Digital age blog series #3 - The Digital Service Act Package

This blog post is the third and final part of our blog series in which we highlight the main changes in the digital age from a tech & IP law perspective. This blog post discusses the impact of recent EU Regulations on online intermediaries qualifying as gatekeeper.

The Digital Service Package is the most recent answer of the EU to the need to regulate the digital space as part of its larger strategy “A Europe fit for the Digital Age”. The package includes the Digital Service Act (DSA) on the one hand and the Digital Markets Act (DMA) on the other hand. The pursued aim is (i) to create a safer digital space in which the fundamental rights of all digital services are protected, and (ii) to establish a level playing field to foster innovation, growth and competitiveness, both in the European Single Market and globally.

Digital Service Act

The rules set out in the DSA build on the e-Commerce Directive, adopted more than 20 years ago and considered outdated and unfit for the current digital economy.

The DSA regulates the obligations of digital services (e.g. online marketplaces, social networks, content-sharing platforms, app stores, and online travel and accommodation platforms), offering their services in the EU, regardless of their place of establishment. Its guiding principle is that everything that is illegal offline should also be illegal online.

Irrespective of their size, all internet service providers will be subject to due diligence and transparency obligations. The aim is to prevent illegal content and to increase the traceability and accountability of business users on online marketplaces. Furthermore, the rules should enable best practices for more transparency of platforms with regards to their content moderation and algorithms, as well as bans on misleading practicing and dark patterns. This includes, for instance:

  • rules on removing illegal content and counterfeit goods;
  • transparency obligations for targeted online marketing based on usage profiles and algorithms; and
  • rules for online advertisers to transparently inform visitors to websites about why they are seeing certain ads and who the advertiser is.

The due diligence rules are designed asymmetrically and their applicability will depend on the nature of digital service providers’ services, their size and their impact. Clearly, additional, and stricter rules will apply to very large online platforms, because of their fundamental role in facilitating the public debate and economic transactions. This would allow small players to be exempted from the majority of these obligations (the most costly ones) unless they wish to adopt best practices for their competitive advantage. Noteworthy, for a duration of 12 months, micro and small companies would enjoy a targeted exemption from a set of obligations even if they would grow significantly.

Digital Markets Act

The Digital Market Act introduces new rules that will apply to large online platforms (so-called ‘gatekeepers’) which are digital platforms that have significant market power due to their size and role as gateway for users and buyers to reach their customers. The aim is to prevent these gatekeepers from imposing unfair conditions on businesses and end users and reducing high entry barriers, while ensuring fairness in the digital market. Platforms that are targeted are core platform services such as search engines, certain websites, social media channels and cloud systems.

The European commission will first assess whether a company qualifies as a gatekeeper, which will be presumed when the following conditions are met:

  • the company has a strong economic position, significant impact on the internal market and is active in multiple EU countries (presumed when the annual EEA turnover is more than 7.5 billion EUR in the last three years and the market capitalization is more than 75 billion EUR);
  • the company has a strong intermediation position, meaning that it links a large user base to a large number of businesses (presumed if the company operates a core platform service with more than 45 million monthly active end users established or located in the EU and more than 10.000 business users); and
  • the company has (or is about to have) an entrenched and durable position in the market, meaning that it is stable over time if the company met the threshold above in each of the last three financial years.

In the event these thresholds are not exceeded, a provider can still be labelled as a gatekeeper after a market investigation by the European Commission. However, in practice, the DMA will always target the 'GAFAM' (Google, Amazon, Facebook, Apple and Microsoft) as gatekeepers,

To ensure fair and open digital markets, gatekeepers will have to comply with a number of upfront obligations in respect of their core platform services. For instance, they will have to allow third parties to inter-operate with the gatekeeper’s own services in certain specific situations, allow their business users to access the data that they generate in their use of the platform and allow their business users to promote their offer and conclude contracts with their customers outside the gatekeeper’s platform.

On the other hand, there are also some restrictions that the DMA imposes on gatekeepers. Including prohibitions from treating services and products offered by the gatekeeper itself more favorably in ranking than similar services or products offered by third parties on the platform, preventing consumers from linking up to businesses outside their platforms, preventing users from uninstalling any preinstalled software or apps if they wish to do so, tracking end users outside of the gatekeepers’ core platform service for the purpose of targeted advertising, without effective consent having been granted,

For business users operating on gatekeeper platforms, the DMA offers some leverage against these powerful gatekeepers. If a gatekeeper does not comply with the obligations as set out in the DMA, the European Commission can impose a fine of up to 10 percent of the global group turnover.

It remains to be seen whether these rules will allow smaller platforms, SMEs and start-ups to grow, thus fostering innovation and competitiveness in the EU.

Looking ahead

Both the DMA and DSA were adopted in July by the EU parliament. The exact date of their entry into force and application is still uncertain. We will keep you in the loop on when the new rules will apply.

The Digital Service Package is only one of the many digital legislative proposals, part of the EU tech agenda. New EU legislation regulating digital technologies are in the pipeline and are expected to have a major impact on different sectors, including data economy, cybersecurity, artificial intelligence, and fintech. In the meantime, companies should keep an eye on the legislative developments to be able to anticipate and address any impact that these new rules may have on their business.

For any specific concerns about compliance with the Digital Service Act Package or if you wish to discuss anything covered in this article, don't hesitate to contact us.

Emilie Van Heck, Associate

Olivier Van Raemdonck, Partner