With the digital technology industry a major contributor to the Irish economy, it is important to understand the EU’s new Digital Services Act. On 15 December 2020, the European Commission presented their long-awaited proposal for the Digital Services Act package, made up of the Digital Services Act (DSA) and Digital Markets Act (DMA).
The Digital Services Act package provides much needed updates to the E-Commerce Directive, which was adopted in 2000, however, since then, the digital landscape has significantly changed. Updated regulations are necessary to address the new, bigger players in the digital market, the new dynamic challenges faced on digital platforms, and the increase of users and businesses relying on larger digital platforms.
To tackle this, the DSA updates rules protecting the rights of users of digital platforms, while the DMA specifically addresses the largest platforms, known as “gatekeepers”.
The two acts aim to work together to create a safer online space; ensure a level playing field and foster competition between lager platforms, smaller platforms, and businesses looking to expand; and provide consumers with more and safer online platforms to choose from.
The tech industry is a major contributor to the Irish economy. Ireland is the number one foreign destination for U.S. tech companies, with 9 of the 10 largest firms choosing Ireland as their base of European operations. The industry employs 37,000 individuals, and accounts for €35 billion in annual exports. The new rules will affect not only large multinational firms but start-ups as well, another crucial sector for Ireland, with over 22,000 new start-up companies registered in 2019 alone.
Digital Services Act
The Digital Services Act is focused on both market competition and user rights and safety.
The DSA contains rules affecting online intermediary services, or a company that provides users with access to the internet. This includes cloud and web-hosting services and online platforms such as social media sites and online marketplaces. The DSA harmonises and scales existing rules as an important step towards creating a competitive digital market.
The DSA seeks to both increase legal certainty in the market to permit the growth of smaller platforms and businesses, and likewise to clarify liability exemptions sparing small and micro-enterprises from costly practices, according to the Commission. Without big compliance burdens, the DSA encourages innovation, and permits small enterprises to scale-up.
According to a 2018 Eurobarometer survey, 61% of EU survey respondents said they have come across illegal content online, and 65% say they do not think the Internet is safe for use.
Online platforms and intermediaries are liable for their users’ unlawful activity if they are aware of it and fail to remove it. To strengthen user safety, the DSA includes measures to bring illegal activity to the attention of platforms and ensure it is removed, through improved flagging and reporting mechanisms and increased penalties for failing to act on reports, or for platforms that are repeat offenders. On very large platforms, the DSA includes further oversight requirements through risk-based action such as independent audits of risk-management systems.
The DSA calls for the creation of Digital Service Coordinator positions in all Member States to enforce the act and ensure that all digital platforms based in individual Member States are compliant with the rules.
Although the enforcement of the DSA will fall largely on the Coordinator and national authorities, the Commission will have direct supervision over very large platforms and can step in for other, unresolved cases if referred by the Coordinator and national authorities. Penalties for failing to comply include fines, penalty payments, and, in extreme or repeat cases, suspension of services.
Digital Markets Act
The second act in the package, the Digital Markets Act, specifically sets rules for gatekeeper platforms, which are defined as the most widely used online platforms, with economically dependent users.
The DMA provides clearly laid out rules so that gatekeeper platforms understand their new obligations, and to ensure that users and third-party businesses know what to expect when using gatekeeper platforms.
The rules under the DMA are designed to ensure a fair and competitive market, and that smaller and start-up platforms are not edged out by market giants.
For example, gatekeepers will face restrictions on ranking their own products and services more visibly than similar products and services offered by third parties on their platform. For example, an Amazon brand iPhone charger will have the same chances of showing up in your search results as an Anker iPhone charger.
These sites will also be required to provide data to third parties on the performance of their products and services offered on the platform and allow third party users to “link up” with other businesses outside of the gatekeeper’s platform, according to the Commission.
In order to ensure the DMA is enforced and gatekeepers are compliant, the Commission has developed a plan for market investigations, that take into consideration the fast-paced and constantly changing nature of the digital industry.
These investigations will consider the criteria of a gatekeeper and try to identify new gatekeepers in the market and develop solutions to recurring violations of the rules. As with the DSA, penalties include fines, payments, and in extreme cases, after market investigations, suspension of services.
The package has been proposed by the Commission, and will now undergo the ordinary legislative procedure (OLP), with the next step being the agreement and submission of a proposal by the Council of the EU and European Parliament. The average timeline for adoption under OLP between 2014 – 2019 was just under 18 months at first reading, and 40 months at second reading. If adopted, the DMA ad DSA will apply to online platforms across the EU.
In the wake of the storming of the US Capitol Building in Washington DC on Wednesday, 6 January, MEPs have raised further concerns about the spread of disinformation and conspiracy theories online.
Kris Peeters, a Belgian EEP MEP, has said “the riots in Washington have in large part been fuelled by online conspiracy theories so successful they have completely subverted the trust of many Americans in basic democratic institutions”.
As the rapporteur on the DSA, he has said that it “must significantly improve the transparency and enforcement of digital companies so that we can ensure they adequately address the risks, especially how disinformation is shared and amplified”.