Digital Services Act focuses on Big Tech ahead of EU-wide application in 2024
Snapshot
- The Digital Services Act will update the existing E-Commerce Directive and reshape the ground rules for online services, platforms and search engines addressing the European market
- The regulation rests on two pillars: transparency and consumer protection and the management of illegal content. Both require significant updates to legal documents, user interfaces and backend processes, with some reporting obligations due as soon as February 2023
- Violations of the new digital services legislation may result in fines of up to 6% of the annual worldwide turnover in the preceding financial year
The Regulation on a Single Market for Digital Services, better known as the Digital Service Act (DSA), is now in force. It will change fundamentally the liability regime for online services in the EU when it becomes directly applicable across EU Member States on 17 February 2024.
The DSA will update the existing E-Commerce Directive by regulating intermediary services and introducing new provisions on liability rules, content moderation, transparency, user safety and advertising and platform accountability. It will have a significant impact on online operators such as video and stream hosting platforms and, more generally, providers of intermediary services, advertising services, online marketplaces and search engines.
The strictest regulatory regime will apply to very large online platforms (VLOPs) and very large online search engines (VLOSEs), defined as platforms with more than 45 million monthly active users.
While most large platforms are well underway with their compliance readiness programmes, it is worth a reminder of the key aspects of it.
Transparency and consumer protection
The DSA rests on two key pillars transparency and consumer protection and the management of illegal content. This will require changes to the user interface, internal compliance processes and legal documents.
Many of the DSA's obligations concern the user interface itself; for example, platforms are prohibited from using deceiving or nudging techniques to influence user behaviour – known as "dark patterns" – which give greater prominence to certain choices when asking the users for a decision. Platforms must inform users about the parameters of their "recommender systems" to help users understand their choices and how they influence the system.
Where platforms target customers with advertising services, the DSA introduces specific transparency obligations on the user interface, so if a displayed item is an advertisement, then its origin and the parameters which decide its audience must be displayed.
To ensure the traceability of traders, trader identification information (such as contact details and trade register confirmation) must be easily accessible to consumers and user interfaces must be designed in compliance with pre-contractual disclosures and product compliance information obligations.
Additionally, the DSA imposes obligations regarding information, risk assessment and mitigation and mandates a crisis response mechanism; one example being that comprehensive information must be provided within terms and conditions.
Stricter rules will apply for VLOPs and VLOSEs with respect to recommender systems, advertising transparency, "know your business customer" processes, crisis-response mechanism and terms and conditions.
Illegal content, products and services
Service providers must remove illegal content quickly and efficiently. The broad definition of illegal content means that content regulation will be Member State specific, so it will be crucial to monitor legal developments in all Member States.
Providers of hosting services must implement a portal in the user interface, which is located close to the information in question to enable users to easily and anonymously report potentially illegal content.
The affected customers or traders must be able to lodge complaints regarding the deletion of content, account blocking or other actions.
Once a report is filed, platforms must conduct legal assessments and reach decisions in a timely manner. Intermediaries must promptly remove or to disable access to illegal content once they are notified.
Terms and conditions must also contain information on practices regarding content moderation (that is, the definition of illegal content, the rules of procedure for the policies regarding misuse, such as what criteria leads to the suspension of merchants who repeatedly provide illegal content).
The DSA also introduces several new requirements for the handling of illegal content report. Notices filed by "trusted flaggers" must be prioritised, while decisions on complaints must be handled in a timely manner and not through automated means.
Out-of-court dispute settlement is mandatory upon the request of users, and information about this option must be easily accessible. As a measure against misuse, platforms can remove merchants or users who repeatedly upload illegal content or abuse the notice and action and internal complaint handling systems.
Consequences of non-compliance
National authorities and the European Commission have enforcement powers, including extensive rights of access to information, inspection and sanction of service providers.
Violations of the DSA may result in fines of up to 6% of the annual worldwide turnover in the preceding financial year.
The DSA also provides for compensation to users with respect to damage or loss suffered due to an infringement of the intermediary’s obligations.
Implementation countdown
The implementation clock is ticking. The DSA is directly applicable across the EU and will apply from 17 February 2024. However, providers designated as VLOPs or VLOSEs by the EU Commission will have to comply much earlier.
There may be trouble ahead
It is hard to underestimate the extent to which this regulation shifts the burden in relation to illegal content, products and services online. The extent to which online platforms can rely on the protections provided by the E-Commerce Directive, as they have done heavily since 2002, has been substantially eroded. They will now need to get on the front foot and build trust with national authorities and the Commission that they are doing everything they reasonably can to make the internet a safer place.
Tensions between compliance with the DSA and freedom of expression online are inevitable and will open up a new regulatory battleground over the next few years.
Authors
Felix Hilgert, Lead author Partner, US felix.hilgert@osborneclarke.com +1 650 462 4034
Konstantin Ewald Partner, Head of Tech, Media and Comms, Germany konstantin.ewald@osborneclarke.com +49 221 5108 4160
Chloé Haffner Associate, France chloe.haffner@osborneclarke.com +33 1 84 82 46 33
Alix Taverne Associate, France alix.taverne@osborneclarke.com +33 1 84 82 41 20
Claire Bouchenard Partner, France claire.bouchenard@osborneclarke.com +33 1 84 82 45 30
Julia Darcel Senior Associate, France julia.darcel@osborneclarke.com +33 1 84 82 45 42
Lena Pannecke Associate, Germany lena.pannecke@osborneclarke.com +49 30 7262 18053