What to Expect from the Digital Services Act and Digital Markets Act

Taso Advisory
Nov Mon, 2020
share

KEY POINTS

  • In December the European Commission will propose its hotly anticipated Digital Services Act (DSA) and Digital Markets Act (DMA).
  • The EU’s approach to moderation online and competition policy for the digital economy - the two main issues at stake in the DSA and DMA - will have a big impact on companies in the EU but also frame similar debates in other jurisdictions. 
  • This blog examines the background for the DSA and the DMA, gives an early picture of likely measures, and sets out some of the dynamics at play.

CONTEXT

The DSA and DMA will be key pieces of legislation for digital markets. It is hard to overstate the full range of companies and business models which will be impacted by this new legislation. The Acts will reform rules which have governed the internet in the EU for some twenty years

The DSA will introduce new rules where online platforms intermediate via the internet and allow the dissemination of goods and content. The term “online platforms” here is used in a very broad sense and covers a swathe of companies which act as pivot points between consumers and businesses, and/or allow consumers to create, view or share content. 

At present, online platforms benefit from the eCommerce Directive which includes a liability exemption for user generated content, and additionally prevents Member States from imposing a general monitoring obligation on platforms. The DSA will reassess this framework and, whilst the European Commission has said that it will maintain provisions against general monitoring obligations, there will be greater duties for businesses to manage what is on their platform

Meanwhile, the DMA stems from the frustrations among policymakers that existing competition policy tools and frameworks are inadequate for the digital economy. It combines two previously separate policy options from the European Commission into one legislative proposal. The first is a set of ex ante rules for online platforms of a certain size aimed at preventing them from abusing their “gatekeeper” status. The second will provide a “new competition tool”, enabling intervention in digital markets which are deemed at risk of being dominated by large platforms.

The issues addressed in the proposals are perceived as increasingly central to how content, goods and services are consumed via the internet. They have received attention from the European Commission from a number of angles and Taso Advisory’s previous blog dealt with some of these early initiatives and legislation when the European Commission issued roadmaps and a consultation outlining broad policy options over the summer. The key takeaway is that these are not new topics for policymakers and there is a history of debate informing the upcoming proposals.

WHERE WE ARE NOW

Public consultations closed at the end of the summer and received a big response from all sorts of stakeholders. Since then, discussions have begun to crystallise around measures that are likely to make it into the final proposals. The points below are general, and certainly subject to change before the texts are published in December, but provide an emerging picture.

Digital Services Act 

The DSA is focused on two broad scenarios that will affect a majority of businesses operating online. The first is how platforms manage business users who list goods and services for purchase or consumption - like online marketplaces or the sharing economy. The second is more broad and covers how illegal content, goods or services are moderated online. This is beyond just social media sites and would include how platforms manage what goods, services or content is available to their users. Ideas which may feature in the final text include:

  • A “know your business customer” provision which would require online platforms to have better procedures to know who sells, and what is sold, on their platform.
  • Duties for online platforms to protect consumers when using their services. This would not amount to a general monitoring obligation for illegal content or goods, but seek to place what has been described as a “duty” on platforms to ensure consumers are safe. 
  • It is possible that this would mean requirements for effective notice and action mechanisms. These would allow users to make platforms aware of illegal activity at which point platforms would become liable. Other elements would provide redress mechanisms against the unjustified removal of illegal activity, and reporting obligations for platforms on their removal records. 
  • The removal of harmful content such as misleading health information - legally a much more nebulous concept - is unlikely to feature in the legislation but there could nevertheless be provisions to remove disincentives that platforms currently have to moderate for fear of incurring liability.

Digital Markets Act

The DMA consists of two pillars, as outlined above, which will equip the European Commission to intervene in digital markets. 

Ex ante rules

  • This would be a set of rules against anti competitive behaviour for online platforms once they reach a certain size - or “gatekeeper” status. There has been mention of categorising rules according to a blacklist of prohibited actions, a whitelist for required actions and a greylist which will require future consideration by an EU regulatory body on a case by case basis. 
  • Measures that have been discussed include, among others, preventing preferential ranking of a platform’s proprietary goods or services, and requiring platforms to share data with business users if they use data for the sale of the platform’s own goods or services. Further options include attempts to reduce the bundling of services, the pre-installation of apps on devices and better data interoperability.  

New Competition Tool

  • The New Competition Tool (NCT) has been narrowed so that it will only focus on digital markets rather than have a horizontal scope as initially discussed. 
  • This will mean new powers for the European Commission to intervene early in digital markets to prevent what is deemed anti-competitive behaviour, before “harm” has been detected (unlike existing competition policy thresholds for intervention). The focus here would be against behaviour such as tacit collusion driven by algorithmic pricing systems, or “tipping” where dominance in one market is leveraged to enter another - like moving from online search to online shopping.

DYNAMICS AT PLAY

The debate around the proposals will be intense and they will be two of the key pieces of legislation for the current European Commission’s mandate. Not only will they impact a large number of businesses and business models, the issues at stake could have knock on effects for how the digital economy is run which are yet to be fully appreciated. Some initial dividing lines include:

  • Health of the Single Market - one of the main reasons for the European Commission’s intervention, which is supported by some, is to avoid fragmentation at Member State level and open expansion opportunities for SMEs. Meanwhile, others argue that the demands for platforms of a certain size creates a cliff edge which disincentivises growth because of the extra regulatory burden. Whether the proposals help or hinder the health of the EU Single Market has already been a sticking point and will continue to inform discussions. 
  • EU champions - fostering EU-based technology champions, and allowing them to grow domestically, is regularly paired off with complaints that onerous regulatory requirements hamper companies which compete internationally. 
  • Protectionism - some view the proposals as somewhat protectionist and solely aimed at preventing large US companies from benefiting from their innovations. Meanwhile others see this as a question of setting European values and protecting consumers and SMEs as a quid pro quo for operating across 27 Member States.
  • Enforcement - the European Commission has floated the idea of a specialised digital enforcer at EU level for the Digital Single Market. However, Member States are traditionally wary about handing over responsibility to Brussels. The mandate for such a body will be part of a trading game between national competence and EU oversight between markets. 
  • Other jurisdictions - questions regarding moderation online and competition policy are not confined to the EU but the tone that Brussels takes matters as 27 Member States set common rules between them. In the US, questions over the relevance of liability exemptions under s. 230 of the Communications Decency Act are ongoing as are recent moves to investigate “big tech” more closely for anti-competitive practices. Similarly in the UK, the Government is expected to set out its own approach to content moderation and include provisions for harmful as well as illegal content. The approach that the EU takes can have a dual effect. On the one hand it informs the approaches of other jurisdictions to the same issues who have yet to take their own legislative action (if any). On the other, it could lead to divergence between “European” regulation of the internet and the rest. Either way, the DSA and DMA do not exist in isolation to the rest of the world.

NEXT STEPS

The European Commission is expected to publish its legislative proposals for the DSA and DMA on 9 December 2020. This could of course be delayed further, but once released the proposals will move to the Council of the EU and European Parliament which will scrutinise, propose amendments and adopt their own positions on the legislative proposal over the course of 2021

Based on the level of interest already shown, these will be lengthy discussions and we can expect negotiations over a final text between the European Commission, the Council of the EU and the European Parliament to take some time. This could well impact when exactly the application of the provisions begin.

Taso Advisory supports clients with the political, policy, and regulatory challenges they face, and helps them to design and deliver credible responses to mitigate risks and seize opportunities. We make complex challenges simple, give actionable advice, and support in delivery. You can find out more about what we do and who we work with.

For a confidential discussion about how we can support your public policy and public affairs work with the Digital Services Act and Digital Markets Act, or more broadly, please get in touch by emailing [email protected] or by calling +44 (0) 20 3488 4489.

Also read

Get updates

Subscribe to hear from us

    Get updates

    Subscribe to hear from us

      Taso Advisory is a public policy consultancy. We act as guides by navigating government, and the people and politics behind it, for our clients.

      Quick Links

      Copyright © 2021 Taso Advisory - All Rights Reserved.
      Website By Saifee Creations
      envelopephone-handsetmap-markermenuarrow-right