European Union: The EU Digital Market Strategy – A Mid-Term Review

Last Updated: June 20 2017
Article by Alistair Maughan and Mercedes Samavi

The EU has published a review of its vaunted Digital Single Market strategy, mid-way through the current five-year term of the European Commission. "On track, with room for improvement" summarises the official self-assessment. But, with 35 proposals and policy initiatives made, there is still plenty of work to do if the Commission is to achieve its aim of implementing the strategy by the end of 2018. So, for both EU and non-EU based technology businesses, there are still plenty of European legal and regulatory changes that could affect their operations and products in the next 2-3 years.

The EU's Digital Single Market Strategy (DSM Strategy) was announced with much fanfare in May 2015. The European Commission's goal was to create a digital single market across the EU, with significant initiatives focused on sectors such as e-commerce, media and entertainment, telecoms and the provision of online services. The EU plans for the DSM Strategy, to break down regulatory barriers, and to enable online and digital entities to operate in a free and fair market; and also to move the current market away from the fragmented and eclectic mix of laws and regulations that currently govern the online environment in the EU's 28 Member States.  The Commission believes that the need to comply with multiple local laws across different Member States creates difficulties for businesses, and increases costs for consumers.

By summer 2016, the Commission had already issued a number of legislative proposals, although in truth, genuine progress beyond the initial drawing board had been slow.

The EU has now published its mid-term review of the implementation of the DSM Strategy, setting out the recent achievements of the DSM Strategy against the areas that still need input from the EU level.

What has the DSM Strategy already achieved?

The DSM Strategy is broken down into 3 "pillars" and 16 Key Actions, as we have previously discussed.

Some elements of the DSM Strategy are already starting to become reality.  The Commission proudly points out that retail roaming charges were eliminated effective June 2017, and mobile users periodically travelling in the EU will be able to call, text and access the Internet on their domestic tariff.  In addition, businesses (both in the EU and outside) are in the process of making fundamental changes to their privacy practices and procedures in preparation for the GDPR, which will come into effect May 2018 - for more information, access our "GDPR Readiness Center". Only a cynic would point out that neither roaming charges nor GDPR were officially a part of the DSM Strategy, having been started many years before.

But other achievements gaining significant traction include:

  • Cross-border portability of online content services, which will allow consumers to access online subscriptions to films, music, games and other digital media when travelling in other EU countries.  See our previous comments on the EU's proposals for this.
  • Ongoing coordinated action to make available the high-quality 700 MHz band for wireless broadband in anticipation of the imminent launch of 5G and related offerings such as connected cars and smart cities.

Where does the EU need further action?

Perhaps not surprisingly given the self-assessing nature of the mid-term review, the Commission concludes that it's not doing too badly after all. It seems pleased with the 35 separate legislative proposals put forward. And, given the speed with which the EU's legislative process moves, it would be clearly unrealistic to expect anything to have been finally implemented by now.

So the next 12–18 months are where the real benefits of the DSM Strategy will (or will not) be converted from proposal to reality. The pressure is on the current Maltese presidency of the Council of the EU (to be followed by Estonia and Bulgaria) to ensure that the legislative system actually supports - rather than stymies - the achievement of the DSM proposals.

Some of the key areas in which progress needs to be made are set out below.

Promoting online platforms as responsible players of a fair Internet ecosystem

Online platforms are considered by the EU to be the "key gatekeepers" to the Internet ecosystem.  In fact, in 2016, the EU identified two specific issues that it viewed as necessary for cultivating the growth of online platforms: (1) safeguarding a fair and innovation-friendly business environment, and (2) ensuring that illegal content online is promptly removed from platforms, with proper safeguards in place.

Since its initial analysis in 2016, the EU has conducted a fact-finding exercise on platform-to-business trading practices with results indicating some of the following prevalent issues: discrimination between different suppliers and sellers; online platforms' self-preferential treatment of their own products and services; and a general lack of transparency into platforms' practices.

Consequently, the EU has promised to address issues such as unfair contractual clauses and trading practices by talking to relevant stakeholders and providing tools such as accessible dispute-resolution mechanisms, and fair-practices criteria.

Fighting illegal content requires a similar approach, with buy-in from all stakeholders, in order to be successful. The EU has already committed to reviewing the need for formal, EU-wide flagging and removal mechanisms (so-called "notice and action"), as well as the need for guidance on liability rules. However, there is scope for improving the ongoing dialogue between platforms, and the EU has promised to focus on technical solutions for the removal of illegal content, without undermining fundamental rights such as freedom of speech.

Developing the European data economy

It's estimated that the value of the data economy in the EU, if backed by a suitable legislative framework, will increase to €739 billion by 2020, and the number of data professionals will increase to 10 million by 2020 (from over 6 million in 2016).  No doubt, the GDPR will provide critical support for the data economy, but it's no silver bullet, particularly for nonpersonal data.  The EU recognises that a data cooperation framework will help to strengthen the cross-border free flow of non-personal data; this framework will address Member States' legitimate interests on secure storage, while ensuring availability of data across borders for regulatory purposes.  Coordinated action will also be needed to cover data issues related to cloud contracts for business users, as well as general enforcement powers to ensure that the free movement of data is properly implemented.

In light of this, the EU has stated that it will provide a legislative proposal on the EU free-flow-of-data cooperation framework, to cover the principle of free flow of data, the portability of nonpersonal data and the availability of certain data for regulatory control purposes.

The Internet of Things will certainly contribute to the exponential growth of the data economy, but significant support will be required to ensure a successful rollout in the EU.  As a starting point, the EU will need to untangle the web of liability involved with defective connected devices and vulnerable software.  To that end, the EU has stated that it will conduct further analysis on how it can effectively support the Internet of Things, beginning with a review of liability for data-intensive products, as well as the IP licensing framework that will be involved with such products.

Tackling cybersecurity challenges

Globally, cyberattacks are already a very tangible risk to businesses ( see our article on the recent WannaCry ransomware attack), and with an estimated 6 billion household devices being connected to the Internet in the EU by 2020, cyberattacks will soon become an equally substantial risk to EU citizens.  

The EU has already recognised the potential pitfalls in this area by adopting an EU Cybersecurity Strategy in 2013, and the first legislative act (the Directive on Security of Network and Information Systems) in July 2016.

However, the cybersecurity landscape is ever-changing, and the EU has acknowledged that it is necessary to renew its approach here by reviewing the EU Cybersecurity Strategy and the mandate of the EU Agency for Network and Information Security.

Alongside this, there is a need to retain and develop essential cybersecurity industrial capacities.  The EU has committed to developing measures on cybersecurity standards, certification and labelling to make ICT-based systems more cybersecure, particularly where they interact with connected devices.

What happens next?

It's important to highlight that this is only the halfway point for the DSM Strategy, so it is to be expected that the EU has some way to go in order to achieve its goals.  The mid-term review has made it abundantly clear that the EU needs to improve its dialogue with a variety of stakeholders to ensure that the right policy actions are made across all digital sectors in a resource-efficient and coordinated way to manage the digital transformation process and provide the "excellent infrastructure" that  the EU believes is needed to underpin the Digital Single Market.

And Brexit?

Although the UK's Brexit vote happened only a year into the rollout of the DSM Strategy, there is no sign of that deflecting the EU from its core DSM goals. But in the long term, many within the EU will be concerned if the UK pursues a policy of digital deregulation post-Brexit at the same time as the EU is putting the finishing touches to a series of regulatory changes. That might present difficult decisions for non-EU digital-based businesses seeking to access the European market: Do they base themselves in the EU and accept greater regulation as the price for a harmonised market, or use a lighter-touch UK base for operations and seek to benefit from whatever transitional or market-access arrangements result from the UK's Brexit negotiations? The downside is that a clear picture will only slowly emerge between now and 2019 and, in both cases - the outcome of Brexit negotiations and the completion of DSM regulations – it's quite likely that little will happen until a just-before-the-deadline rush.

Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Morrison & Foerster LLP. All rights reserved

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Alistair Maughan
Mercedes Samavi
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