As parts of its strategy to renew and upgrade the rules governing digital services in the EU, the European Commission has now presented what is referred to as the Digital Services Act package. Learn here what it contains and how it will change the regulation of the digital markets.
Background and purpose
According to the Commission, the package will:
- create a safer digital space in which the fundamental rights of all users of digital services are protected
- establish a level playing field to foster innovation, growth, and competitiveness, both in the European Single Market and globally.
To achieve these goals, the Commission is proposing two very extensive and complex legislative initiatives: the Digital Services Act (DSA) and the Digital Markets Act (DMA). The complexity is underscored by the fact that currently digital markets in the EU are governed mainly by the e-Commerce Directive of 2000 (2000/31/EC).
Digital Services Act
The DSA is an amendment to the e-Commerce Directive. The DSA contains an extensive set of rules which the Commission believes will enhance consumers' safety by protecting their fundamental rights. The DSA also aims to ensure transparency on the digital markets, for which there has until now been no fixed set of rules, and to establish a clear accountability framework for online platforms, i.a. in their use of algorithms. This, it is hoped, will create fairer and more open digital markets.
The DSA covers, generally, all providers of online intermediary services whose users are domiciled or reside in the EU. For very large online platforms, however, there are special rules.
Sanctions for failure to comply with the new rules may be considerable, with online providers facing fines of up to 6 per cent of their annual income or turnover.
Digital Markets Act
While the DSA constitutes an amendment to the e-Commerce Directive, the DMA will be adopted as a regulation in its own right. The DMA's focus is to regulate platforms qualifying as so-called "gatekeepers".
Gatekeepers are characterised by having (or being about to have) an entrenched and durable position in the internal market, giving them substantial control over the access to the markets.
The DMA is meant to ensure that gatekeeper platforms cannot impose unfair conditions on businesses or consumers, and that their services are generally open to everyone. In other words, that gatekeepers will not use their position to enforce unfair practices against distributors and users of their platforms.
The DMA focuses especially on securing transparency for undertakings that are users/distributors of the platform or advertisers on it. In that way, the DMA may be seen as a means to address the difficulty accessing the platforms' data that many businesses have experienced until now.
As with the DSA, sanctions for failure to comply with the DMA may be considerable: Mirroring the penalties under EU competition rules, fines for non-compliance may be up to 10 per cent of an undertaking's total worldwide annual turnover.
Other sanctions include periodic penalty payments and structural remedies, such as the divestiture of (parts of) a business. Also, if, in the course of proceedings or investigations into non-compliance, a gatekeeper offers commitments to the Commission, the Commission can make these commitments binding on the gatekeeper, if it is satisfied that the commitments ensure effective compliance.
It is important to note that the package is still only a proposal, not expected to be finished and adopted until 2023.
If adopted in the form presented 15 December 2020, the rules will be very extensive and very complex – and will significantly impact all parties, whether distributors, providers or users of digital platforms.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.