The EU's plan to transform the Internet - Part 1

Related Practice Area: Technology & IP Transactions

On 15 December 2020, the European Commission proposed two new pieces of legislation as part of its digital strategy to update the rules governing internet services in the EU. These complementary initiatives are the Digital Services Act (DSA) and the Digital Markets Act (DMA), and their main goals are to (i) create a safer digital space that protects the fundamental rights of all users and (ii) provide a level playing field for small and large tech companies.

 

When they enter into force, the DSA and DMA will drastically change the way digital service providers operate and will effectively transform the internet as we know it. They will not only affect huge online platforms (“gatekeepers), but also providers of digital services and their users.

 

The DSA attempts to modernise the e-Commerce Directive adopted in 2000 and addresses concerns about the trade and exchange of illegal goods, services and content on the internet. This includes the misuse of algorithms to spread false or inaccurate information. 

 

On the other hand, the DMA largely targets dominant players such as Big Tech companies by introducing new obligations which prevent them from abusing their market power and obtaining an unfair competitive advantage over smaller operators.

 

Together, these complementary acts will considerably increase the European Commission’s ability to regulate large online platforms while creating a safer and more open Internet for European citizens.

 

The Digital Services Act: ensuring a safe and accountable online environment

 

The Digital Services Act aims to create a uniform framework within the EU for handling illegal or potentially harmful online content. It addresses the liability of internet platforms for third-party content, outlines the basic rights of users, and includes proposals to make online advertising more transparent.

 

The DSA changes the rules for handling illegal or harmful online content. This makes it relevant for all kinds of digital service providers in the EU, such as social media, online marketplaces and intermediation platforms, including their clients and users.

 

Providers of intermediary and hosting services will be subject to stricter rules on their responsibility towards their users and their accountability in matters concerning the misuse and presence of illegal content. The DSA extends what was already established in the e-Commerce Directive by proposing new and comprehensive due-diligence obligations, including mechanisms to notify the presence of any alleged illegal content and others to challenge moderation decisions.

 

A cornerstone of the proposal is that it will limit the scope of the safe harbour” provisions currently contained within Articles 12 to 15 of the e-Commerce Directive. These provisions currently exempt platforms from liability for the content which they store and transmit and have been largely blamed for the inaction of platforms in relation to illegal or dangerous content which they host and communicate.

 

Exemption from liability will no longer apply in instances where the service provider “plays an active role of such a kind as to give it knowledge of, or control over” the illegal content.

 

This also coincides with discussions which are currently underway in the U.S. to amend the analogous exemption from liability provided to platforms by Section 230 of the Communications Decency Act. These legislative initiatives will provide an impetus for digital platforms to act and moderate the content they store and make available and will effectively change the face of the internet as we know it.

 

The DSA is expected to benefit SMEs, who do not fall within the scope of the new obligations. As small enterprises are exempt from reporting obligations, only large online platforms will incur high costs due to the implementation of this regulation. Additionally, large platforms will have to adopt a risk-based approach to prevent system abuse and protect their services’ integrity.

 

In summary, the DSA will:

 

  • Limit platforms’ exemption from liability for third-party or user content which they store and transmit
  • Improve content moderation on social media to address online harassment
  • Introduce transparency obligations for online platforms to combat misinformation 
  • Institute stricter Know-Your-Customer requirements for websites that allow users to purchase goods and services from online traders
  • Introduce transparency obligations concerning online advertisements

 

The Digital Services Act proposes steep fines for non-compliance amounting to up to 6% of annual income or turnover, as well as periodic penalty payments. It delegates most of these enforcement powers to Member State authorities. Each Member State must establish a Digital Services Coordinator (DSC) that oversees the compliance of platforms based in that country with the new DSA rules.

Moreover, very large online platforms must also comply with the rules contained in the Digital Markets Act. Watch out for Part 2 of this article to learn more about its salient features.

Author:  Timothy Spiteri

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