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The Digital Services Act – How does it affect businesses in the EU?

The upcoming Digital Services Act (DSA) package, announced by the President of the European Commission, Ursula von der Leyen, in her political guidelines and in the Commission’s Communication “Shaping Europe’s Digital Future” of 19 February, is expected be published in the end of 2020. This will represent the Commission’s most ambitious plan to regulate digital services. The DSA package is expected to include a revision of the 2000 e-Commerce Directive (ECD), introduction of ex ante rules for ‘gatekeeper’ platforms and potential provisions for platform workers. So, how will this impact businesses in the EU?

When thinking about the impact of the DSA, one might initially think about big international platforms, and while those certainly can be impacted by the upcoming legislation, the implications for businesses in general can likely be much more far-reaching. The DSA is planned to have a more interventionist approach compared to its predecessor, the e-Commerce Directive, and will have broad implications for European and non-European businesses operating within the EU.

A wide range of information society services will be impacted by the new rules, one can think of transport and tourism platforms, e-commerce marketplaces, social media platforms, online sellers, data services, online search engine providers and more. The revision of the e-Commerce Directive is expected to be the most important overhaul of digital legislation of this decade, and given ongoing digitalization efforts, it is a crucial file to follow for many sectors. If you are interested in getting up to date insights into this topic, learn more about our monitoring services and get in touch with us.

Digital Services Act – what is it?

There are three main principles in the current e-Commerce Directive, which was adopted in 2000, for which the European Commission has to decide whether they will maintain them or make changes:

  • The internal market clause (i.e. country of origin principle) establishes that a provider of information society services is only subject to the rules of the Member State where it is established. It may then provide the services across the 27 other Member States without being subject to the rules of those other States.
  • The e-Commerce Directive (Art. 15) prohibits Member States from imposing general monitoring obligations on online intermediaries. In essence, this means that it is prohibited to require from intermediaries that they actively seek facts or circumstances indicating illegal activity.
  • The limited liability clause for online intermediary services (further explained below).

There are diverging views across the various digital sectors on the preferred course of action, depending on the interests at stake. Regardless of the direction the Commission will decide to take with its legislative proposal, it can be expected that these principles will have a prominent role in upcoming negotiations and debates.

The ex-ante rules for ‘gatekeeper’ platforms would address the issue of the level playing field in European digital markets, where, according to the European Commission, currently a few large online platforms act as gatekeepers. The rules will be aimed at ensuring that consumers have the widest choice and that the EU single market for digital services remains competitive and open to innovation. This could be done through additional general rules for all platforms of a certain scale, such as rules on self-preferencing, and/or through tailored regulatory obligations for specific gatekeepers, such as non-personal data access obligations, specific requirements regarding personal data portability, or interoperability requirements.

The Commission is also taking the opportunity to consult on other emerging issues related to online platforms, such as the opportunities and challenges that self-employed people face in providing services through online platforms. For instance, those working for food delivery applications or online transport platforms.

Digital Services Act: Implications for businesses

There will be various implications for various businesses depending on the sector concerned:

e-Commerce

If we take as an example “e-commerce”, the upcoming DSA will have two main implications. First, there will most likely be a re-evaluation of the role of e-commerce marketplaces. The focus of the current debate lies on the complex issue of the future of the limited liability principle, introduced by the e-Commerce Directive. The Directive includes an exemption from liability for digital services hosting illegal content if they are not aware of the illegality or, when they become aware, they act expeditiously to remove or block access to the illegal material. This is also known as “safe harbour”.

There are actors that say this clause is not enough, stating that liability for platforms should be extended, but there are others arguing that the current regime could disincentivize proactive content moderation measures. In this context, there has been discussion about the introduction of a potential “Good Samaritan” principle, which would aim to ensure that online intermediaries are not penalized for proactive measures against illegal content.

Second, the role of online sellers is an important element, as this is directly linked to EU’s inability to enforce its laws to non-EU based sellers and marketplaces, in particular when they have no legal representative in the EU.

Information society services

Another example of businesses that would be impacted by the new rules are information society services offering a wide range of services such as search engines, cloud services and other platforms. Those businesses generally consider it important that the core foundations of the e-Commerce Directive are respected, i.e. limited liability, no general monitoring obligations and the maintenance of the country of origin principle. Platforms can likely also be impacted by rules on transparency in online advertising, which are targeted by the DSA.

The introduction of ex ante rules for ‘gatekeeper’ platforms is planned to build on the transparency requirements for online platforms and the rules on provision of intermediation services between businesses and consumers, as stated in the Platform to Business Regulation (P2B), applicable since 12 July 2020. The Commission foresees the inclusion of perspective rules for platforms on self-preferencing, data access policies and unfair contractual provisions, as well as a data gathering framework allowing regulators to collect further information from gatekeepers on the workings of their platforms.

Furthermore, specific rules for gatekeepers of a certain size have been proposed, including rules against ‘blacklisted’ behaviour for all platforms or more tailored interventions on a case by case basis. Potential obligations for large platforms to share the data they obtain is expected to become an issue of debate. However, it is still unclear which platforms will be identified as gatekeepers, and which markets will the new rules focus on. Furthermore, the introduction of such rules, while aimed at protecting smaller EU businesses, might go against EU’s core antitrust principles if there is no evidence of systemic market failure.

Next steps

On 8 September, the Commission closed its public consultations on the DSA, which gathered contributions from platforms, companies, as well as business and consumer associations.

Meanwhile, three committees in the European Parliament: Committee on the Internal Market and Consumer Protection (IMCO), Committee on Civil Liberties, Justice and Home Affairs (LIBE), and Committee on Legal Affairs (JURI) are currently debating over their own-initiative reports, with final committee votes planned by the end of September, followed by a final vote during the October Plenary session.

Dr2 Consultants closely monitors the developments on this file for its clients. If you would also like to know more about the upcoming initiative, and how it might impact your business, please contact Dr2 Consultants.

Interested to know more about other upcoming EU legislative proposals? Read our blog post – Back to work: EU legislative proposals – 2020 outlook.