The Digital Services Act

On December 16, 2020, the European Commission (EC) published two law proposals for the governance of the provision of digital services in the EU: the Digital Services Act (DSA) and the Digital Markets Act (DMA). While the DMA is intended to create a framework to regulate the behavior of so-called “gatekeepers”, the DSA aims to “define the responsibilities of providers of digital services, and online platforms in particular”.

Countless factors explain the regulatory model governing the internet to this day. The same factors explain why this soft approach is outdated. Let us just say that it was put in place when the internet was just starting off. In the EU, the current model, based on the e-Commerce Directive (ECD), was adopted in 2001. Meanwhile, major technological and socio-political developments boosted internet usage, fostered new services and new business models, while new and more harmful societal risks have also emerged.

The DSA has three rather open policy objectives:

1. to move to a more proactive regulatory model;
2. to institutionalize a structured dialogue between policymakers and specific categories of intermediary services;
3. to bring a greater level playing field for European companies that face unfair competition, as it applies to any entity establishing a relationship with European users, regardless of the place of establishment.

More concretely, the DSA adjusts some parts of the ECD to the challenges posed by the platform economy, while maintaining others. That is good news for startups and innovators. Some of the fundamental premises of the ECD that fostered innovation of the EU Digital Single Market remain mostly unchanged, e.g. the country-of-origin principle, the ban on general monitoring, and the limited liability regime.

On the other hand, all major novelties are procedural, adding new procedural changes to a new procedural layer, at both national and EU level, and effectively creating a new regulatory approach, which will surely impact your business in some way or another, directly or indirectly. And this is what you should be paying attention to.

How is the DSA structured? It is roughly divided into three sections. The first is dedicated to harmonizing the conditions for online intermediary services to benefit from the liability exemption regime. In other words, one of the main tools to protect internet freedom. Given that one of the fundamental principles of the internet is third-party content, liability exemption aims at ensuring that intermediary services are not liable for the content they unknowingly transmit, host or disseminate. Obviously, there are nuances to this, but you get the general idea. On the other hand, nothing new here: this part was copied verbatim from Article 12-15 of the ECD, so you should be informed.

Moving to the juicier part, the second section contains the bulk of what is truly innovative in the DSA. The idea that specific categories of intermediaries need to act more responsibly in a much more transparent way is translated into extra, cumulative due diligence obligations, according to role, size and impact in the online ecosystem. In other words, everyone is impacted. This indicates the regulator´s goal of inducing proactive actions through a spectrum of administrative and procedural obligations, while keeping the insulation from liability partially in place – the first part.

At this point, one should stop for a moment and focus on the interaction between the first and second sections. If you are a startup or an innovative SME, know that benefiting from the liability exemptions is not conditional to compliance with due diligence obligations. And rightly so, one might add. Thus, they are separate entities, the violation of the first section leading to civil lawsuits, and of the second section leading to administrative measures, fines and potential suspension of services.

Moreover, there are numerous nuances for you to consider, all of which are either relative to the definition of the kind intermediary service you provide or to particularities of the DSA itself. For instance, if your online platform qualifies as an SME, you are exempted from certain obligations. On the other hand, you are not exempted from having to ensure that your terms & conditions are consistent with the fundamental rights of users, etc.

Going through to the third main section, it is set a comprehensive setup framework for the enforcement of the DSA, based on a three-level mechanism:

1. a Digital Services Coordinator per Member State, with powers of investigation and enforcement at a national level;
2. the European Board of Digital Services, an advisory group in-between the Digital Services Coordinators and the third-level entity;
3. the European Commission, with complementary enforcement powers for Very Online Large Platforms, a sub-category of “online platforms” with potential “systemic” societal impacts, and which is calculated based on the number of users – 10% of the European population. Although penalties’ amounts are not harmonized, these may not be greater than 6% of the annual income or turnover, or maximum total under 5% for periodic penalties.

All in all, more than the artillery of tools devised to step up the rules of the game and to ensure compliance, the DSA relies extensively on PR damage for incentivizing compliance. It is indeed a very thin and delicate piece of legislation, whose success lies heavily on our ability to strike the right balance between competing fundamental rights.

On the other hand, one cannot but wonder whether the DSA will not accelerate the rhythm of our transition through to a new internet stage, since the one we are discussing and attempting to reshuffle is turning way too costly, and Web 3.0 is already here.