The EU Digital Single Market: Opening the EU to Digital Business or Closing the Market?

May 31, 2016

The EU Commission’s Digital Single Market programme is probably the EU’s currently most ambitious and challenging initiative. Launched in May 2015, it has a very challenging legislative timetable in order to achieve the equivalent of the single market for goods, services and people throughout the EU. The Digital Single Market will allow the free movement of goods, persons, services and capital in the online environment and allow individuals and businesses to seamlessly access and exercise online activities under conditions of fair competition, and a high level of consumer and personal data protection, irrespective of their nationality or place of residence.

The Commission places a high emphasis on the Digital Single Market helping to ensure that Europe maintains its position as a world leader in the digital economy. The Commission considers that Europe could be leading the global digital economy but that fragmentation and online barriers EU are holding the EU back.

Bringing down these barriers within Europe could contribute an additional €415 billion to European GDP, help to expand markets and foster better services at better prices, offer more choice and create new sources of employment. Of course, the basis for these figures is open to question. Even if the Digital Single Market were to be implemented in-line with the Commission’s current intentions it would be impossible to determine the real impact of the Digital Single Market.

Few people would argue against the Commission’s objective to reduce fragmentation on the online environment in the EU. Unnecessary local variations in the online legal environment across Europe are clearly detrimental to the development of a vibrant European digital marketplace. The Commission comments that having 28 different national consumer protection and contract laws across Europe discourages companies from cross-border trading and prevents consumers from benefitting from the most competitive offers and from the full range of online offers. This must be correct. Harmonisation ought to encourage businesses to sell online across borders and increase consumer confidence in cross-border e-commerce. The Commission has identified that 57% of companies say that they would either start or increase their online sales across the EU if the same rules for e-commerce were to apply throughout the EU.

But harmonisation is only part of the Commission’s agenda. In addition to the harmonisation agenda, the Commission wants to establish a Digital Single Market with high levels of consumer and personal data protection, irrespective of their nationality or place of residence. Despite its comments on the development of a pan-European, world-leading digital economy, much of the emphasis in the implementation of the Digital Single Market appears to focus on the pro-consumer aspects to the legislation. The Commission is taking a decidedly pro-citizen approach of the implementation of the Digital Single Market.

This is not unexpected. In 2012 the Commission commented in its Communication, Framework for Building Trust in the Digital Single Market that ‘both providers and users of online services must be able to access or receive sufficiently complete and reliable information on their activities. In particular, consumers must have their rights protected and be assured that their personal data will be used appropriately’. The data protection agenda within the EU has been growing increasingly powerful and – to a certain extent – is an example of a distinct pro-consumer stance within the Commission.   

There are clear risks associated with the Commission’s pro-consumer stance. Whilst the Commission would like the EU to develop a digital economy that will rival the digital economies of the US and the fast-developing Asian digital economies, there is a risk that an overly pro-consumer approach will have a negative impact on economic development in the EU digital economy. The EU could create a ‘walled garden’ for the online and digital economies throughout Europe which has higher levels of consumer and data protection than the online and digital economies throughout the rest of the world. There would then be different approaches to doing online and business digital business in Europe as compared to the rest of the world.  

There is very little acknowledgement to the international dimension in any of the Commission documentation relating to the Digital Single Market. The May 2015 Communication mentions that the scale of the Digital Single Market should help EU companies to ‘grow beyond the EU internal market and make the EU an even more attractive location for global companies’. There is no assessment of the consequences of imposing high levels of consumer and personal data protection on the attractiveness of the Digital Single Market. 

Clear examples of the extent of the Commission’s strong focus on consumer protection in the Digital Single Market are included in the proposed Directives issued by the Commission at the end of 2015 concerning contracts for the supply of digital content and contracts for the online and other distance sales of goods.

Under the proposed digital content directive, suppliers will have liability for defects without any time-limit (Articles 10-13). If the digital content is defective, the consumer can ask for a remedy. There will be no time limit, because – unlike goods – digital content is not subject to wear and tear. Coupled with this is a proposal to reverse the burden of proof for defective digital products (Article 9). If the digital content is defective, it will not be up to the consumer to prove that the defect existed at the time of supply, but rather for the supplier to prove that this is not the case. Consumers will also have additional termination rights in respect of long-term contracts and contracts to which the supplier makes major changes.

Under the proposed directive for the online and other distance sales of goods there is a requirement for a fixed statutory warranty which must not be shorter than two years (Article 14). The consumer shall be entitled to a remedy where the lack of conformity becomes apparent within two years of purchase. The limitation period after claiming damages shall not be shorter than two years. Again, there will be a reverse burden of proof. The time period during which the seller will have the burden of proof (proving that the defect existed at the time of delivery) will be extended to two years throughout the EU (Articles 8 and 14). If the seller is unable or fails to repair or replace a defective product, consumers will have the right to terminate the contract and be reimbursed also in cases of minor defects (Article 13). Consumers will not lose their rights if they do not inform the seller of a defect within a certain period of time, as is currently the case in some Member States (Article 25). Consumers will now have a chance to exercise similar rights for second-hand goods as are applicable to new goods (Article 1(d)).

These are relatively limited examples of the Commission’ pro-consumer stance in the proposed legislation for the Digital Single Market but they are indicative of the Commission’s overall approach. This heavily pro-consumer approach is likely to deter non-EU companies from engaging in the EU digital economy, with the resulting reduced levels of investment in the EU. If the risks of doing digital and online business across the EU are greater than elsewhere in the world, non-EU investors are likely to make their investments elsewhere. If the EU wants to create a digital economy that rivals that of the US and the developing AsiaPac digital economy it needs to create an environment that is welcome to investment in this sector, not an environment that is antagonistic to business. Despite the pro-business rhetoric, much of the detail of the Digital Single Market proposals that have been issued to date appear to at least disregard the need to create an environment that is conducive to the development of an EU digital economy.   

The heavily pro-consumer standpoint of much of the Digital Single Market will also be counterproductive to the further development of a start-up environment in the EU digital economy.  The digital start-up environment has a very international focus. If the EU acquires either a reputation for being heavily consumer biased (or is actually biased in that way), it is likely that much of the start-up investment and the entrepreneurial people involved in the start-up world will move outside Europe.

A legalistic pro-consumer bias in the online and digital world with extensive levels of consumer protection is also unnecessary and inconsistent with the digital economy. With the rise of social media, consumers have new powers of publicity which have a direct impact on suppliers that are far more effective than systems of legal rights and remedies. If problems arise in the digital economy, consumers now have opportunities to give negative reviews on social media platforms and, in many cases, such as Uber and Ebay, are invited to give feedback assessments on the quality of the services that have been provided. In the digital economy it is becoming rarer for there to be a need to resort to legal redress. As long as there is transparency in the service provision arrangements, the power of social media gives very effective means of obtaining redress for consumers.      

Most of the Digital Single Market is at the proposal stage.  There is still an opportunity for the Commission’s overly pro-consumerist standpoint to be re-focused. This is an area where Tech lawyers, along with economists with an interest in this field, can play a part to re-shape the Digital Single Market into a more positive direction. The national Computer Law Associations across Europe could be taking a lead on providing input to the Commission on these issues. IFCLA could also take a more active role to coordinate and lead the views of Tech lawyers on these issues.

Roger Bickerstaff is President of IFCLA, an SCL Trustee and a Partner at Bird & Bird (UK)