A BRIEF ANALYSIS OF THE DIGITAL SERVICES PACKAGES DSA&DMA  

Definition of the digital package’s target  

The DSA target

«The new rules are proportionate, promote innovation, growth and competitiveness and facilitate the expansion of smaller platforms, SMEs and start-ups. The responsibilities of users, platforms and public authorities are rebalanced according to European values, placing citizens at the center. Rules better protect consumers, and their fundamental rights online establish an effective and clear framework for transparency and accountability of online platforms promote innovation, growth and competitiveness within the single market».

The Digital Services Act establishes due diligence obligations applicable to all digital service providers in the European single market, including those established outside the EU without any restrictions. In the event that the service provider is not based in the EU, it will have to appoint its own representative, as is also provided for other European regulations. The obligations of different online operators correspond to their role, size and impact on the digital ecosystem.

For the sake of transparency, all brokerage service providers will be required to include in their terms and conditions any restrictions or limitations they impose in relation to the use of their services. They will also have to make known the procedures, measures and tools used for content moderation and publish clear and detailed reports on their moderation activities at least once a year.

Which suppliers are affected?

• Brokerage services that offer network infrastructure: Internet access providers, domain name registrars, including:
• Hosting services such as cloud and web hosting services, including:
• Online platforms that bring together sellers and consumers such as online marketplaces, app stores, collaborative economy platforms and social media platforms.  
• Large online platforms carry particular risks for the dissemination of illegal content and damage to society. There are specific rules for platforms that reach more than 10% of Europe’s 450 million consumers.

In addition to these obligations, hosting service providers will need to:

• implement intuitive and easy-to-access mechanisms through which users can notify the provider of the presence of illegal content;
• provide, in case of removal or disabling of the content, a statement of reasons, or a statement addressed to the user who inserted the content, where the reasons for such a measure are clearly indicated and the possibility of appeal is offered.

Online platforms (including e-marketplaces, social network sites, search engines, etc.) will be subject to additional transparency obligations, first of all to ensure that for each advertising displayed the user can clearly recognize who sponsored the ad and what parameters were used to decide to direct that content to a particular recipient.

The Digital Services Act establishes a distinction between “online platforms” and “very large online platforms”, i.e. those that reach more than 45 million average monthly users. In view of the large amount of data and information they process, the influence they may have on the market and users’ choices, and the systemic risks they may pose in terms of the dissemination of illegal content, additional transparency obligations apply to them.

If they use content recommendation systems (as is often the case on major e-commerce sites), the parameters used and any options for service recipients to modify or influence those parameters should be clearly stated in the platform’s terms and conditions. In addition, consumers must be guaranteed the right to opt out of recommendations for profiling-based content.

Sanctions

For intermediaries who are found to be fulfilled, liability exemptions will be provided.

For defaulting companies, the Commission has provided for penalties of up to 6% of total turnover. In case of repeated failure to comply with the obligations provided, with the implementation of conduct that may endanger the rights and safety of people, it will also be possible to request the temporary suspension of the service offered by the platform.

The DMA targets – gatekeepers

The Digital Market Act targets the so-called gatekeepers. But who are they?

Gatekeepers are big online platforms which exercise control over access to the digital market. Their role is to allow the connection between end-users and business-users, which means that they act as a link between businesses and consumers.

For this reason, gatekeepers hold a great power in terms of selection of users (from both sides of the market) that can access the platform: gatekeepers could impose unfair conditions to users that demand access to the platform, causing a decrease of demand or supply and thus affecting the market and the competition.

These unfair behaviours won’t be tolerated anymore and gatekeepers will have to allow Chapter II of the DMA Proposal, Article 3, Designation of gatekeepers, provides the criteria to identify the gatekeepers. At first, three cumulative conditions must be met, so that the gatekeeper is the provider of core platform only if:

1. has a significant impact on the internal market (the condition is presumed to be met if the company reports an annual turnover of 6.5bln or a market capitalisation of 65bln);
2. operates a core platform services used by business-users to reach end-users (the condition is presumed to be met if the platform has 45mln end-users monthly and 10k business users yearly);
3. enjoys and entrenched and durable position that will presumably be kept in the future (the condition is presumed to be met if the first two conditions have been met for three subsequent years).

The providers that meet all the conditions have to notify it to the European Commission. In absence of notification, the Commission will be able nonetheless to label the provider as gatekeeper if the criteria are met.

Consequences DSA & DMA

It starts from a situation where there is broad consensus on the need for action to address the growing dangers in digital markets, without jeopardising the enormous benefits they have brought to the economy and consumers. The structure of the rules is simple, as there is a list of things that can be done and things that cannot be done, but there is a risk that this list can be too hard. The danger now is that the newly designed rules will end up being just sand in the gears of the digital giants’ mighty machines, instead of fostering the greater competition or fairness that one would like to ensure. If so, the rules will prove both inefficient, reducing consumer welfare, and ineffective, not reducing the market power of the gatekeepers.

The measures target specific classes of recipients called “digital gatekeepers” in the DMA and “very large platforms” in the DSA, identified based on user thresholds (more than 45 million), and in the case of the DMA also of turnover or capitalization (more than EUR 6.5 billion or EUR 65 billion). This means that it is an asymmetric regulation, i.e. it applies only to the large ones, with the aim of favoring the entry of new players into the market.

The purpose of these rules for the DSA is quite clear, although not easy to achieve: a limitation of the safe harbour principle for platforms, i.e. the introduction of liability rules for the contents and products they convey and distribute. The DSA aims to significantly improve mechanisms for the removal of illegal content and for the effective protection of users’ fundamental rights online, including freedom of speech. It also creates stronger public scrutiny of online platforms, for platforms that reach more than 10% of the EU population.

This means:

• Measures to counter the sale and distribution of illegal goods, services and content online, such as a mechanism to allow users to report such content and algorithms for removing illegal content that raise the issue of ‘actual’ knowledge on the part of the platform, obliging it to remove the content with consequent liability for inaction;
• New obligations on tracking commercial users in online marketplaces, to help identify sellers of illegal goods;
• Effective safeguards for users, including the possibility to challenge content moderation decisions of platforms;
• Transparency measures for online platforms including the algorithms used to target commercial communications;
• Obligations for very large platforms to prevent misuse of their systems through risk-based actions and independent audits of their risk management systems;
• Access for researchers to key data from the largest platforms to understand how online risks evolve.

As for the DMA, it must be well understood that also in this case we are dealing with a regulatory intervention, not with competition law. Margrethe Vestager explained it very effectively using the metaphor of the river: the antitrust intervenes to remove debris from the river, the DMA wants to put a filter upstream, to prevent certain debris from entering the river. But designing and building the filter is far from easy. 

The DMA establishes a set of narrowly defined objective criteria to qualify a large online platform as a gatekeeper; in particular, it will be relevant whether a company:

• has a strong economic position, a significant impact on the internal market and is active in several EU countries;
• has a strong intermediary position, i.e. it connects a large user base to a large number of businesses;
• has (or is in the process of having) a deep-rooted and durable position in the market, meaning that it is stable over time.

In the list of what you can or cannot do, we can find:

Among the ‘do’s‘ the platforms will have to:

• Allow third parties to interact with the gatekeeper’s services in specific situations;
• Allow business users to access the data they generate when using the gatekeeper’s platform;
• Provide advertisers on their platform with the tools and information necessary for advertisers and publishers to perform their own independent verification of their ads hosted by the gatekeeper;
• Enable commercial users to promote their offer and conclude contracts with their customers outside the gatekeeper platform.

On the other hand, it shall be forbidden:

• Treat the services and products offered by the gatekeeper itself more favourably than similar services or products offered by third parties on the gatekeeper’s platform;
• Prevent consumers from connecting with companies hosted outside the gatekeeper’s platforms;
• Preventing users from uninstalling any pre-installed software or applications if they wish to do so.

In case of non-compliance there are fines: up to 10% of the company’s total annual worldwide turnover; up to 5% of the average daily turnover; additional corrective measures in case of systematic violations of DMA obligations by gatekeepers. Such measures may include behavioral and structural remedies, e.g. divestment of (parts of) a business.

The end

Online platforms of any dimension have become central in our economy and society, especially during 2020, during which digital services played a crucial role in our world. Online services helped us to continue working, doing business, learning, staying informed, shopping, entertaining ourselves, socializing, and staying in touch with other people and friends.

Considering this, it is of central interest a renewal of the legal framework, in order to keep us up to date.

We thank Professor O. Pollicino for his guidance in drafting the report.

Legal Desk Department

Authors:
Gastaldo Leonardo
Sellitto Mariarosaria
Finocchiaro Albert

Prof. Pollicino Oreste