a threat to the privacy and security of the continent’s consumers. At the same time, the EU also wants to make certain that U.S. digital giants don’t crush any European competition by flexing their sizeable muscles — and that whatever benefits companies like Google and Facebook do reap in Europe are balanced by the companies paying their fair share of European taxes.

In the last couple of years, regulators in Europe have escalated their attacks, questioning exactly how these companies operate, what they do with the vast troves of data they collect from users, and forcing them to change their fundamental business practices. The EU is also creating a digital single market, effectively eliminating digital borders, which it hopes will help foster Europe’s very own Facebook or Google.

While Europe has been accused of being jealous of Silicon Valley, in reality the reasons why the continent is policing these tech companies so hard are multifaceted — and can be traced back to the last century.

“The second world war continues to cast a long shadow and influence attitudes here,” Taylor said. “The collapse of the Berlin Wall did not take place until 1989, fifty years after the second world war began. Living under totalitarian rule, where the state regularly transgressed into the private lives of citizens is not a theoretical risk for many EU citizens — it reflects their recent history.”

Distrust of governments is of course not a uniquely European trait, and Taylor says that “it’s also striking how naturally U.S. citizens seem to distrust government.” But while Americans instinctively trust companies like Facebook, Google, and Apple with their information, Europeans don’t.

The companies in the crosshairs of European regulators arguably have a greater influence on our lives than any companies in history, controlling how we communicate, what we buy, how we travel, and where we stay, all of which is in turn influenced by proprietary algorithms designed to achieve goals that aren’t necessarily in line with consumer interests and rights.

“The new breed of transnational and multinational businesses scale so fast that the market and government has no chance to respond,” said Vikas Shah, a visiting professor of entrepreneurship at MIT. “It would previously take a business around a century to scale from startup to $100 billion — Google did it in under a decade. This means that regulations, laws, opinions, and culture has little or no time to catch up.”

While European regulators seek to portray themselves as righteous campaigners protecting the EU’s 510 million consumers, Sir Keith Burnett, president of the Science Council in the U.K., says that what they are doing is undermining the continent’s ability to compete.

“Europe has locked itself in a battle with an imaginary foe,” Burnett said. “It thinks by making [the EU] the purest of competitive environments, everything will be perfect. It has forgotten that it is competing with the rest of the world for talent and investment. What the EU calls ‘illegal state aid’ the rest of the world calls ‘doing business.’”

So what does all of this mean for the big U.S. tech companies in 2017?

After being hit with a $14 billion Irish tax bill by the EU in August, Apple appealed the fine, claiming it has done nothing wrong. The case is seen as a bellwether for how Europe may seek to impose tax bills on other multinational companies. Europe’s highest court will hear the appeal late in 2017.

Fighting European regulators on multiple fronts, Google is in for a busy 2017. Antitrust investigations into Android and its shopping products continue and could see fines of up to 10 percent of global revenue (about $7.5 billion). The company could also be facing a tax bill of more than $1 billion in France. Lastly, it’s appealing a decision to have Europe’s controversial Right to be Forgotten ruling applied around the world, which would mean Google would need to prevent links to articles contested by Europeans from showing up in searches globally instead of just in Europe.

Investigations into how the company tracks its users will be concluded in France, Spain, Germany, and the Netherlands in 2017 and an investigation into allegations that Facebook misled regulators during its acquisition of messaging service WhatsApp by failing to reveal they planned on linking users’ accounts is also set to conclude. Facebook is now being questioned about the increase in fake news on its platform, with a German task force set to report in March on how it and other social media companies have responded.

In April the European Court of Justice will proclaim if Uber is a digital platform or a transportation company, a decision that will have a major impact on its future on the continent. Uber is already engaged in battles with authorities and taxi regulators in cities across the EU, with those battles unlikely to abate in 2017.

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