Commission unveils its Digital Services Act and Digital Markets Act

On 15 December, the European Commission published its proposals for a Digital Services Act and a Digital Markets Act. These two proposals aim to better regulate platforms and limit the benefits they can derive from their market power.  

The objective of the Digital Markets Act is to ensure that online markets remain contestable (no unfair competition). It targets large platforms which increasingly act as gateways or gatekeepers between end users and business users. Interestingly, the proposed regulation forbids gatekeepers to oblige business users to use, offer or interoperate with their identification service.

The Digital Services Act establishes rules for intermediary services, including platforms. Additional obligations apply to very large platforms to limit the systemic risks stemming from their size. Intermediary services would also be subject to an obligation to collect information on the identity of traders operating on their platforms, including a copy of identity documents.

Please find below the links to the proposed regulations and the key points for each of them.

Digital Markets Act

Scope

This proposed regulation applies to core platform services provided or offered by gatekeepers to business users established in the EU or end users established in the EU.

The regulation applies to gatekeepers established inside or outside the EU.

The text does not apply to markets related to electronic communication networks or services.

What is a core platform service?

Core platform service means any of the following:

(a) online intermediation services;

(b) online search engines;

(c) online social networking services;

(d) video-sharing platform services;

(e) number-independent interpersonal communication services;

(f) operating systems;

(g) cloud computing services;

h) advertising services, including any advertising networks, advertising exchanges and any other advertising intermediation services, provided by a provider of any of the core platform services listed in points (a) to (g).

What is gatekeeper?

A provider of core platform services can be considered a gatekeeper if:

(a) it has a significant impact on the internal market;

(b) it operates a core platform service which serves as an important gateway for business users to reach end users;

(c) it enjoys an entrenched and durable position in its operations or it is foreseeable that it will enjoy such a position in the near future.

A company is automatically a gatekeeper if it reaches detemined numerical thresholds (e.g. turnover equal to or above 6,5 billion euros).

The Commission shall publish and update the list of gatekeepers.

Unfair practices

Gatekeepers shall refrain from combining data from their core platform services with personal data from any other services offered by the gatekeeper or with personal data from third party services.

The text provides guarantees to business users. They shall be allowed to offer the same products through third party services at prices or conditions different from those offered through the gatekeeper. They shall also be able to conclude contracts with end users regardless of whether for that purpose they use the core platform services of the gatekeeper or not. Gatekeepers shall not threaten business users if they wish to raise issues with any relevant public authority regarding the practices of the gatekeepers.

Interestingly, gatekeepers shall refrain from requiring business users to use, offer or interoperate with an identification service of the gatekeeper in the context of services offered by the business users using the core platform services of that gatekeeper.

Additionally, gatekeepers cannot use the data they collect regarding activities of business users in order to compete with them (e.g. use these data to offer competing products). It shall also refrain from treating more favourably in ranking services and products that it offers.

End-users are also better protected with the Digital Markets Act. The proposed regulation stipulates that they shall be able to un-install pre-installed software applications. They shall be able to use third party software applications.

Better access to data

The proposal facilitates access to data for business users, advertisers, publishers and end-users. For instance, advertisers shall be able to access the performance measuring tools of the gatekeeper. Third party providers of online search engines shall be able to access ranking, query, click and view data in relation to free and paid search generated by end users.

Data portability of end users and business users is also guaranteed.

The list of obligations might be updated by the Commission through delegated acts. The proposed regulation further details the procedure for market investigations.

Fines

The European Commission may impose on a gatekeeper fines not exceeding 10% of its total turnover where the gatekeeper failed to comply with its obligations. It may also impose periodic penalty payments not exceeding 5% of the average daily turnover per day.

Digital Markets Advisory Committee

The Commission shall be assisted by the Digital Markets Advisory Committee.

Digital Services Act

I. Rules for all intermediary services

Scope

The Regulation applies to intermediary services whose recipients (users) are established or living in the EU. This means that intermediary services established outside the EU are also covered by these rules.

Definition of an “intermediary service”

Three types of services are defined as intermediary services:

-a ‘mere conduit’ service that consists of the transmission in a communication network of information provided by a recipient of the service, or the provision of access to a communication network;

-a ‘caching’ service that consists of the transmission in a communication network of information provided by a recipient of the service, involving the automatic, intermediate and temporary storage of that information, for the sole purpose of making more efficient the information's onward transmission to other recipients upon their request;

-a ‘hosting’ service that consists of the storage of information provided by, and at the request of, a recipient of the service.

Additional obligations apply to providers of hosting services, including online platforms. However, SMEs are excluded from the scope of application of additional obligations applicable to online platforms.

Liability of providers of intermediary services

As a general rule, intermediary services are not liable for the information stored or transmitted by a recipient of the service.

In addition, intermediary services providers have no general obligation to monitor the information transmitted or stored through their services nor to actively seek facts or circumstances indicating illegal activity.

However, they do have the obligation to follow orders to act against illegal content if such an order comes from the relevant national judicial or administrative authorities. They also have to provide information on specific individual recipients if they receive an order from relevant authorities.

Designation of a single point of contact and legal representative

Providers of intermediary services shall establish a single point of contact for direct communication with Member States’ authorities, the Commission and the Board.

Such providers which are not established in the EU but offer services in the EU shall designate a legal or natural person as a legal representative in one of the Member States where they offer services.

Information on algorithmic decision-making

The text establishes a list of information that providers of intermediary services must provide to the users, including information on the use of algorithmic decision-making and human review for content moderation.

II. Additional requirements for online platforms

Illegal content and criminal offence

Providers of hosting services, incl. online platforms, need to comply with additional obligations. They shall put mechanisms to allow any individual or entity to notify them of illegal content. The proposed regulation gives details on how illegal content shall be handled by online platforms. Some particular entities might be awarded the status of “trusted flaggers” by online platforms, meaning that they specialise in detecting and identifying illegal content.

Online platforms have the obligation to inform law enforcement and judicial authorities of any information giving rise to a suspicion that a serious criminal offence has taken place or is likely to take place.

Identification of traders

When an online platform allows distance contracts with traders to take place, it shall obtain relevant information on traders, including:

a) the name, address, telephone number and electronic mail address of the trader;

(b) a copy of the identification document of the trader or any other electronic identification as defined by Article 3 of Regulation (EU) No 910/2014 of the European Parliament and of the Council;

(c) the bank account details of the trader, where the trader is a natural person;

(d) the name, address, telephone number and electronic mail address of the economic operator;

(e) where the trader is registered in a trade register or similar public register, the trade register in which the trader is registered and its registration number or equivalent means of identification in that register;

(f) a self-certification by the trader committing to only offer products or services that comply with the applicable rules of Union law.

Online advertising transparency

Online platforms need to provide to their users information on online advertising. This includes information about the main parameters used to determine the recipient to whom the advertisement is displayed. These transparency obligations are reinforced for the very large online platforms.

III. Additional obligations for very large online platforms

A dedicated section of the Regulation applies to online platforms which provide their services to a number of active recipients equal to or higher than 45 million (= more than 10% of EU population).

These platforms are considered “very large online platforms”. They convey systemic risks.

The list of designated very large online platforms is published in the Official Journal of the EU and updated.

These very large online platforms shall carry a risk assessment relating to illegal content, fundamental rights, and manipulation of their service (e.g. to influence an electoral process). They shall put in place reasonable, proportionate and effective mitigation measures.

At least once per year, these very large online platforms shall be subjects to audits (at their own expense) to assess compliance with their obligations.

IV. Governance

Jurisdiction

The Member State in which the main establishment of the provider of intermediary services is located has jurisdiction.

If the provider does not have an establishment in the EU, it shall be under the jurisdiction of the Member State where its legal representative resides or is established.

Digital Services Coordinators

Each Member State designates one of their competent authorities to be their Digital Services Coordinator. The Digital Services Coordinator is responsible for all matters relating to application and enforcement of the regulation unless other tasks are assigned to other competent authorities. Digital Services Coordinators have powers of investigation and enforcement powers.

Digital Services Coordinators shall cooperate with each other. A Digital Services Coordinator who suspects an infringement by a provider established in another Member State shall request the Digital Services Coordinator of this other Member State to assess the matter.

An enhanced supervision system is established for the very large online platforms.

European Board for Digital Services

In addition, a European Board for Digital Services is established. It is composed of the Digital Services Coordinators. The Board has an advisory and coordination role.

Penalties and fines

Member States can impose penalties to providers of intermediary services if they fail to comply with their obligations. The maximum amount of penalties shall not exceed 6% of the annual income or turnover of the provider.

If a very large online platform is involved, the Commission may impose fines -not exceeding 6% of its total turnover- or periodic penalties.

Information sharing system

A reliable and secure information sharing system will be established to support communication between Digital Services Coordinators, the Commission and the Board.

Next steps

The European Parliament and the Member States will discuss the Commission's proposals in the ordinary legislative procedure. If adopted, the final texts will be directly applicable across the EU.

If you have any questions on these issues, please contact Camille Dornier - Policy Manager: camille.dornier@eurosmart.com