The European Commission has unveiled its long-awaited legislation on the digital services sector. The proposal includes the Digital Services Act, which aims to update the EU's eCommerce directive of 2000 for the latest internet services, and the Digital Markets Act, a new form of competition legislation which targets so-called 'gatekeepers', the biggest platforms offering online services. The plans must be negotiated still with the European Parliament and member states. If approved, they would apply immediately across the EU, to any company providing services in the bloc.
Competition commissioner Margrethe Vestager said the Digital Services Act is similar to the first traffic light when the disruptive technology of cars was invented. It's designed to make the internet a safe space, where users are not confronted with propaganda or violent content, and can buy products online knowing they are as safe as in a shop. Three main issues are addressed:
- Safety, including due diligence requirements for online providers to remove illegal goods, services or content from their platforms. In order to protect freedom of expression, users must receive an explanation for why their content was taken down and be provided access to a complaints procedure.
- Transparency. This includes an obligation for large platforms to prevent abuse of their systems, including verifying the identity of third-party providers before they are allowed on the platform so they can be located if involved in illegal acts. Large platforms also must open up to end-users on how they use algorithms and other recommendation engines, so users can make more informed decisions on whether to trust the services.
- Enforcement. A 'digital services coordinator' will be named in each EU country to enforce the rules. Multinational providers will be able to rely on a single national regulator, the same as under other EU regulations such as banking and the GDPR. These national regulators will be expected to coordinate their efforts to ensure the new rules are enforced consistently across the EU's single market.
It will be left up to each country to decide the amount of fines the new regulators can issue, based on guidance in the DSA. The regulators will be able to impose other remedies, too, such as immediate changes to services in the event of serious harm. The European Commission will have direct authority over very large platforms and can impose fines equal to up 6 percent of global turnover.
The Digital Services Act would apply broadly to all online intermediaries, including internet service providers, cloud services, messaging, marketplaces and social networks. Specific due diligence obligations apply to hosting services, and in particular to social networks, content-sharing platforms, app stores, online marketplaces, online travel and accommodation platforms. A further subset of rules focuses on very large online platforms, defined as having significant societal and economic impact and reaching at least 45 million users in the EU.
Digital Markets Act: for the internet gatekeepers
The Digital Markets Act applies to an even smaller group of platforms, which the Commission found have a tendency to unfair practices. Vestager said the legislation is the result of the growing number of competition complaints and investigations in the sector, and the Commission's efforts to develop new tools to address the problems. The same as in other key sectors such as telecoms, banking or energy, additional regulation is needed alongside existing competition law, she said.
Gatekeepers will be designated based on 1) size - they have a significant impact on the internal market and are active in multiple EU countries; 2) market role - they act as an important intermediary, linking many users to a large number of businesses; and 3) duration - they hold such a position for a durable period of time.
Once designated as a gatekeeper, they must live up to certain obligations:
- Data: They may not use data on third-party providers on their platform for their own business. Data generated by such providers must also be available to those providers for their own purposes.
- Interoperability. They may not prohibit consumers from using competing third-party providers or stop businesses from selling the same products elsewhere. For example, customers should be allowed to access an alternative payment system, or to un-install unwanted pre-installed software.
- Self-preferencing. They may not favour their own services in rankings provided to end-users.
Violations of the obligations could result in fines equal to up to 10 percent of global turnover. The Commission would also be able to impose additional remedies after an investigation, such as behavioural changes or structural changes like divestments.
Industry support
The announcement was largely welcomed by large tech industry groups. In the telecom sector, the GSMA and ETNO said they welcome the move to set new global standards and the regulations should help strengthen consumer trust in online services. They called the Digital Markets Act "an important starting point" for restoring the balance of power between large platforms and their users, and called on the EU to develop a strong ex ante regulatory framework and additional competition tools to address to market disruption.
The CCIA, the main tech lobby group which represents players such as Google, Amazon and Facebook, was also largely positive on the Commission's proposal. They welcomed the room to continue with voluntary industry efforts, but expressed concern about singling out large players. The aim should be to address problematic conduct rather than company size, the CCIA said, noting there is a risk the measures could inadvertently push illegal conduct to smaller platforms outside the same controls.
