Shaping the EU’s Digital Future. Drafting updates for the Digital Services Act

Recap

The Digital Services Act (DSA), alongside the Digital Markets Act (DMA), is part of the EU Commission’s digital strategy aiming to reinforce the single market for digital services and to create a more level playing field for businesses of all sizes across the EU. To this end, the new DSA will build on the E-Commerce Directive, whose core provisions on the liability safe harbour for online intermediaries have over time witnessed diverging approaches across the Member States.

The EU Commission (EC) presented its vision for the comprehensive reform package in a first DSA draft on 15 December 2020. While the EC decided to generally maintain the cornerstones of the existing liability regime – i.e. the country-of-origin principle, the safe harbour provisions for online intermediaries, and the ban on general monitoring obligations – it also proposed staggered obligations and requirements for online intermediaries to meet. More particularly, the EC draft introduces (i) detailed rules on content moderation, including a harmonized notice and action mechanism, (ii) new rules for transparency on advertising, (iii) seller-vetting obligations for online marketplaces (“know your business customer”), and (iv) strict obligations relating to systemic risks for online platforms with more than 45 million monthly active users (defined as “very large online platforms” / VLOPs). The draft also proposed a comprehensive enforcement system with new oversight bodies and severe penalties for providers who fail to comply with the new regulations. We have analysed the EC’s draft in detail in one of our previous articles.

Latest Developments

Since these wide-ranging proposals  afford a unique chance to set and adjust the basis for the digital economy in Europe, it came as no surprise when the draft DSA was  subject to hot debates from the start. While many stakeholders acknowledge the EC’s draft as an overall balanced approach, others have proposed rather radical changes and additions to the text.

The debates among Members of the European Parliament (MEPs) and among the 27 Member States in the European Council are no exception. Both bodies are currently in the process of determining their position for the upcoming negotiations with each other and the EC (‘trilogue’).

In the European Parliament, the legislative process on the DSA is led by the Committee on the Internal Market and Consumer Protection (IMCO). The EC draft has received almost unprecedented attention by MEPs in IMCO who have proposed over 2200 amendments to the text over the summer. A large portion of these amendments would come with a significant extension of the hosting provider obligations under the DSA. In particular, the following issues are under discussion:

• Fixed reaction times: Several MEPs support the introduction of fixed time periods in which a hosting provider must have decided on a submitted take-down notice. Arguably taking the German Network Enforcement Act (NetzDG) as an example, some have argued for a turnaround time of 24 hours in case of manifestly illegal content, and 7 days in all other cases. In contrast, the EC draft flexibly requires providers to decide “timely and diligently”..

• Wider appeal possibilities: IMCO further seeks to expand the pre-court appeal mechanism of the DSA with regard to content moderation. Whereas the EC draft only allows uploaders whose content was taken down to file an appeal and to engage in alternative dispute resolution, IMCO wants to open these redress possibilities to both uploaders and notice submitters, and to essentially all decisions on  restrictions of user content and accounts.
• Expanded “Know-Your-Business-Customer” obligations: For online marketplaces, IMCO proposes to supplement seller-vetting requirements with obligations relating to product identification and product safety – whereas the EC has just proposed a separate new regulation on these topics in June, the General Product Safety Regulation.  
• “Dark Patterns”: While not addressed in the EC draft, IMCO shows significant attention to interface designs that distort or impair the ability of users to make free, autonomous and informed decisions (so-called “dark patterns”).
• Further restrictions on advertising: The IMCO proposals also go further in terms of advertising. A number of MEPs push for obligations requiring online platforms to allow users to edit or delete any profile used for advertising, while others even demand a ban of the use of personal data for advertising purposes.
• Expanded VLOP definition and obligations: Under the EC draft, online platforms that pass the threshold of more than 45 million active users in the EU qualify as VLOPs – which would cover only a handful of companies.  Some MEPs therefore propose a qualification based on a turnover in the EU of more than EUR 50 million. Others suggested adding a designation process based on qualitative criteria. There has also been support for requiring VLOPs to perform (even) broader risk assessments and to provide detailed information on automated decision-making.

All of these, and further amendment proposals, are currently in flux.  IMCO initially scheduled to vote for its position to 8 November, but given the MEPs starkly different plans for the final scope of the DSA, this vote is likely to be delayed to December or even early-2022.

In the European Council, the Slovenian Presidency has likewise been working on amendments to the DSA. Its first compromise draft from September remained relatively close to the EC draft. Notable changes are made with regard to (i) wider appeal possibilities similar to the IMCO proposals, (ii) transparency on content moderation, and (iii)  obligations for online marketplaces. The latter would be required to design their interfaces in a way that facilitates compliance for traders, and to inform users that have bought illegal products about the illegal nature of the product, the identity of the trader and redress options.

Diverging views have also been raised with regard to supervision and enforcement under the DSA. France in particular has pushed for a country-of-destination approach, essentially giving jurisdiction to the authorities of all Member States in which an online service is offered. This initiative resulted in a coalition of smaller Member States lead by Ireland which defends the country-of-origin principle as fundamental to providing legal certainty and to the future innovation of digital services in Europe.

The Council aims to finalize its compromise text by the end of November.

Outlook

It is fair to say already that the DSA will be one of the most contentious regulations ever debated at EU level – which is not surprising given its ambitious aims and its scope. The challenge for lawmakers lies in finding an adequate balance of rights and interests of all parties involved. The discussions within the EU bodies to this point have already shown that the perceptions – also impacted by the significant lobbying efforts of numerous interest groups – of what that right balance should be differs significantly.

Once the European Parliament and the European Council have voted on their positions, the passionate debate will undoubtedly continue in the ‘trilogue’ with the EU Commission. An agreement on the final rules will likely not be reached before 2023.

2022 will prove to be a critical year for all affected businesses, which need to  audit their current workflows against the – likely – set of DSA obligations and start preparing for compliance. Waiting for the final text to arrive will in most cases be too late, considering that the EC draft currently sets an implementation period of no more than three months. Service providers should therefore evaluate their existing processes and perform impact assessments and gap analyses as early as possible.

DSA Taskforce

Our multi-jurisdictional DSA Taskforce  closely follows all developments of the legislative process. We will provide further regular updates on this blog covering the key developments. For details of our DSA taskforce click here and to view our topic centre click here.

Authored by Anthonia Ghalamkarizadeh and Florian Richter.