On 15th December, the European Commission announced a package of digital markets legislation intended to give the Commission the power to better regulate major online platforms and to protect European consumers and businessess for effectively: the Digital Services Act and the Digital Markets Act. The legislation introduces a range of measures with the aims of protection of consumers, increasing transparency and trying to mitigate the risks of manipulation and disinformation.
The Digital Services Act – liability of intermediaries
The Digital Services Act (DSA) will apply horizontally to a wide range of companies who operate in digital markets and contains several measures of general application. In addition, it introduces stricter regulation and reporting requirements for “very large platforms”; which means platforms with more than 45 million users.
All online platforms must make sure that individuals using their services can identify the following three things about any adverts displayed on those platforms:
that the information displayed is an advertisement on whose behalf the advert is displayed “meaningful information about the main parameters used to determine the recipient to whom the advertisement is displayed”.
Online platforms routinely collect and process user personal data in order to serve advertising to their users; which is, in turn, how they monetise their services. The new advertising requirements in the DSA tie in with the obligations which apply to online platforms processing personal data under the GDPR, requiring the processing of personal data to be done “lawfully, fairly and in a transparent manner”.
The DSA also contains measures of general application for online platforms which require “user-friendly” notice provisions allowing third parties to notify the platform of illegal content on their sites, which must be dealt with by the host in a “timely, diligent and objective manner”.
Given the mounting pressure on social media platforms such as Twitter and Facebook to identify and remove “hate speech” and other harmful content, such measures are to be welcomed. Amazon has not been left out, with new measures introduced to ensure the traceability of business users of online platforms. Consumers will be accorded much greater protection through the requirement for online platforms to vet their business users before allowing them to trade on their platforms.
So-called “very large platforms” will be subject to additional transparency obligations where they will be required to compile and make publicly available information on content and targeting of adverts together with the total number of recipients reached by those adverts. They will also be required to provide more detailed reports to the relevant authority on their action to control illegal content.
Enforcement
The DSA will be enforced by a new (yet to be named) EU level body, which will co-ordinate the compliance monitoring activities of new national “Digital Services Coordinators”. The new body will have the power to fine online platforms up to 6% of the annual income or turnover of the platform together with an additional fining power of 1% of annual income or turnover if a platform provides incorrect, incomplete or misleading information.
The Digital Markets Act - contestability and fairness
The Digital Markets Act (DMA) is focused on what the Commission terms “gatekeepers”, which is broadly comparable to the UK’s Digital Markets Taskforce definition of platforms with “strategic market status”. The DMA sets up a list of obligations for providers of “core platform services” such as market places, search engines or social networks that act as ‘gatekeepers’ by virtue of their impact on the European internal market and entrenched market position – even where that doesn’t satisfy the competition law definition of dominance. Gatekeeper status is presumed for undertakings with an annual turnover above EUR 6.5 billion or a market value of at least EUR 65 billion that operate a platform with more than 45 million monthly active end users and more than 10 000 yearly active business users.
The focus of the obligations imposed by the DMA is preventing unfair business practices such as blocking users from un-installing pre-installed software (such as apps) and ensuring contestability by requiring gatekeepers to proactively enable greater interoperability between their platforms and third party services. The possible fines are even greater than those under the DSA and analogous to the Commission’s competition fining powers; the DMA permits fines of up to 10% of the platform’s worldwide turnover, reflecting the seriousness of conduct which has market altering dynamics or re-enforces a platform’s ability to entrench its market power. To deal with the issue of systematic non-compliance, the Commission has proposed backstop powers to break up any “gatekeeper” that is fined three times within five years.
Enforcement
The DMA will be enacted as a Regulation and therefore does not have to be implemented into the national laws of EU Member States. It will become directly applicable six months after its entry into force. Once an undertaking has been designated as a “gatekeepers, the undertaking shall comply with the obligations in the DMA within six months. With some of the measures within the DMA, the Commission may specify the measures that the relevant gatekeeper is to implement to ensure compliance. A gatekeeper may, in turn, request a suspension or even an exemption from particular obligations if it can demonstrate that the obligation would threaten its economic viability or public morality, health or security. In the event of non-compliance, the Commission may initiate proceedings, impose interim measures and fines or periodic penalty payments in cooperation with a committee of representatives of EU Member States – the “Digital Markets Advisory Committee”.
Conclusion
The proposals in the DSA require online platforms to be more transparent about the advertising, to take responsibility for the content that they host and to do their due diligence on the business users of their platforms to ensure greater protections for European consumers. In the DMA, the Commission introduces an ex ante regime for digital market “gatekeepers”, which shifts the regulatory focus towards preventing (rather than curing) anticompetitive harms in digital markets. It is to be hoped that these new powers will overcome the limits of often lengthy and costly antitrust procedures, which are ill-suited to regulating dynamic and fast-evolving markets.
A relevant factor in the success of the DSA and DMA will be the speed with which both pieces of legislation can be implemented and enforced. The longer the delay, the more entrenched the market positions of “gatekeepers” will become. There is no timetable yet as to when the legislation will come into force; the Commission’s draft proposals need to be voted upon by the European Parliament and Council of Ministers. In the meantime, Commissioner Vestager has made it clear that the Commission’s ongoing antitrust probes into Amazon, Apple and Facebook, clear-cut candidates for “gatekeeper” status, will continue, with the two probes into Apple being said to be at an “advanced” stage.
Of course, in light of Brexit, any new European legislation which comes into force after 31 December 2020 will not apply in the UK. On 8 December 2020, the CMA’s Digital Markets Taskforce made 15 recommendations as to how the UK Government could implement a new pro-competitive regulatory regime, including the establishment of a new code of conduct for firms with strategic market status and a new regulatory body – the Digital Markets Unit to monitor compliance and enforce the code.