The game-changing Digital Services Act package

After lengthy consultation and discussion, the European Commission has released two new legislative initiatives within the antitrust arena: the Digital Markets Act (DMA) and the Digital Services Act (DSA), collectively referred to as the ‘DSA Package’. The package allows the European Commission to upgrade the rules governing digital services in the European Union (EU), in order to create a renewed market with European values at its centre. Marcello Secone and Divya Hazra of D’Andrea & Partners, examines how the DSA Package may allow the European Commission to not only guarantee the fundamental rights of all users in a safe digital space, but also to ensure competitiveness in the new digital economy, both in terms of the European Single Market and globally.

Up until the introduction of the DSA Package, European digital markets were regulated by the European Directive 2000/31/CE, the so-called e-Commerce Directive. Researchers believed that European digital markets had gradually lost their global centrality in the technology sector. This was evident from the fact that Europe was home to only three tech companies in the Fortune Global 500, compared to 12 from the United States (US), five from China, and six each from Taiwan and Japan.[1] Therefore, in order to strengthen the European digital markets, the European Commission recently introduced the DSA Package.

The legislation contained within the DSA Package is part of the EU’s new digital strategy, themed ‘Shaping Europe’s Digital Future’. Together they represent a major legislative reform in the Internet field for the 21^st century. The EU’s competition chief, Margrethe Vestager, remarked that the DSA Package would ultimately serve a dual purpose: “To make sure that we, as users, have access to a wide choice of safe products and services online, and that businesses operating in Europe can freely and fairly compete online just as they do offline”.[2]

Online user protection

The DSA lays down the responsibilities of users, public authorities and especially platforms. While big-technology firms such as Twitter and Google are already facing a number of investigations and fines under the existing General Data Protection Regulation (GDPR)rules, further pressure will be placed on their activities moving forward, which will mean better-policed usage of online data and ultimately the increased protection of users.

The DSA establishes that all online intermediaries offering their services in the European market, whether established in the EU or not, will have to comply with the new rules. The legislation will be binding on those who offer: intermediary services (for example, Internet access providers); hosting services; online platforms (for example, social media); and very large online platforms (defined as those reaching more than 10 per cent of the 450 million consumers in Europe). It is important to note that the DSA will also affect all non-EU platform providers providing services to EU citizens. The greatest pressure will obviously be placed on large platforms. For instance, only very large platforms will face independent audits of their risk management systems.

The key legislation within the DSA relates to the countering of illegal content online, inclusive of the sale of illegal goods, human trafficking, terrorism, child abuse or content of a similar nature. The DSA also introduces new obligations on the traceability of business users within online market places, and the ability to challenge platforms’ content moderation decisions.

Effectively, under the proposed regulations, service providers will have more responsibilities for monitoring the content on their platforms. Any violation (such as the sale of illegal goods) can cost platforms a fine of up to six per cent of their annual revenue (substantially more than the four per cent maximum fine under the present GDPR terms).

A healthy sense of competition

The DMA aims to ensure a more competitive and fairer online marketplace, thus allowing smaller platforms and small and medium-sized enterprises (SMEs) to emerge. The DMA is more specific on which parties it may apply to, expressly addressing the most relevant platforms, the so-called ‘gatekeeper platforms’. This category includes platforms that have a significant impact on the internal market—with regard to their strong economic position—serve as an important gateway for businesses to reach their customers, and that enjoy—or will foreseeably enjoy—an entrenched and durable position within the EU market.

The DMA does not apply to all digital services, only those gatekeepers providing ‘core platform services’ such as online intermediation services, search engines, online social networking services or video-sharing platform services. Reasonably, the targeted recipients of the rules imposed by the DMA may include major players in the industry such as Google, Apple, YouTube, Amazon (which has invested euro (EUR) 55 billion in Europe since 2010[3]) and Alibaba. Similar to the DSA, the DMA will also apply to gatekeepers established outside the EU that provide services to European citizens.

As the digital economy became an integral part of all of our daily lives, huge power and influence has been vested in the hands of relatively few major online players. Therefore, increased observation and transparency is required. For this reason, penalties for violations of the rules include fines of up to 10 per cent of a company’s annual income.

Under the DMA regulations, gatekeepers will be prohibited from using unfair practices towards business users and customers. Several obligations will be binding; for example, allowing third parties to inter-operate with the gatekeeper’s own services; allowing business users to access the data they generate; transparency to advertisers using their platform; prohibiting non-discriminatory behaviour with regard to prioritising their own products over those of third parties on their own platforms, among others. Pursuant to DMA regulations, big tech firms must allow users to uninstall apps that come pre-installed on their devices, eliminating the self-preferential system and thereby giving SMEs the opportunity to compete.

Under the DMA regulations, in order to ensure that gatekeepers comply with the new rules, the European Commission will carry out market investigations, and have the ability to classify companies as gatekeepers and update gatekeepers’ obligations, as well as to design remedies to tackle systematic infringements of the DMA rules.

Although the DMA establishes many strong innovative regulations to prevent anti-competitive practices such as the power of the European Commission to act against gatekeepers by adopting ‘structural remedies’ against any repeated monopolistic behaviour, there are some worrying elements to take into account: for instance, the DMA prohibits EU Member States from passing their own laws or regulations on gatekeeper platforms that go beyond the Act.

Concluding thoughts

The DSA Package seems to signal further provisions for consumers that promote safe products and services as well as a fairer marketplace for business operators at this stage of their development.

Initial responses from the technology industry have been neutral and mooted, signalling a sense of cooperation with an unnerving level of caution as to the increased level of scrutiny and obligations placed on their shoulders (especially in terms of the ‘gatekeepers’). Google, for example, has remarked that: “Online tools are helping Europeans find new jobs and grow their businesses. We support a Digital Services and Markets Act that creates the right conditions for recovery and growth as people ask for more, not less, from technology.”[4]

Any resistance moving forward will soon become evident, when the European Parliament and member states discuss the Commission’s proposal; once adopted, the new rules will be directly applicable across the EU.

The new European Digital Strategy seems to project a future where user rights are digitally protected. The provision of significant fines, together with a broad scope of control in the hands of institutional bodies, seems to represent a necessary compromise in order to regulate the market, favouring competitiveness and economic freedom.

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D’Andrea & Partners is an international law firm and point of reference for companies that want to enter the global market and be successful. Established by Carlo Diego D’Andrea, attorney-at-law and pioneer in Italian and European law in China, today the firm is made up of professionals from various countries around the world. Besides the main operational headquarters in Shanghai, D’Andrea & Partners has a number of branches in China and outside the country in Italy, India, Vietnam and Russia. The firm’s clients include large industrial groups, plus medium-sized Italian, European, Chinese and global enterprises.

[1] https://www.csis.org/analysis/digital-services-act-digital-markets-act-and-new-competition-tool

[2] https://www.cnbc.com/2020/12/15/digital-markets-act-eus-new-rules-on-big-tech.html

[3] Meredith Broadbent, The Digital Services Act, the Digital Markets Act and the New Competition Tool, Center for Strategic International Studies, November 2020.

[4] https://www.euractiv.com/section/digital/news/digital-brief-powered-by-google-dsa-and-dma-member-states-respond/