The Digital Services Act: Will the EU Break the Internet?

The European Commission has formally kicked off its ambitious plans to re-shape the online world by opening a public consultation on the Digital Services Act (DSA). Technology companies ranging from cloud infrastructure providers to messaging services to online marketplaces are in the regulatory crosshairs of the Commission’s initiative. With the Commission eager to see the DSA have a global impact on a similar scale to the GDPR, the tech sector should be paying close attention to the Commission’s lines of inquiry and developments in Brussels.

The Digital Services Act: Will the EU Break the Internet?

For many years, European policymakers have closely watched the growth of the digital economy and the rise of “Big Tech”. From 2015-2019, policymakers focused on the creation of the EU Digital Single Market, encouraging business and consumers to move online. Now their focus has turned to ensuring that this market is competitive, protects consumers from illegal or harmful content and ensures that all companies benefit from the opportunities of e-commerce and not just a small number of tech giants.

There are two primary pillars to the DSA. The first is a large-scale review of the legal obligations of companies which provide services online, especially intermediaries, with a focus on dealing with illegal or harmful content. The baseline for this pillar is the 2000 e-Commerce Directive, broadly analogous to Section 230 of the US Communications Decency Act. Almost all online service providers currently enjoy intermediary liability exemptions for illegal content under this legislation, as well as a prohibition on general content monitoring. The second pillar is an update to competition law, aiming to identify markets dominated by “digital gatekeepers” and rapidly take corrective action. The Commission’s more aggressive competition law enforcement stance is driven by fears that certain markets are dominated by large “digital gatekeepers”, who can use a strong or dominant position in one market to freeze out competitors and quickly dominate in adjacent markets, hampering the growth of European competitors to American or Chinese tech giants.

Pillar One looks at online intermediary services (a subset of digital services, including internet access providers, cloud services, online platforms, messaging services, i.e. services that generally transport or intermediate content, goods or services made available by third parties) and online platforms, (including e-commerce marketplaces, search engines, app stores, online travel and accommodation platforms or mobility platforms and other collaborative economy platforms).

The consultation asks what obligations these services should have to remove illegal or harmful content, what evidence should be required for them to act, and what information they should be obliged to share with their users (both businesses and consumers). While many intermediaries would welcome some legal clarity in how to approach illegal content, or a more codified approach on tackling harmful content, new obligations could prove very challenging to implement for encrypted messaging services or cloud infrastructure providers, for example. The consultation asks about proportional obligations depending on where a business sits in the technology stack, but companies will need to be clear about how they operate and what they can do to help meet the Commission’s objectives, otherwise they risk becoming an edge case which falls into the wrong regulatory bucket.

The second pillar attempts to deal with the challenges many governments around the world have faced when looking at digital markets, where traditional competition law investigation and enforcement tools are ill-suited to concepts like data monopolies or multi-sided hybrid marketplaces. Here, the Commission is gathering views on how to assess the power and influence of online gatekeepers and looking for specific examples from consumers or businesses of where they feel they have been unfairly treated by a gatekeeping platform or where platforms hinder innovation or the growth of startups/scaleups.

Aside from the two core pillars, the Commission is collecting evidence about the experiences of self-employed workers using collaborative economy platforms, a warning shot across the bows of the gig economy, alongside a comparatively light-touch look into online advertising markets and smart contracts built on distributed ledger technology.

The Commission’s clear call is for companies to provide it with data and details so that it gets its analysis right ahead of firm DSA legislative proposals in Q4 this year. With the established online ecosystem in question, companies should take the Commission’s request seriously or face waiting another 20 years for a chance to re-shape the rules of the online world.

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