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Digital Services Act

Digital Services Act proposal: the start of a new era in digital regulation

On 5 July, the plenary session of the European Parliament approved the inter-institutional agreement with the Council of the EU on the Digital Services Act (DSA). The DSA has the goal to create a comprehensive set of new rules for all digital services, including social media, online marketplaces, and other online platforms that operate in the European Union, and it introduces new binding, harmonized, EU-wide obligations which will have a significant impact on a wide range of digital services that connect consumers to goods, services and content.

The inter-institutional agreement establishes the principles of what should be illegal offline, should also be illegal online, which results in certain new obligations for providers of digital services and online platforms. The obligations include new measures to prevent illegal content and to increase traceability and accountability of traders on online marketplaces. To further enable correct practices measures for more transparency of platforms with regards to their content moderation and algorithms will be introduced, as well as bans on misleading practicing and dark patterns.

With this blog post, Dr2 Consultants aims to shed light on some of the main provisions of the Digital Services Act and their subsequent impact on businesses.

What implications could the Digital Services Act proposal have for your organization?

The rules proposed by the DSA are designed asymmetrically: On the one hand, SMEs will have obligations proportionate to their ability and their role, size and impact in the online ecosystem while ensuring they remain accountable. On the other hand, very large online platforms that reach more than 10% of the EU’s population (45 million users) monthly in average will be considered systemic in nature and with a significant societal impact, hence, they will be subject to specific and stricter obligations.

The DSA will target the intermediary services offering network infrastructure (such as internet access providers and domain name registrars), hosting services (like cloud and webhosting services), and online platforms (such as online marketplaces, app stores, collaborative economy platforms and social media platforms).

Numerous businesses affected by the new rules

Dr2 Consultants identifies some of the main issues that could impact businesses. All online intermediaries offering their services in the EU Single Market, regardless whether they are established in the EU or outside, will have to comply with the new rules and they will have obligations in terms of transparency, fundamental rights protection, and cooperation with national authorities.

The inclusion of the requirement for non-EU companies to have a legal representative in the EU, while being burdensome for such companies, has so far been accepted positively by European players as it would ensure a level playing field within the Single Market. Relating to the fines for the violation of rules, the issue has been raised that the threat of significant fines for non-compliance might lead to preventive removal of content, which might otherwise be considered legal, putting companies in the uncomfortable position of risking fines under the Digital Services Act or being criticized for violating freedom of expression by censorship. Furthermore, there have been concerns among media stakeholders that the DSA could harm media freedom and pluralism, and therefore called for obligation of non-interference preventing platforms from jeopardizing the freedom of the press.

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Information society services, which offer a wide range of services such as search engines, cloud services and other platforms would be likewise impacted by the new rules. Specifically, search engines have been included in the scope by the Member States’ position as well as opinions issued by the European Parliament’s committees (namely ITRE and JURI).

Stricter rules for very large online platforms

More stringent obligations will apply on the largest platforms with more than 45 million monthly users: these include risk preventing measures, independent audits and more control for their users over moderation settings. Furthermore, the biggest platforms will be forced to provide greater transparency on online advertisements. Dr2 Consultants expects these extra obligations will require additional resources and raise a question about the legislative coherence between the Digital Services Act on the one hand, and provisions in for instance the recently published European Democracy Action Plan on the other hand.

Finally, gig economy companies, such as well-known travel accommodation websites, would experience significant changes as the extra requirements against illegal content and the provision of information on users would allow local authorities to require the removal of unregistered properties and receive information on hosts with outstanding tax obligations. Big European cities such as Amsterdam, Berlin and Paris adopted rules against said platforms and the Digital Services Act would allow them to enforce them.

Mixed response from stakeholders

Dr2 Consultants acknowledges that industry stakeholders’ responses to the proposal are rather mixed. On the one hand, several representatives from the industry stressed the risk that the DSA could lead to overregulation as some of the issues introduced by the proposed amendments could be already addressed taking into account the existing EU legislation (e.g., ePrivacy Directive and General Data Protection Regulation). Moreover, they highlighted the need for workable provisions and ensure a balanced legal framework. On the other hand, consumer protection groups called for further and stricter obligations for platforms, namely on the liability regime and the use of personal data for direct marketing (targeted advertising).

Next steps for the Digital Services Act

The Council is expected to formally approve the agreement in September, following this the DSA will enter into force six months after publication in the Official Journal of the EU. As the DSA is a regulation, it will apply directly in the EU Member States.

Dr2 Consultants continuously monitors the developments of the discussion on the new rules for digital services and supports its clients on these matters accordingly. If you would like to know more about this regulation or the overall legislation that the Commission will publish on the digital policy, please contact Dr2 Consultants, or visit our Digital & Tech webpage to learn more about our services.

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