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Posted in Digital Single Market (EU), e-commerce, Internet, Policy & Regulation, Technology

Shaping Europe’s Digital Future – EU publishes its draft Digital Services Act

Awaited with bated breath by stakeholders in the online industry and by IP right holders alike, the EU Commission published on 15 December its official draft for the Digital Services Act (DSA). The DSA is conceived as one of the central pillars for its ambition to shape Europe’s digital future. Its published draft aims high, both in the scope of topics it covers, and the depth in which it addresses them. The DSA provides a staggered set of obligations and liability rules for all intermediaries (such as internet access providers, domain name registrars, search engines), for hosting services (such as cloud services and webhosting), for online platforms (such as social media platforms, app stores and online marketplaces), and for very large online platforms (those reaching more than 45 million EU users each month). In this article, we will walk you through the proposed changes and what they mean for platforms in particular.


What are the aims of the Digital Services Act?

As reported in our previous article, the DSA, alongside the Digital Markets Act (DMA) is part of the EU Commission’s digital strategy aiming to reinforce the single market for digital services and to create a more level playing field for businesses of all sizes across the EU. To this end, the new DSA will build on the E-Commerce Directive, whose core provisions on the liability safe harbour for online intermediaries have over time witnessed diverging approaches across the Member States. The DSA, in its current draft form, will maintain the liability safe harbour but goes far beyond it, addressing the strong diversification of online services and business models in nuanced detail.

Overview of the new rules to come

The DSA brings a comprehensive package of new rules for digital services providers around the following core areas of reform:

  • Maintaining the E-Commerce Directive’s liability regime: Crucially for the development of the information society as a whole, the DSA aims to uphold the current liability regime under the E-Commerce Directive, with its safe harbour provisions for online intermediaries and the prohibition of general monitoring obligations for illegal content. The liability safe harbour for online marketplaces has been expressly excluded where the illegal content is presented in a way that creates the impression that it has been provided by the marketplace itself or under its control. Finally, some uncertainty remains with respect to  the ‘active role’ criterion: It appears in the recitals only and states that the safe harbour shall not apply to the extent that the intermediary “plays an active role of such a kind as to give it knowledge of, or control over” the illegal information.
  • Equal playing field: The new rules will apply to all providers offering digital services in the EU regardless of their place of establishment. Providers based outside the EU are required to designate a legal representative in the EU  as  point of contact for authorities,  who can be held liable, side by side with the provider, for non-compliance with the DSA.
  • Content moderation: The draft DSA introduces a highly detailed set of rules for online platforms on tackling illegal third party content through a harmonized Notice and Action mechanism. This includes provisions on minimum requirements for notices, decision transparency, internal complaint-handling mechanisms and significant reporting obligations. As it stands and in contrast to the recommendations of the EU Parliament, the right to file a notice  is not tied to any legal standing – meaning that anyone would be eligible to file notices, even where infringements of intellectual property rights or of personality rights pertaining to a third party are concerned. The draft also brings clarity on voluntary measures for content moderation, in particular with a “Good Samaritan” clause setting out that platform providers will not lose the liability safe harbour for  illegal content that they have identified on their own initiative. Furthermore, the DSA introduces a new out-of-court dispute settlement system, with independent bodies reviewing the decisions of online platforms to take down content, as an alternative road for uploaders to going to court.
  • Transparency on advertising and AI-enabled content curation: Digital service providers will be required to provide increased transparency with regard to advertising and personalization of user content. The aim is to put users in a position to better understand why certain information and advertising is presented to them.
  • Tracing obligations for online marketplaces: The DSA also brings additional duties of care for operators of online marketplaces. They must now follow a “Know your business customer” protocol, vetting the identity of their commercial traders before allowing them use of the platform.
  • Additional obligations for very large online platforms: A significant portion of the DSA addresses  further obligations for large platforms that have more than 45 million monthly active users in the EU. These inter alia include obligations to carry out risk assessments and audits, to provide a high level of transparency on recommender systems and online advertising, and to cooperate with Digital Services Coordinators designated by the Member States to ensure compliance with the DSA. Further ‘ex ante’ rules for certain designated large online platforms, along with related market investigation and enforcement powers have been published in the separate draft Digital Markets Act.
  • Sanctions for non-compliance: The DSA also introduces severe penalties for digital service providers who fail to comply with the new regulations. Following the example of the General Data Protection Regulation, the proposed sanctions would be calculated on the basis of global annual turnover and could amount to up to 6 % thereof.

While some parts of this complex and ambitious package will certainly bring increased legal certainty and harmonization, other proposals already are subject to hot debate among different interest groups – and will continue to be hotly debated throughout the legislative process. The devil lies in the detail for many of the envisaged aspects of reform, in particular where they test the boundaries of what is technically manageable and financially reasonable for digital service providers, and for platform operators in particular. Some mechanisms, such as the envisaged Alternative Dispute Resolution system, may look better on paper than they will presumably work in practice.

Outlook

It is early days, and we will sit on the edge of our seats, pens poised, as we accompany the DSA package on its way through the legislative process. In the next stage, the draft will now be discussed in, and between, the European Parliament and the European Council. It is safe to say that the draft will be subject to much controversial debate, given its strategic importance: the DSA is designed to be an ambitious all-encompassing framework for achieving an adequate balance of rights and interests of all parties involved in the exchange of content online. It will accordingly have significant legal and commercial implications for Europe’s digital future. We expect the debate to be all the more lively with regard to the expected interplay between the DSA and other recent EU legislation, the DSM Directive, the Omnibus Directive and the P2B Regulation, and how all these fairly new rules will complement each other in the market. At the same time, the UK has also announced its regulatory approach post-Brexit – see our related materials on the right for more on this topic.

DSA Taskforce

The legislation will draw significant interest from a wide range of players, given the scope of services potentially affected and the fact the proposed rules are intended to cover any digital services, whether or not based in the EU, where activities or services are aimed at EU consumers.

We have a dedicated multi-jurisdictional taskforce closely tracking the progress of the DSA, including experts in intellectual property, consumer and contract laws, data protection, technology regulation and policy and competition. Click here for details of the team.