European Commission proposes two new regulations for digital platforms

Proposals are “ambitious reform of the digital space, a comprehensive set of new rules for all digital services, including social media, online marketplaces, and other online platforms that operate in the EU”.

The Commission has proposed a new Digital Services Act and a Digital Markets Act. The two new regulations aim to better protect consumers and their fundamental rights online, and to provide fairer and more open digital markets for everyone. 

Digital Services Act

The landscape of digital services has changed significantly since the E-Commerce Directive was adopted 20 years ago. The new Regulation aims to rebalance the rights and responsibilities of users, intermediary platforms, and public authorities. The proposal complements the European Democracy Action Plan aimed at making democracies more resilient.

The key obligations in the Digital Services Act (which will depend on a service's size and impact) include:

  • Rules for the removal of illegal goods, services or content online;
  • Safeguards for users whose content has been erroneously deleted by platforms;
  • New obligations for very large platforms to take risk-based action to prevent abuse of their systems;
  • Wide-ranging transparency measures, including on online advertising and on the algorithms used to recommend content to users (however, it does not go as far as the European parliament’s suggestion that targeted advertising should eventually be banned altogether);
  • New powers to scrutinise how platforms work, including by facilitating access by researchers to key platform data;
  • New rules on traceability of business users in online market places, to help track down sellers of illegal goods or services; and
  • A new cooperation process among public authorities to ensure effective enforcement across the single market.

Platforms that reach more than 10% of the EU's population (45 million users) are considered systemic in nature, and are subject not only to specific obligations to control their own risks, but also to a new oversight structure. This new accountability framework will be comprised of a board of national Digital Services Coordinators, with special powers for the Commission in supervising very large platforms including the ability to sanction them directly.

Digital Markets Act

The Digital Markets Act aims to address the negative consequences arising from certain behaviours by platforms acting as digital “gatekeepers” to the single market. These are platforms that have a significant impact on the internal market, serve as an important gateway for business users to reach their customers, and which enjoy, or will foreseeably enjoy, an entrenched and durable position. This can grant them the power to act as private rule-makers and to function as bottlenecks between businesses and consumers. Sometimes, such companies have control over entire platform ecosystems. When a gatekeeper engages in unfair business practices, it can prevent or slow down valuable and innovative services of its business users and competitors from reaching the consumer. Examples of these practices include the unfair use of data from businesses operating on these platforms, or situations where users are locked in to a particular service and have limited options for switching to another one.

The Digital Markets Act sets out harmonised rules defining and prohibiting unfair practices by gatekeepers and providing an enforcement mechanism based on market investigations. The same mechanism aims to ensure that the obligations set out in the new regulation are kept up-to-date in the constantly evolving digital reality.

The Digital Markets Act will:

  • Apply only to major providers of the core platform services most prone to unfair practices, such as search engines, social networks or online intermediation services, which meet the objective legislative criteria to be designated as gatekeepers;
  • Define quantitative thresholds as a basis to identify presumed gatekeepers. The Commission will also have powers to designate companies as gatekeepers following a market investigation;
  • Prohibit a number of practices which are clearly unfair, such as blocking users from un-installing any pre-installed software or apps;
  • Require gatekeepers to proactively put in place certain measures, such as targeted measures allowing the software of third parties to properly function and interoperate with their own services;
  • Impose sanctions for non-compliance, which could include fines of up to 10% of the gatekeeper's worldwide turnover, to ensure the effectiveness of the new rules. For recurrent infringers, these sanctions may also involve the obligation to take structural measures, potentially extending to divestiture of certain businesses, where no other equally effective alternative measure is available to ensure compliance;
  • Allow the Commission to carry out targeted market investigations to assess whether new gatekeeper practices and services need to be added to these rules, to ensure that the new gatekeeper rules keep up with the fast pace of digital markets.

Next steps

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

The Chair of the European Parliament Internal Market and Consumer Protection Committee believes that “the proposal remains too flexible on enforcement and sanctions”, so it seems like the new regulations might take some time to become law.  Given the speed of digital transformation, any delay is unhelpful.

Published: 2020-12-16T15:00:00

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