Provisional political agreement reached on the Digital Services Act and the Digital Markets Act

The question

How will the Digital Services Act (DSA) and Digital Markets Act (DMA) affect digital platforms and digital service providers?

The key takeaway

The EU’s proposed digital services package will require digital platforms to increase transparency in relation to content moderation, the prevention of viral disinformation and the avoidance of unsafe products being offered on marketplaces. Companies in scope will be prevented from giving preference to their own services and products over similar services or products offered by third parties.

The background

On 15 December 2020, the EU Commission published draft proposals for the Digital Services Act package, which includes the Digital Services Act (DSA) and Digital Markets Act (DMA). The package is part of the European Commission’s digital strategy which aims to reinforce the Digital Single Market and to exploit the full potential of eCommerce. The rules in the proposal are intended to complement the EU New Deal for Consumers which reforms EU consumer protection law, particularly in terms of consumer rights, unfair contract terms, unfair commercial practices, price indication and injunctions.

The development

EU Member States and the European Parliament have now reached provisional political agreement on the DSA and the DMA. In a nutshell:

• the DSA places new obligations on all digital service providers to counter online harms and includes new transparency measures for online platforms and tools and procedures for consumers to flag illegal content and seek redress, and
• the DMA is designed to regulate unfair business practices of the largest digital companies and aims to prevent them from imposing unfair access conditions to their app stores or preventing installation of applications from other sources. It seeks to ensure that large service providers cannot abuse their position as “gatekeepers” of users to the detriment of businesses wishing to access those users.

The political agreements reached on the DSA and DMA will be subject to formal approval by the Council and European Parliament. After the DSA has been adopted, it will apply directly across the EU, 15 months after entry into force or from 1 January 2024 (whichever is later). The DSA is expected to apply very to large online platforms (VLOPs) and very large online search engines (VLOSEs) (ie those with more than 45m monthly active users in the EU) four months after their designation. The DMA will apply six months after entry into force and the Commission says it will work quickly on designating gatekeepers. 

The DSA

The DSA will apply to intermediary services (such as internet access providers and domain name registrars), hosting services (such as cloud computing and web hosting services) and online platforms (such as online marketplaces, app stores, collaborative economy platforms and social media platforms). It sets rules on the liability of digital platforms for the content, products and advertisements that they distribute and uses established playbooks such as GDPR and competition enforcement. If adopted, it will create a significant burden on tech companies. VLOPs and VLOSEs will be subject to more stringent requirements and enhanced supervision and enforcement by the Commissioner and will have to comply with information, reporting, auditing, risk management and cooperation obligations. It will also establish a European Board for Digital Services with a role similar to the European Data

Protection Board under the GDPR. The new obligations are centred around the following principles:

• Transparency: Digital service providers without an establishment in the EU must appoint a legal representative in a Member State where they offer services. They must publish clear, comprehensible and detailed annual reports on content moderation (additional information for online platforms and systemic platforms). Online platforms must ensure that traders provide sufficient verifiable information to the platform and display trader information to users. Platforms must provide transparency on advertisements and on algorithms used to display them. There are additional requirements for systemic platforms, which must also publish information on their use of recommender systems.
  
  
• Empowering users: Digital service providers will need to include information on any content restrictions that they impose in their terms and conditions. Providers of hosting services must set up a notice mechanism for users to notify allegedly illegal content and they must give a statement of reasons when they remove or disable access to specific content. Online platforms must provide content dispute resolution mechanisms enabling users to appeal their decisions.
  
  
• Risk management: Online platforms will need to guard their systems against misuse and will be obliged to remove illegal goods, services or online content and to suspend services for users who frequently misuse them. They will need to report suspected serious criminal offences involving a threat to the life or safety of persons to the relevant authorities and will need to conduct annual risk assessments, risk mitigation measures, annual independent audits, providing information/data to Digital Services Coordinators or the Commission and appointing compliance officers.
  
  
• Industry cooperation: the promotion of the development of codes of conduct, voluntary industry standards and crisis protocols on aspects of online businesses.

The DMA

The DMA aims to address perceived shortcomings in the Commission’s existing competition law instruments, as they relate to digital markets and takes a preventative approach to competition law. It will give the Commission powers to regulate the conduct of digital platforms classified as “gatekeepers”, through one or more of the digital services which they offer. It seeks to tackle alleged anti-competitive practices in Big Tech to encourage smaller digital service providers to enter markets. The Act proposes to limit companies in scope from giving preference to their own services and products over similar services or products offered by third parties. The legislation will affect the seamlessness of data sharing within big tech platforms as consumers will be prompted to “allow” platforms to access their data as they move between services offered by the same provider. 

Why is this important?

The DSA and DMA both propose heavy fines for non-compliance; up to 6% and 10% of global annual turnover respectively. Very large online platforms (VLOPs) and very large online search engines (VLOSEs), will be subject to more stringent requirements and enhanced supervision and enforcement by the Commissioner.

Any practical tips?

Digital platforms and service providers operating in the EU will need to get to grips with these legislative developments and should take a top-down approach to compliance to ensure they do not fall short in any of the jurisdictions in which they operate.