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Digital Market Act and Digital Services Act

by Shrisha Sapkota

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Introduction:

The Digital Services Act and Digital Markets Act aim to create a safer digital space where the fundamental rights of users are protected and to establish a level playing field for businesses[1].

The DSA and DMA have two main goals:

  1. a) to create a safer digital space in which the fundamental rights of all users of digital services are protected;
  2. b) to establish a level playing field to foster innovation, growth and competitiveness, both in the European Single Market and globally[2].

Digital services include a large category of online services, from simple websites to internet infrastructure services and online platforms[3]. The rules specified in the Digital Services Act primarily concern online intermediaries and platforms for example, online marketplaces, social networks, content-sharing platforms, app stores and online travel and accommodation platforms[4]. The Digital Markets Act includes rules that govern gatekeeper platforms which are digital platforms with a systemic role in the internal market that function as bottlenecks between businesses and consumers for important digital services[5].

Digital Markets Act

The Digital Markets Act (DMA) is a legislative proposal by the European Commission submitted to the European Parliament and the European Council on 15 December 2020, which establishes a set of narrowly defined objective criteria for qualifying a large online platform as a so-called “gatekeeper”, to ensure the better functioning of the internal market and promote fairer business and consumer welfare, within the internal market[6]. The objective of the proposal is therefore to allow platforms to unlock their full potential by addressing at the EU level the most salient incidences of unfair practices and weak contestability to allow end-users and business users alike to reap the full benefits of the platform economy and the digital economy at large, in a contestable and fair environment[7].

The EU’s Digital Single Market Strategy is built on three pillars; i.e to ensure better access for consumers and businesses to digital goods and services across Europe, creating the right conditions and a level playing field for digital networks and innovative services to flourish and maximising the growth potential of the digital economy[8].

The Commission considered that Article 102 TFEU, which mainly regulates competition is not sufficient to deal with all the problems associated with gatekeepers, given that a gatekeeper may not necessarily be a dominant player, and its practices may not be captured by Article 102 TFEU if there is no demonstrable effect on competition within clearly defined relevant markets[9]. Moreover, Article 102 TFEU does not always allow intervening with the speed that is necessary to address these pressing practices in the most timely and thus most effective manner[10].

The Gatekeepers

A few large platforms increasingly act as gateways or gatekeepers between business users and end-users and enjoy an entrenched and durable position, often as a result of the creation of conglomerate ecosystems around their core platform services, which reinforces existing entry barriers. It leads to unfair behaviour and negative effects on the contestability of the core platform services concerned. Unfair practices and lack of contestability lead to inefficient outcomes in the digital sector in terms of higher prices, lower quality, as well as less choice and innovation to the detriment of consumers[11]. The proposal is limited to several ‘core platform services’ where the identified problems are most evident and prominent and where the presence of a limited number of large online platforms that serve as gateways for business users and end-users has led or is likely to lead to weak contestability of these services and of the markets in which these intervene[12]. The characteristics of core platform services include extreme-scale economies, which often result from nearly zero marginal costs to add business users or end-users; very strong network effects, an ability to connect many business users with many end-users through the multi-sidedness of these services, a significant degree of dependence of both business users and end-users, lock-in effects, a lack of multihoming for the same purpose by end-users, vertical integration and data-driven advantages. Even if the list of Gatekeepers has not been released yet, the “Big Tech” – GAFAM (Google, Amazon, Facebook, Apple, Microsoft) – are likely to be the main subjects of the act, but not the only ones[13]. Overall, this regulation targets the largest digital platforms operating in the European Union. They are also known as “Gatekeepers” due to the “durable” market position in some digital sectors and because they also meet certain criteria related to the number of users, their turnovers, or capitalisation[14].

These criteria for a company to qualify as a gatekeeper are as follows[15]:

  1. a) has a strong economic position, significant impact on the internal market and is active in multiple EU countries.
  2. b) has a strong intermediation position, meaning that it links a large user base to a large number of businesses.
  3. c) has (or is about to have) an entrenched and durable position in the market, meaning that it is stable over time.

Obligations on gatekeepers

The list of obligations includes prohibitions on combining data collected from two different services belonging to the same company (for example Facebook and WhatsApp)[16]; provisions for the protection of platforms’ business users (including advertisers and publishers); legal instruments against the self-preferencing methods used by platforms for promoting their own products (preferential results for Google’s products when using Google Search)[17]; articles concerning the pre-installation of some services (Google Android)[18]; regulation related to bundling practices; provisions for ensuring interoperability, portability and access to data for businesses and end-users of platforms[19].

Other prominent rules include[20]:

No self-preferencing: a prohibition on ranking their own products over others;

Data portability: an obligation to facilitate the portability of continuous and real-time data;

No ‘spying’: a prohibition on gatekeepers on using the data of their business users to compete with them;

Interoperability of ancillary services: an obligation to allow third-party ancillary service providers (eg payment providers) to run on their platforms;

Open software: an obligation to permit third-party app stores and software to operate on their OS.

The proposal also includes a requirement that gatekeepers inform the regulator of all mergers and acquisitions, even when the target is too small to be subject to merger control[21].

In case of non-compliance, the Commission can administer fines of up to 10% of the company’s total worldwide annual turnover or ask them to make periodic penalty payments of up to 5% of the average daily turnover[22]. In case of systematic infringements of the DMA obligations by gatekeepers, additional remedies may be imposed on the gatekeepers after a market investigation, which will need to be proportionate to the offence committed[23]. If necessary and as a last resort option, non-financial remedies can be imposed which can include behavioural and structural remedies, e.g. the divestiture of (parts of) a business[24].

Digital Services Act

The Digital Services Act (DSA) is a legislative proposal by the European Commission submitted to the European Parliament and the European Council on 15 December 2020. The DSA is one of two proposals of the Digital Services Act package[25].

Trade and exchange of illegal goods, services and content is taking place online[26]. Online services are also being misused by manipulative algorithmic systems to amplify the spread of disinformation and for other harmful purposes[27]. These new challenges and the way platforms address them have a significant impact on fundamental rights online[28].

The primary objective of this proposal is to ensure the proper functioning of the internal market, in particular concerning the provision of cross-border digital services[29]. In line with this objective, the proposal aims to ensure harmonised conditions for innovative cross-border services to develop in the Union, by addressing and preventing the emergence of obstacles to such economic activity resulting from differences in the way national laws develop, taking into account that several Member States have legislated or intend to legislate on issues such as the removal of illegal content online, diligence, notice and action procedures and transparency[30]. Also, the proposal provides for the appropriate supervision of digital services and cooperation between authorities at the Union level, therefore supporting trust, innovation and growth in the internal market[31]. Overall, this proposal seeks to ensure the best conditions for the provision of innovative digital services in the internal market, to contribute to online safety and the protection of fundamental rights and to set a robust and durable governance structure for the effective supervision of providers of intermediary services[32]. The proposal defines clear responsibilities and accountability for providers of intermediary services and in particular online platforms, such as social media and marketplaces[33]. Furthermore, an obligation for certain online platforms to receive, store and partially verify and publish information on traders using their services will ensure a safer and more transparent online environment for consumers[34]. It sets obligations 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.

All online intermediaries offering their services in the single market, whether they are established in the EU or outside, will have to comply with the new rules[35]. Micro and small companies will have obligations proportionate to their ability and size while ensuring they remain accountable[36].

Goals of the DSA

The new rules are proportionate, foster innovation, growth and competitiveness and facilitate the scaling up of smaller platforms, Small and Medium-Sized Enterprises and start-ups[37]. The responsibilities of users, platforms and public authorities are rebalanced according to European values, placing citizens at the centre[38]. The rules have been created with the aim to

  1. a) Better protect consumers and their fundamental rights online
  2. b) Establish powerful transparency and a clear accountability framework for online platforms
  3. c) Foster innovation, growth and competitiveness within the single market[39].

In practice, this will mean new legislation regarding illegal content, transparent advertising and disinformation[40].

Implications of the Digital Services Act

The Digital Services Act significantly improves the mechanisms for the removal of illegal content and the effective protection of users’ fundamental rights online, including the freedom of speech[41]. It also creates a stronger public oversight of online platforms, in particular for platforms that reach more than 10% of the EU’s population.

This means concretely[42]:

  1. a) measures to counter illegal goods, services or content online, such as a mechanism for users to flag such content and for platforms to cooperate with “trusted flaggers”

new obligations on traceability of business users in online marketplaces, to help identify sellers of illegal goods.

  1. b) effective safeguards for users, including the possibility to challenge platforms’ content moderation decisions
  2. c) transparency measures for online platforms on a variety of issues, including on the algorithms used for recommendations
  3. d) obligations for very large platforms to prevent the misuse of their systems by taking
  4. e) risk-based action and by independent audits of their risk management systems
  5. f) access for researchers to key data of the largest platforms, to understand how online risks evolve
  6. g) oversight structure to address the complexity of the online space: EU countries will have h) the primary role, supported by a new European Board for Digital Services; for very large platforms, enhanced supervision and enforcement by the Commission[43].

Benefits to People

Due to these acts, platforms will have mandatory procedures in place for removing illegal goods and online marketplaces will also be requested to trace their traders, which helps them to know their business customers[44]. This will ensure a safe, transparent and trustworthy environment for consumers and discourage traders who abuse platforms from selling unsafe or counterfeit goods[45]. Online platforms will further be requested to organise their online interfaces in a way that allows traders to comply with their information obligations towards consumers[46]. A new system of trusted flaggers will also be available, e.g. for brand owners fighting counterfeit goods, for faster and easier flagging and removal of counterfeit goods, while public authorities will have new tools to order the removal of unsafe products directly[47]. The proposal focuses on fixing platforms’ vulnerabilities against their manipulation to amplify harmful behaviours, such as the spread of political disinformation, hoaxes and manipulation during pandemics, harms to vulnerable groups[48].

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References:

[1] https://digital-strategy.ec.europa.eu/en/policies/digital-services-act-package

[2] Ibid

[3] Ibid

[4] Ibid

[5] Ibid

[6] https://eur-lex.europa.eu/legal-content/en/TXT/?uri=COM%3A2020%3A842%3AFIN

[7] Ibid

[8] https://eufordigital.eu/discover-eu/eu-digital-single-market/

[9] Proposal for a regulation of the European Parliament and of the Council on contestable and fair markets in the digital sector (Digital Markets Act)

[10]Ibid

[11] Ibid

[12] Ibid

[13] Anderson, Mariniello (16 February 2021). “Regulating big tech: the Digital Markets Act”. Bruegel.org.

[14] Anderson, Mariniello (16 February 2021). “Regulating big tech: the Digital Markets Act”. Bruegel.org.

[15]https://ec.europa.eu/info/strategy/priorities-2019-2024/europe-fit-digital-age/digital-markets-act-ensuring-fair-and-open-digital-markets_en

[16] Murgia, Madhumita (18 May 2017). “Facebook fined €110m by European Commission over WhatsApp deal”. www.ft.com. Retrieved 23 November 2021.

 

[17] European Commission (18 July 2018). “Antitrust: Commission fines Google €4.34 billion for illegal practices regarding Android mobile devices to strengthen dominance of Google’s search engine”. European Commission – European Commission. Retrieved 23 November 2021.

[18] Satariano, Adam; Nicas, Jack (18 July 2018). “E.U. Fines Google $5.1 Billion in Android Antitrust Case”. The New York Times. ISSN 0362-4331. Retrieved 23 November 2021.

[19] De Streel, Alexandre (19 January 2021). “The European proposal for a Digital Markets Act: A first assessment”. CERRE. Retrieved 23 November 2021.

[20] https://www.bruegel.org/2021/02/regulating-big-tech-the-digital-markets-act/

[21] https://www.bruegel.org/2021/02/regulating-big-tech-the-digital-markets-act/

[22]https://ec.europa.eu/info/strategy/priorities-2019-2024/europe-fit-digital-age/digital-markets-act-ensuring-fair-and-open-digital-markets_en#what-will-be-the-consequences-of-non-compliance

[23]https://ec.europa.eu/info/strategy/priorities-2019-2024/europe-fit-digital-age/digital-markets-act-ensuring-fair-and-open-digital-markets_en#what-will-be-the-consequences-of-non-compliance

[24] Ibid

[25] https://digital-strategy.ec.europa.eu/en/policies/digital-services-act-package

[26] https://digital-strategy.ec.europa.eu/en/policies/digital-services-act-package

[27] Ibid

[28] Ibid

[29] Proposal for a Regulation of the European Parliament and of the Council on a Single Market For Digital Services (Digital Services Act) and amending Directive 2000/31/EC.

[30] Ibid

[31] Ibid

[32] Ibid

[33] Ibid

[34] Ibid

[35]https://ec.europa.eu/info/strategy/priorities-2019-2024/europe-fit-digital-age/digital-services-act-ensuring-safe-and-accountable-online-environment_en

[36] Ibid

[37]https://ec.europa.eu/info/strategy/priorities-2019-2024/europe-fit-digital-age/digital-services-act-ensuring-safe-and-accountable-online-environment_en

[38] Ibid

[39] Ibid

[40] https://www.ft.com/content/d9d05b1e-45c0-44b8-a1ba-3aa6d0561bed

[41]https://ec.europa.eu/info/strategy/priorities-2019-2024/europe-fit-digital-age/digital-services-act-ensuring-safe-and-accountable-online-environment_en

[42] Ibid

[43] Ibid

[44] https://ec.europa.eu/commission/presscorner/detail/en/QANDA_20_2348

[45] Ibid

[46] Ibid

[47] Ibid

[48] Ibid