X’s ad policies & pay-to-play blue checks face probe; experts see more EU crackdown ahead

X is the first very large online platform (VLOP) to be tentatively found to be in breach of the law by the European Commission, the EU’s executive branch.

The Commission believes that the app, acquired by billionaire Tesla CEO Elon Musk for $44bn in late 2022, has violated the DSA’s rules surrounding advertising transparency and dark patterns – or purposefully deceptive design practices. X has also been preliminarily accused of failing to comply with rules about data access.

“In our view,” Margrethe Vestager, the executive vice-president of the Commission’s digital standards-making initiative Europe Fit for the Digital Age, wrote on X today, “X doesn’t comply with the DSA in key transparency areas.”

In a notice published Friday, the Commission outlined three areas in which X was found, from an initial investigation, to be in violation of the DSA.

First, it suggests that X’s verification scheme – upended in early 2023, when Musk made blue checkmarks pay-to-play – deceives users. “Since anyone can subscribe to obtain such a ‘verified’ status,” the Commission said, “it negatively affects users’ ability to make free and informed decisions about the authenticity of the accounts and the content they interact with.” Regulators said they’ve seen evidence of bad actors abusing the verification regime to purposefully deceive users.

Secondly, the Commission believes that X has failed to meet the DSA’s advertising transparency requirements by failing to offer a searchable, reliable ad repository. The app’s existing repository, regulators said, offers incomplete and unreliable information, while also unfairly limiting access. Further, the Commission said the repository’s design hinders “the required supervision and research into emerging risks brought about by the distribution of advertising online.”

Finally, regulators said that X does not give researchers independent access to its public data – a requirement of the DSA. Plus, the platform’s mechanism for granting researchers access to its API “appears to dissuade researchers from carrying out their research projects or leave them with no other choice than to pay disproportionally high fees,” the Commission said.

The EU has is now launching a formal probe into X’s alleged DSA breaches. X will have the opportunity to present a defense.

In response to the presented findings, Musk suggested that he plans to bring legal action against the EU, writing in a post on X: “We look forward to a very public battle in court, so that the people of Europe can know the truth.“

We look forward to a very public battle in court, so that the people of Europe can know the truth https://t.co/nKBGEPxeEa

— Elon Musk (@elonmusk) July 12, 2024

A harbinger of regulatory enforcement to come

In the eyes of some policy experts, these preliminary findings – the first of their kind concerning DSA compliance – are a signpost of what’s to come in Europe. The Commission has open investigations underway against Meta, TikTok and AliExpress, concerning suspected DSA violations. “The Commission is clearly enforcing the DSA through ongoing investigations and proceedings against various platforms,” says Rob van Eijk, the Europe managing director for the Future of Privacy Forum, a nonprofit data privacy advocacy group. “This indicates that further enforcement actions are likely.” Large online platforms, Eijk says, should see the preliminary findings brought against X today “as a warning.” He suggests that avoiding potential investigations and sanctions requires a proactive approach to DSA compliance.

A point of divergence between the EU and the US

Advocates for transparency in the digital ecosystem are generally supportive of the Commission’s decision. “The Commission's preliminary findings against X make sense when you look at both the letter of the law in the EU as well as the rapid decline in X’s transparency, advertising and content moderation practices in the last several months,” says Justin Sherman, founder and CEO of research and advisory firm Global Cyber Strategies, and an affiliate of Duke University’s Sanford School of Public Policy. “What X is doing on many fronts cuts against known best practices, tech and social media industry standards, regulatory guidance and consumer expectations.” Other advocates express similar support for the Commission’s actions. “It is encouraging to see the Commission holding big tech accountable, and putting the DSA to work to drive toward a safer and more transparent online ecosystem,” says Arielle Garcia, director of intelligence at adtech watchdog Check My Ads. She contends that Europe’s approach to regulating tech platforms stands in stark contrast to the US’ laggard and highly contentious efforts to do so. As an example, in a Wednesday hearing held by the US House Judiciary Committee – which scrutinized potential anticompetitive collusion within the online ad industry – lawmakers argued that advertising trade body the Global Alliance for Responsible Media unfairly “colluded” to damage X’s revenue in the wake of Musk’s 2022 takeover (when hundreds of advertisers cut spend in light of reduced content moderation, which ushered an influx of hate speech and misinformation onto the platform). “The divergence in views” between US and EU lawmakers, Garcia says, “is striking.” While the European Commission called out X’s subscription-based blue check system for being deceptive, US lawmakers pointed the finger at advertisers – rather than X – suggesting that their decisions to pull spend “[robbed] consumers of choices,” according to a new report from the House Judiciary. In her view, it’s “X’s opacity and lack of accountability [that] truly harms consumers” – not advertisers’ choice to pull spend. On the heels of the House hearing, Musk on Thursday threatened to sue advertisers involved in what he called an “advertising boycott racket.“

Having seen the evidence unearthed today by Congress, has no choice but to file suit against the perpetrators and collaborators in the advertising boycott racket. Hopefully, some states will consider criminal prosecution. https://t.co/5W4yf1wxVO — Elon Musk (@elonmusk) July 11, 2024

So, what comes next for X?

X will “undoubtedly” respond to the Commission’s preliminary findings, Global Cyber Strategies’ Sherman says. He says he “wouldn’t be surprised” if the platform contests the assertion that its verification scheme represents an unlawful dark pattern, “by claiming that it’s clear on the site that people can subscribe in order to get blue check marks.”

Sherman predicts that X will combat the other preliminary findings, too.

Should the Commission’s formal investigation conclude with the decision that X is indeed in violation of key DSA requirements, Musk’s platform could incur a fine of up to 6% of its total worldwide annual turnover.

The platform would also likely be forced to modify certain policies, including possibly revamping its verification program, improving transparency about advertising on X and lowering the barriers to access its API for researchers.

Ultimately, we’re still in the early days of enforcement action for the DSA and for its sister legislation, the Digital Markets Act, Sherman says, “making it all the more important for global companies to not just understand the law but [also] the regulatory culture, thinking and context in the EU” today.

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