A future Digital Services Act

On 2 June 2020, the European Commission launched its public consultation on the Digital Service Act, a landmark legislative-package announced by President Von der Leyen in her political agenda and by the Commission’s communication “Shaping Europe’s Digital Future”. The grounds of the consultation are to update, strengthen and harmonise the current EU regulatory framework for digital services, that dates back to the EU Directive 2000/31/EC adopted in 8 June 2000. This initiative also aims to further develop the Platform-to-Business Regulation (EU) 2019/1150, which is appliable from 12 July 2020. Thies has been envisaged as the first step to establish a fair and transparent business environment around online platforms (the so called ‘online intermediaries’).

The Commission’s main policy objective is to ensure a fair-trading environment and increase the innovation potential and capacity across online platform ecosystems in the EU Single Market. The Commission also aims to safeguard the Single Market’s competition rules on online platforms by guaranteeing that digital service providers perform responsibly to mitigate risks arising from the use of their service, in compliance with- the EU fundamental rights and values.

The above-mentioned Directive had the objective to assess certain national provisions on information society services, the establishment of service providers, electronic contracts, the liability of intermediaries, codes of conduct and out-of-court dispute settlements. It has been a foundational cornerstone for the regulation of digital services in the EU thanks to the Directive’s harmonized principles that allow cross-border provision of digital services within the Single Market. 

Since the 2000s, when the Directive entered into force, the digital environment radically changed, as large online platforms bolstered their network-leveraging capacity and their mastery of large shares of data by acting as gatekeepers of the digital services’ market. Therefore, it is imperative to address a range of new issues that are quickly evolving and to face new needs to safeguard EU competition rules and users’v fundamental rights.

Following these concerns, the consultation covers two different work strands that could be jointly tackled by the Digital Service Act. The first set of rules would relate to the fundamentals of the aforementioned Directive, in particular the freedom to provide digital services across the Single Market and a broad limitation of liability for content created by users. The second measure would address the issue of the level playing field in European digital markets, where, as already mentioned, a few large online platforms act as gatekeepers. The Commission will explore rules to address these market imbalances, to ensure that consumers have the widest choice and that the Single Market for digital services remains competitive and open to innovation.

The Commission released an Inception Impact Assessment (IA) that lists a series a problems the initiative aims to tackle. The first issue raised by the IA is the fragmentation of online services’ regulations within the Single Market and the need of reinforced cross-border cooperation which can no longer be performed by the old Directive. 

Following the spread of digital harmful contents and the increasing abuse of online services, the Member States are drafting regulations with significant differences in the obligations imposed on digital services, and with a variety of different enforcement mechanisms. This trend could increase the Single Market fragmentation with potential negative impacts to the security of EU citizens and businesses, especially in the absence of an effective harmonization of rules and obligations. This could also cause a lack of clarity for the digital services supplied within the EU, rising concerns on the efficacy and effectiveness of national regulation undertaken in this field. A stronger and more agile cooperation will bolster mutual trust and an effective enforcement of a common policy to address these issues.

As already mentioned, the risk for the safety of citizens and the safeguard of their fundamental rights is another important problem that the Digital Service Act will deal with. In the absence of clearly defined responsibilities at EU level for digital services in general, the platforms can face uncertainty when they do steps to address illegal behaviours. In many instances, there is also a lack of accountability in the private decisions taken by online platforms, and the current legal framework does not allow any scrutiny of how platforms shaping information flows online, including the role played by associated online advertising services.

As a third major problem, the IA point out the significant information asymmetries between the services and the users (both citizens and businesses), but also with regards to public authorities. These asymmetries are mainly the results of oversight’s lack over digital services in the current legal framework. Indeed, transparency reports issued by online platforms on measures taken against illegal activities or contents are generally voluntary and they also require comprehensiveness and the endowment to be comparable across services. Furthermore, such measures, once enforced, are difficult to scrutinize when carried against harmful content, which is not per se illegal, and that could result in concerns about the lawfulness of their impact (that generally also reduces the freedom of expression). This accountability gap also concerns algorithmic processes used by online platforms and automated systems, such as artificial Intelligence softwires with output that are not accountable even by the programmer.

The information asymmetry issue directly involves the outstanding cogency that few online platforms have gained in the digital services’ market in the past decade. Online platforms have facilitated cross-border trading within and outside the EU and have introduced entirely new business opportunities to a variety of European businesses and traders. However, whereas the Commission counted over 10 000 online platforms that operate in Europe’s digital economy, only a small number of these platforms capture the biggest shares of the value and data flow. Furthermore, some of the major online platforms exercise control over whole platform ecosystems that are essentially impossible to be faced by existing or new market operators, irrespective of how innovative and efficient they might be.

These major platforms are able to secure relevant market shares thanks to a defined sets of features that characterize their outline, which are listed in the IA as their main sources of economic power. Firstly, these platforms are able to collect and analyse large amount of data. Next, they can easily access different technical assets as proven softwires and databases, therefore securing their ability to easily expand into new markets and leverage their advantage from their services. Then, the outcome of these process is to take over competitors and benefit from their financial clout.

Even if these ‘online gatekeepers’ have brought substantial advantages to many companies in terms of business opportunities and cross-border trading, their unfitted leverage of their dominant stance is hampering the development of a fully functioning digital Single Market. Examples of these ‘market disfunctions’ are the increasing dependence of traditional businesses on large online platforms, the overwhelming obstacles to innovative digital firms and start-ups to led innovation and the above-mentioned readiness of such platforms to use data gathered from one area of their activity to expand their businesses  in adjacent markets (a scheme not by chance referred as the cuckoo strategy).

In order to better manage these market imbalances, the aforementioned Platform-to-Business Regulation has created horizontal standards for transparency and offers redress for SMEs that may be using these platforms’ services. Nevertheless, the EU legal framework is far from regulate the economic power hold by the platforms that act as gatekeepers. Indeed, the IA explore specific policy options supervised by the Commission and subjected to the scrutiny of the consultation.

As a legal basis for these policy options intended by the Commission, Art. 114 TFEU is well suited, as it enables the EU institutions (trough ordinary legislation procedure) to “adopt the measures for the approximation of the provisions laid down by law, regulation or administrative action in Member States which have as their object the establishment and functioning of the internal market”. On the other hand, the proposed policies have the declared scope to struggle against large-scale, unfair trading practices and to achieve a ‘Digital European Sovereignty’, in other words to manage the flows of digital data by hampering their bunching in the hands of few online platforms.

The first policy option calls for a revise of the horizontal framework set in the Platform-to-Business Regulation. This proposal suggests to strength the horizontal rules for online intermediation services currently provided by the Regulation. The Commission would introduce new prescriptive rules on different specific practices that are currently addressed by the transparency obligations, also covering new emerging practices. The existing oversight could also be reinforced, entangling the new rules with the emerging issues identified by ongoing fact-findings, as well as by information collected from the strengthened transparency provisions of the Regulation. 

The second policy option seeks to adopt horizontal framework empowering regulators to collect information from large online platforms acting as gatekeepers. These means that the new rules would not only envisage further transparency (as it is the case of option one), but they would also enable targeted collection of information by a dedicated regulatory body at EU level. Indeed, the purpose of a new horizontal framework would be to enable the collection of large amounts of data from the major online platforms, providing the EU regulatory body with the adequate powers to enforce the Digital Services Act.

Finally, the third policy option would adopt a new and flexible ex ante regulatory framework for large online platforms acting as gatekeepers. As the previous option, the following will set specific rules for the major platforms, identified on the basis of a set of clear criteria, such as network effects and the ability to leverage data across markets. At the same time, the Platform-to-Business Regulation would continue to apply at all online intermediation services, in other words, the new set of rules would complement the current horizontally applicable provisions.

This option also includes two sub-options. The first one would introduce prohibitions or restrictions of certain unfair trading practices by platforms acting as gatekeepers (also referred as a ‘blacklisted’ practice). This option would explore both principles-based prohibitions that apply regardless of the sector in which the online platforms perform, as well as more issue-specific substantive rules on emerging problems associated only with certain actors. 

On the other hand, the second sub-option would adopt tailor-made remedies addressed to such platforms on a case-by-case basis where necessary and justified. Therefore, the new ex-ante regulatory framework would allow the ability to impose tailor-made remedies covering specific issues, following a prior assessment on the necessity of such remedies. Examples of the letters could include platform-specific non-personal data access obligations, specific requirements regarding personal data portability or interoperability requirements enforced by an EU regulatory body.

All these policy options give us the sense of the importance that the Digital Services Act could have, with a wide impact on several EU economic activities, but also with social and even geopolitical outcomes that will be carefully evaluated by the Commission ones all the information will be gathered from the public consultation. The EU Commission estimate that more than ten thousand online platforms are potentially hampered in scaling broadly and thereby contributing to the EU’s technological sovereignty, as they are challenged by incontestable online platform ecosystems. 

A considerable leak of social gains deriving from innovation is one of the major negative consequences that such ecosystems kindle. Therefore, is imperative that the EU’s innovators can thrive and contribute to the economic recovery following the COVID-19 crisis. The confinement measures enforced by the Member States had also the outcome to drive many weakened EU companies to further rely on established online platform ecosystems to reach out business users and consumers. As a result, ensuring a fair trading and transparent online business environment to EU firms heavily impacted by the confinement measures, in order to expand their business online, will be a fundamental step in the EU recovery trail.