Putting Manners On The Platforms: The Digital Services Act Package

In the last two decades the digital services landscape has changed dramatically, however while there have been some targeted attempts at regulation, the legal framework for digital services has remained relatively stagnant since the adoption of the e-Commerce Directive in 2000.

In February 2020, the European Commission announced a Digital Services Act package as part of its European Digital Strategy. The package seeks to “further strengthen the Single Market for digital services and foster innovation and competitiveness of the European online environment”. According to the Commission, the new Digital Services Act Package will “upgrade our liability and safety rules for digital platforms, services and products, and complete our Digital Single Market”.

The two work strands on which the package is to be based were announced by the Commission as follows:

The first set of rules would relate to the fundamentals of the e-commerce directive, in particular the freedom to provide digital services across the EU single market in accordance with the rules of the place of establishment and a broad limitation of liability for content created by users. Building on these principles, we aim to establish clearer and modern rules concerning the role and obligations of online intermediaries, including non-EU ones active in the EU, as well as a more effective governance system to ensure that such rules are correctly enforced across the EU single Market while guaranteeing the respect of fundamental rights.

The second measure would address the issue of the level playing field in European digital markets, where currently a few large online platforms act as gatekeepers. We will explore rules to address these market imbalances, to ensure that consumers have the widest choice and that the EU single market for digital services remains competitive and open to innovation. This could be through additional general rules for all platforms of a certain scale, such as rules on self-preferencing, and/or through tailored regulatory obligations for specific gatekeepers, such as non-personal data access obligations, specific requirements regarding personal data portability, or interoperability requirements.

A proposed draft European Regulation for the first part of the new regime was published by the Commission on 15 December 2020 and runs to 99 pages.  While maintaining the essential liability rules of the e-Commerce Directive it places very significant responsibilities and obligations on intermediaries, hosting services and on-line platforms and in particular on the providers of very large online platforms. In brief it imposes:

  1. due diligence obligations, such as notice and action procedures for illegal content and the possibility to challenge content moderators’ decisions;
  2. the obligation  for certain online platforms to receive, store and partially verify and publish information on traders using their services;
  3. measures against illegal goods and services on-line;
  4. standards on how the providers of such platforms moderate content, on advertising and on algorithmic processes;
  5. obligations to report and to assess the risks their systems pose to develop appropriate risk management tools to protect the integrity of their services against the use of manipulative techniques;
  6. the development of various self-regulatory codes, independent dispute resolution mechanisms and independent overview, audit and management structures to oversee and enforce this regulatory framework;
  7. fines of up to 6% of turnover of very large online platforms for a failure to comply.

This is truly a sea-change in approach to the regulation of the on-line sector and particularly for large scale platforms and will be hotly debated through the lengthy European legislative process.  Coming to grips with the detail and the scope of legal obligations that the Regulation is attempting to impose will focus minds for a long time to come. If eventually passed in its current form, then much like the European data protection regime, it is likely to have a de facto effect of setting the bar for global on-line conduct regulation.

As many of the largest on-line platforms maintain their European headquarters in Ireland and jurisdiction for the enforcement of many of the obligations imposed by the Digital Services Act is ultimately allocated to the courts of a platform’s main place of establishment, it seems very likely that the Irish courts will play a key role in interpretation and enforcement of the new regime.

The Commission has simultaneously released a proposed regulation to address the second measures noted above, called the Digital Markets Act.  The aim here is to level the playing field of the very largest platform owners by imposing wide ranging conduct obligations in order to encourage competition and to prevent the monopolisation of marketplaces.  All of this will be enforced by various means including an ultimate sanction of a fine up to 10% of the platform’s worldwide annual revenue. Enough to grab the attention of even the largest platform providers and their shareholders.

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