The European Union has taken a decisive step forward in its digital journey by introducing the Digital Service Package, a part of the broader strategy "A Europe fit for the Digital Age." The package comprises two distinct but complementary elements - the Digital Service Act (DSA) and the Digital Markets Act (DMA). The dual aim is safeguarding digital services and user rights in a secure digital environment while promoting innovation, growth, and competitiveness in the European Single Market.
The Digital Service Act (DSA): A New Era of Digital Services Regulation
As we navigate the uncharted waters of digital innovation, the European Union seeks to build a framework that ensures a safer, more responsible digital space. The cornerstone of this initiative is the Digital Services Act (DSA), which ushers in a new era of digital services regulation.
The Framework and Scope of DSA
The DSA stands on the shoulders of the e-Commerce Directive. Over two decades have passed since the implementation of this directive, and it's no secret that it now struggles to keep pace with the rapidly evolving digital economy. To address this, the DSA seeks to redefine the rules of digital interaction and establish a more updated regulatory landscape for the digital sphere.
The DSA's provisions apply to digital service providers within the EU. This includes a broad spectrum of platforms such as online marketplaces, social networks, content-sharing platforms, app stores, and online travel and accommodation platforms. The guiding principle is simple yet powerful: anything illegal offline should also be illegal online. This mantra resonates throughout the DSA, forming the basis for its various obligations and regulations.
Key Obligations Under the DSA
At the core of the DSA are the responsibilities that all internet service providers must uphold, irrespective of their size. The Act aims to increase accountability and traceability in the digital space, encouraging service providers to prevent illegal content and engage in responsible business practices actively.
Among the specific provisions of the DSA are:
Rules concerning the removal of illegal content and counterfeit goods.
Transparency requirements for online marketing based on usage profiles and algorithms.
Regulations that require online advertisers to inform visitors about the rationale behind the ads they see and the identity of the advertiser.
Special Provisions for Different Size Providers
One of the key strengths of the DSA is its understanding of the diverse digital landscape. Not all service providers are created equal, and the DSA recognizes this by designing its rules asymmetrically. The nature, size, and impact of a provider's services determine the extent to which DSA obligations apply.
Large online platforms, which play a crucial role in public discourse and economic transactions, are subject to additional, stricter regulations. Smaller platforms, meanwhile, can be exempted from the more burdensome obligations unless they voluntarily adopt these best practices for a competitive edge. Furthermore, micro and small companies can enjoy an exemption from a set of obligations for up to 12 months, even if they experience significant growth during that period.
The Digital Markets Act (DMA): Ensuring Fair Digital Markets
With the monumental rise of digital platforms, the balance of power in digital markets has come under the spotlight.
Who are the Gatekeepers?
'Gatekeeper' is a term coined to represent the significant players within the digital platform market - those that wield enormous influence due to their size, market power, and role as a conduit between users, businesses, and customers. The DMA specifically targets these gatekeepers to prevent them from imposing unfair conditions on businesses and end users. The prime examples of such platforms include search engines, social media channels, certain websites, and cloud systems.
Determining a Gatekeeper: Key Factors
A company's status as a gatekeeper is not merely a result of its size or market visibility. The European Commission will evaluate a company on several fronts to ascertain whether it fits the 'gatekeeper' profile. This presumption arises when:
The company demonstrates a strong economic position that significantly impacts the internal market and is operational in multiple EU countries. This is presumed when the annual EEA turnover exceeds 7.5 billion EUR in the last three years and the market capitalization surpasses 75 billion EUR.
The company exhibits a strong intermediation position, linking a large user base to numerous businesses. This is presumed if the company operates a core platform service with more than 45 million monthly active end users in the EU and more than 10,000 business users.
The company has an entrenched and durable market position, indicating long-term stability. This is established if the company has met the above thresholds consistently over the last three financial years.
Even if a company does not meet these thresholds, the European Commission can still label it as a gatekeeper after conducting a market investigation.
Obligations and Restrictions for Gatekeepers
Gatekeepers are identifiable by their size and influence and the rules they must follow under the DMA. They are required to:
Permit third-party interoperability with the gatekeeper's services in specific situations.
Allow business users to access data generated in their use of the platform.
Enable business users to promote their offers and finalize contracts with their customers outside the gatekeeper's platform.
The DMA also imposes restrictions on gatekeepers. These prohibitions include:
Favoring their own services and products in ranking over similar offerings from third parties on the platform.
Hindering consumers from linking to businesses outside their platforms.
Restricting users from uninstalling pre-installed software or apps.
Tracking end users outside of their core platform service for targeted advertising without obtaining explicit consent.
Penalties for Non-Compliance
The DMA does not merely lay down rules; it also ensures their enforcement. If a gatekeeper fails to comply with the obligations set forth in the DMA, the European Commission can impose hefty fines, amounting to up to 10 percent of the global group turnover.
The DMA is thus a promising step towards leveling the digital playing field, enabling smaller platforms, SMEs, and start-ups to compete more fairly with established digital giants.
Impact on SMEs, Startups, and Other Digital Platforms
As SMEs, startups, and smaller digital platforms navigate through the stormy seas of the digital market, the DSA and DMA act as beacons of regulatory light. By calibrating rules based on the size and influence of online platforms, these legislations provide smaller entities with a fair chance to compete.
Other Forthcoming Digital Legislation
Beyond the DSA and DMA, the European Union's tech agenda holds a plethora of legislative proposals. Currently in the pipeline, these legislations aim to regulate digital technologies more comprehensively. They span various sectors, including data economy, cybersecurity, artificial intelligence, and fintech. Businesses should be vigilant of these developments, as these rules will shape the future digital environment, demanding new standards of compliance and ethical conduct.
Conclusion
The DSA and DMA represent significant strides toward a fair and safe online environment in an increasingly digital world. They offer a more robust framework to protect users' rights and ensure fair competition. However, they also challenge all stakeholders, especially digital service providers, who must align their practices with these new rules. The journey may be challenging, but it promises to lead toward a digital market that is more equitable, transparent, and resilient. DISCLAIMER: The information provided is not legal, tax, or accounting advice and should not be used as such. It is for discussion purposes only. Seek guidance from your legal counsel and advisors on any matters. The views presented are those of the author and not any other individual or organization. The information provided is for general educational purposes only and is not investment advice. The author of this material makes no guarantees or warranties about the accuracy or completeness of the information. A professional should review any action based on the information discussed. The author is not liable for any loss from acting on the information discussed.
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