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Digital Services Act

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

On 20 January, the European Parliament has approved by a large majority its mandate for inter-institutional negotiations on the Digital Services Act (DSA), with 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.

Proposed in December 2020, the draft Regulation on Digital Services aims to update the 2000 e-Commerce Directive (ECD) and introduce 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.

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, 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, 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 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, 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 an 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 Council General Approach and in the ITRE and JURI Opinion.

Stricter rules for very large online platforms

The biggest platforms will be forced to provide greater transparency on online advertisements. Dr2 Consultants expects these extra obligations will require additional resources. Additionally, they 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.

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. City authorities in 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 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).

What to expect from the interinstitutional negotiations on the Digital Services Act?

Dr2 Consultants advises businesses to pay close attention to the developments in the coming months. Following the adoption of the Council and Parliament’ positions, the DSA will enter into trialogue negotiations under the French Presidency of the Council of the EU. French President Emmanuel Macron identified the DSA as one of the priorities of the Presidency, which “will move as far forward as possible with talks with the European Parliament”. The European Commission aims for the Regulation to enter into force by 2023.

Notably, the EU institutions want to reach a deal on these new rules as soon as possible. Nevertheless, the trialogue negotiations will likely have to address many political differences between the Council of the EU and the European Parliament. For instance, targeted advertising is expected to be one of the key issues of the negotiations as the European Parliament’s position bans targeted advertising for minors and ads based on sensitive data including religious beliefs, sexual orientation and racial or ethnic origin, while the Council General Approach did not tackle online advertising in the DSA.

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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