Germany and Europe face the challenge of strengthening their position in strategic digital technology fields. In the political debate, the General Data Protection Regulation (GDPR) is often referred to as an obstacle to innovation. The Platform Privacy, coordinated by Fraunhofer ISI, has published a policy paper Innovation, Competition and Value Orientation, which examines this issue based on scientific findings and explores how to better align data protection and digital innovation in Europe.

The GDPR is neither a barrier to innovation nor a competitive advantage

A key result is that the effects of the GDPR cannot be reduced to a simple catchphrase. In fact, existing empirical research indicates that data protection is neither a barrier to innovation nor that high standards of data protection automatically generate competitive advantages. Instead, the effects depend on the industry, company size and type of innovation. 

Small and young companies, in particular, often face high bureaucratic and organizational hurdles. At the same time, research indicates that the success of data-driven innovations does not simply depend on the availability of large amounts of data. Data quality, exclusivity, and the ability to utilize data effectively are more important. Modern approaches such as data-efficient AI or privacy-enhancing technologies (PETs) are opening up new ways of combining innovation and data protection.

Dr. Michael Friedewald from Fraunhofer ISI and the coordinator of the Platform Privacy explains: “The ‘Brussels effect’ is real. European data protection standards function as an international benchmark. The drawbacks associated with them, however, mainly affect the small and medium-sized companies that dominate in Europe. They have fewer resources at their disposal while at the same time, large international corporations can exploit their market power to acquire innovative providers of privacy technologies and, as a result, further consolidate their already strong position”.

Research needs legal certainty instead of legal freedom

The policy paper’s authors also emphasize that many challenges do not emerge from the GDPR itself but rather from differing interpretations, lack of harmonization and bureaucratic procedures, especially in a cross-border context.

“The debate is often conducted as though Europe and Germany have to decide between data protection and innovation. The scientific facts, however, indicate a more nuanced perspective: Legal certainty, practical procedures and implementing existing regulations in an innovation-friendly way are what matter most,” explains Michael Friedewald.

Value-oriented innovation as a European competitive approach

The authors believe that innovation should not be assessed using only economic criteria. Social impacts, democratic oversight and the protection of basic rights are also crucial. Data protection, IT security and digital sovereignty could become key characteristics of an independent, European model of innovation.

The policy paper therefore argues, among other things, for stronger support of privacy-enhancing technologies, a risk-based reduction of the burden on small and medium-sized enterprises, the deployment of regulatory sandboxes and better utilization of the existing research privilege in the data protection law. In addition, innovations should be evaluated to a greater extent based on their long-term impacts on society.

Six recommendations for a European approach

The authors derive six key recommendations from their analysis: Consistent use and targeted expansion of the research privilege, enhance data protection as a design and innovation principle, ease the burden on smaller companies through risk-based approaches, improve the dovetailing of data protection and industry policy, design regulation as a learning and regularly reviewed process, and effectively enforce regulations like the GDPR and the AI Act among all market participants to enable real and fair competition within the EU.

“Europe will not become more successful in international competition by relinquishing its values,” says Michael Friedewald. “Practical implementation needs to be reformed. Procedures must become simpler, regulations more uniform and, in particular, the burden on small and medium-sized enterprises reduced without lowering the level of protection. Policymakers need to make adjustments here so that data protection, technological innovation and economic competitiveness interlink to form a European path to innovation”.

About ‘Platform Privacy’ 

In Platform Privacy, funded by the German Federal Ministry of Research, Technology and Space (BMFTR), experts conduct interdisciplinary, critical and independent research on issues relating to privacy and data protection in the digital world. Platform Privacy is coordinated by the Fraunhofer Institute for Systems and Innovation Research ISI and the Scientific Centre for Information Technology Design at the University of Kassel.