Digital Services Act

EU Digital Services Act: revamping the EU’s e-commerce landscape “Article II”

by , on Oct 14, 2021 08:01:25 AM


On the 15th of December 2020, the European Commission published its Digital Services Package. The package proposed two landmark legislative acts; namely, the Digital Services Act and the Digital Markets Act.

In this article, our focus will turn towards the first limb of the package – the Digital Services Act (DSA). The Commission has proposed a wide ambit for the DSA, extending its ambit not only to ‘gatekeeper’ platforms, but also digital service providers and their business users and consumers. Reminiscent of the General Data Protection Regulation (GDPR), the proposals are to apply to service providers both established within or outside the Union as long as the users of their services have their place of establishment or residence in the EU.

If approved, the DSA package is expected to mark a critical juncture in updating the EU’s legal framework for digital services that has not been amended since the adoption of e-Commerce Directive 2000/31/EC. In essence, whilst preserving the core principles of the e-Commerce Directive, the new rules under this DSA are intended to be complementary to the Platform-to-Business Regulation (EU) 2019/1150 (the ‘P2B Regulation’) or and to the EU Directives that were adopted as part of the New Deal for Customers and which are going to enter into force in 2022.

The DSA is focused on modernising and creating an EU-wide uniform framework on, among other aspects, the handling of illegal or potentially harmful content online, establishing the liability of online intermediaries for third-party content, protecting user’s fundamental rights online and bridging the information asymmetries between online intermediaries and their users. The general idea underpinning the proposal is to regulate online digital platforms, including online marketplaces, social media platforms, video gaming platforms, e-commerce intermediaries, search engines, other information society services and internet service providers.

Highlights of the proposed rules under the DSA

The proposal acknowledges the responsibilities and accountability for providers of intermediary services, specifically online platforms, such as media and marketplaces. In particular, the proposed DSA sets out the following obligations, which apply depending on the type of service provider in question:

  • All service providers will be required to establish a single point of contact and designate a legal representative in the EU where they are not established in the EU but offer their services here. In addition, a transparency reporting obligation is imposed on all digital service providers, including the possibility to challenge the platform’s content moderation decisions. Moreover, certain online platforms are obliged to receive, store and partially verify and publish information on traders using their services which further guarantees a safer and more transparent online environment for consumers.
  • Providers of hosting services, including online platforms, have the responsibility to include a notice-and-action mechanism, allowing third parties to report alleged illegal content. As long as such content is removed, a reasoned statement must be provided to the user whose content was removed.
  • Online platforms shall ensure the implementation of an internal complaint-handling mechanism to deal with disputes concerning illegal content, or content incompatible with the terms and conditions.
  • Very large online platforms will be subjected to higher standards of transparency and accountability on the moderation of content, advertising and algorithmic process. Essentially, this term covers online platforms reaching at least 45 million users in the EU, representing 10% of the world population. The proposed DSA obliges very large online platforms to conduct risk assessments on the systematic risks stemming from the functioning and the use of the services they provide within the EU. This would allow them to take proportionate and effective measures, which would mitigate the possible risks. Moreover, such platforms would also be subject to an independent audit, at least once a year.
  • Enforcement: in case of non-compliance, the Commission shall be given the authority to issue fines in a similar fashion to those under the GRPR, reaching up to 6% of the annual turnover of the provider and stipulating periodic penalty payments which can be imposed on very large online platforms. Penalties for the supply of incorrect, incomplete, or misleading information would lead to penalties reaching 1% of the annual income or turnover of the provider in question.

Notably, EU Member States will be required to establish a new independent authority, to be known as the ‘Digital Service Coordinator’ (DSC) where individuals can lodge complaints. The DSC will function as a hub designed to facilitate the coordination of the supervision and enforcement at national level, when deemed necessary. It will have the power of investigation, enforcement, including the capacity to order cessation and impose remedies in case of violation. Furthermore, it will be also responsible for ensuring the cooperation between DSCs of different Member States. At EU level, the DSA Proposal will establish the European Board for Digital Services which would assist the investigations conducted by the DSCs, issue recommendations and opinions, promote guidelines and reports addressed by the DSA and assist the Commission and the DSCs in the supervision of the very large online platforms.

Impact of the DSA

More than 10,000 online platforms are estimated to operate in the European digital economy, the large majority of which are small and medium enterprises. The Commission has reported that a very small number of the very large online platforms has turned into gatekeepers between business and citizens/consumers; thus, exercising a monopoly on the digital economy. The Commission’s initiative is, therefore, focused on their regulation and the improvement of the functionality of the single market and fair competition within this market.

Although it may take a few more years until the European Commission, the European Parliament and the Council reach a consensus to adopt, implement and enforce the proposed DSA, its impact is expected to be significant, contributing to the online safety of online users and their fundamental rights and setting a robust governance structure for the effective supervision of intermediary service providers.

For further information on the implications of the EU’s proposed Digital Services Act and how it may impact you, please do not hesitate to contact us at [email protected].

Author: Stephanie Marinova