Introduction to the DSA&DMA

What is the Digital Package? What are DSA and DMA? Did one day the European Commission, Parliament wake up to the desire to revolutionize the services of the Community digital market? NO. 

Digital Services Act and the Digital Markets Act are currently just draft regulations with one single scope “ensure that we, as users, have access to a wide range of safe online products and services. And that companies operating in Europe can compete online in a free and fair way, just as they do offline”, said in a statement Margrethe Vestager, the EU Commissioner who leads the charge on technological issues.

In the light of the socio-economic developments which have affected not only Europe, but the whole planet, and which have made it possible to create an interconnected world where everyone is part of the same rule system, the European Parliament, on 20 October 2020, adopted two legislative initiative reports and a resolution calling on the Commission to address regulatory gaps in relation to the online environment and to provide rules that can somehow withstand future developments in digital services, including online platforms and markets, as well as a binding mechanism through which users can report illegal online content.

Therefore, the European Commission, on 15 December 2020, has provided two legislative proposals which, before becoming directly applicable throughout the EU territory, have to be discussed by Parliament and by the Member States according to the ordinary legislative procedure.

The ordinary legislative procedure envisaged, possibly, for the approval and entry into force of the DSA and DMA requires the joint adoption of the bill by the European Parliament and the Council on a proposal from the Commission.

This procedure, which has its legal basis in art. 294 TFEU and can take months, even years, depending on the amendments and the consensus generated by this legislative proposal, consists of (at least) 4 steps: 

The European Commission submits a proposal to the Council and the European Parliament.

The Council and the Parliament adopt a legislative proposal either at the first reading or at the second reading. 

If the two institutions do not reach an agreement after the second reading a conciliation committee is convened.

If the text agreed by the conciliation committee is acceptable to both institutions at the third reading, the legislative act is adopted.

The approval process also requires the European Commission to seek the advisory opinion of the EDPS authority where a legislative proposal “an impact on the protection of the rights and freedoms of natural persons in relation to the processing of personal data.” 

On 10 February 2021, EDPS published two opinions on the European Commission’s proposals for a Digital Services Act and a Digital Markets Act with the aim of helping EU legislators to shape a digital future rooted in EU values, including the protection of fundamental human rights, such as the right to data protection.

In its opinion on the Digital Services Act the EDPS welcomes the proposal for a Digital Services Act which seeks to promote a transparent and secure online environment.

But who is the EDPS? The European Data Protection Supervisor is the independent data protection authority of the European Union. Its task is to ensure that the fundamental right to the protection of personal information is respected in all European institutions and in all agencies across the continent.

It performs both the eu pa’s control function of the processing of personal data, advises EU institutions and bodies, cooperates with national administrations, oversees the interference of new data protection technologies.

Nowadays, the EDPS is Wojciech Wiewiórowski who on 10 February 2021 expressed himself as follows: regarding the DSA “We note that the proposal does not impose a general obligation of monitoring, confirms reasonable exemptions of liability and integrates them with a pan-European system of warning and action rules, so far missing.” 

Similarly, in its opinion on the Digital Markets Act, EDPS welcomes the European Commission’s proposal to promote fair and open digital markets and fair processing of personal data by regulating large online platforms that act as guardians.

Wojciech Wiewiórowski said: “Competition, consumer protection and data protection law are three inextricably linked areas in the context of the online platform economy. Therefore, the relationship between these three areas should be of complementarity, not of friction”.

The structure

Let’s go in depth and see how they are structured

The Digital Services Act and the Digital Market Act, even distinct, are a single Package of legislation and it can be said that fall within the same scope and are expression of the same values.

Generally, there is clear evidence that the European Commission is essentially trying to protect the consumer in the Digital era: the core values of consumer protection, together with antitrust legislation, are the basis of the Package.

However, the Package is meant to go beyond mere consumer protection: it wants to ensure a friendly digital environment for every player, be it consumer or business user. Moreover, it aims at strengthening the European Single Market in its digital dimension, fostering competition and innovation.

In order to do so, the focus must be on the large platforms that host the digital market and the giants which provide digital services.

On one hand, indeed, in the explanatory memorandum of the Digital Market Act proposal it is explained how most of the digital economy’s value is captured by few large platforms that are durably entrenched in their position and de factocontrol access to the digital market. These platforms, if meet a series of conditions, are called gatekeepers and are the ones that allow the meeting of end-users (i.e. consumers, demand) and business-users (i.e. supply) in the cyberspace.

On the other hand, in the Digital Services Act proposal the European Commission calls for transparency, fairness and accountability “for digital services’ content moderation process” in light of human rights. Moreover, the digital services’ providers, especially online platforms such as social media and marketplaces, are requested to implement illegal-addressing mechanisms which can be challenged, rules on (algorithmically targeted) advertising and enable the use and development of smart contracts.

The Digital Services Act (DSA) and the Digital Markets Act (DMA) are two European legislative proposals and they are two complementary parts of the same project regarding the European digital market.

Digital Markets Act

[WHY] Avoid monopolistic positions that can lead to consumer’s hurt.

The DMA targets “gatekeepers”: these are companies (Large Online Platforms) that own a platform which acts as a nexus, a link between two or more groups of users (take, for instance, buyers and sellers), facilitating their interaction. Therefore, the platform is crucial to the meeting of demand and supply since both sides have to follow its routes to meet one another.

A gatekeeper is a platform operating in digital services in at least three EU countries and:

  1. Has a significant impact on the internal market (i.e., an annual turnover of 6.5bln or mkt cap. of 65bln)
  2. Acts as a gateway for business users to reach consumers (45mln end-users monthly and 10k business users yearly)
  3. Enjoys an entrenched and durable position (i.e., meets the previous criteria over three consecutive years)

This kind of platform is labelled as gatekeeper. However, the Commission would be free to move these thresholds following technological development and could also label other platforms as gatekeeper on the basis of a qualitative assessment.

Digital hubs are controlled by a handful of global players, which implies that digital markets are characterized by high concentration of users. This might become a problem in terms of competition of the market, which translates into efficiency of the market itself. Success is not forbidden, but locking it in might become a problem. This is especially true after a long period of primacy of the same tech giants, which translates into incredible bargaining power against regulators, making consumers vulnerable.

The DMA addresses two problems: barriers to entry and unfair or anticompetitive practices put in place by gatekeepers.

The DMA intends to prohibit, among others, self-preferencing (raking the gatekeeper’s products over others), spying on business consumers’ data to compete with them and combining end-users’ data from different sources without their consent. It also includes some kind of regulation regarding mergers, which is not very clear at the moment.

DMA is suited for intervention BEFORE any damage, not after. Therefore, the DMA represents an ex ante approach based on obligations imposed on gatekeepers which could be a complement to competition rules.

The Digital Marketplace Act establishes a set of objective and very precise criteria to define large online platforms that exercise an access control, i.e. gatekeeper, function. This allows it to focus on the problems posed by large systemic platforms. The new rules set out obligations and prohibitions that these platforms will have to respect in their daily activities.

Gatekeepers will have to: make their services interoperable for third parties in specific situations; allow commercial users to access the data they generate using the platform; provide companies advertising on the platform with the necessary tools and information to allow advertisers and publishers to carry out independent audits of the advertisements hosted by the platform; allow commercial users to promote their offer and conclude contracts with customers outside the platform. Violation of the rules in the DMA would lead to the payment of fines of up to 10% of the company’s total annual worldwide turnover, with periodic penalty payments of up to 5% of the average daily turnover. In the case of systematic breaches of obligations, additional remedies may be imposed on platforms following a market investigation. These remedies should be proportionate to the infringement committed. Additional remedies may include behavioural and structural remedies, such as an obligation to sell an asset or parts of it.

­­­­Digital Services Act

The Digital Services Act targets unlawful content on online platforms owned by companies that provide intermediary digital services, imposing obligations depending on their size, role and impact on the online ecosystem.

The law aims at removing illegal content from online platforms and protecting the users’ fundamental rights, especially their freedom of speech.

Concretely, this target would be achieved through different mechanisms:

Users would be able to flag illegal content; platforms should comply with new standards of traceability of business users; transparency measures for platforms would be introduced, including on algorithms used for recommendation of content and ads; risk management (r?)evolution; right to understand why some content has been blocked or removed, with the right to contest the decision.

Regarding algorithms that select recommended content and ads, indeed, the problem is that at the time of writing they could select content and ads based not only on subjective preferences, but also depending on how much the platform can earn by promoting that specific content or ad. Therefore, the platforms would have to explain exactly the reasons why a specific content is shown and why they’re shown to that specific user. This directly translates into revealing who influences end-users and why.

Among the key points of the Digital Services Act, the proposed regulation published by the European Commission and aimed at creating a European digital single market, are new systems for removing illegal content and new rules for online advertising. One of the main objectives declared by the Commission is to guarantee users of digital platforms greater choice and greater security, as well as to limit the emergence and spread of abusive market-distorting behaviour.

In the DSA we can find: The tools of the Digital Services Act against network illegality; Measures to limit the spread of illegal content online; Measures to combat the sale of counterfeit products online; Obligations for online advertising.

The rules of the Digital Services Act apply within the EU single market without limitation, and also apply to all online intermediaries established outside the EU who offer their services in the single market.

The companies which will benefit from “a modern, clear and transparent framework to ensure that rights are respected, and obligations enforced“. It should be easy for the firms report illegal activities carried out on digital platforms to their detriment, or prevent the wrongful removal of their content, including through specific internal and external redress mechanisms.

For defaulting companies, the Commission has provided for the application of sanctions of up to 6% of the global turnover. In the event of repeated failure to comply with the obligations laid down, with the implementation of conduct that may jeopardize the rights and safety of individuals, it will also be possible to request the temporary suspension of the service offered by the platform.

Legal Desk Department

Gastaldo Leonardo
Sellitto Mariarosaria
Finocchiaro Albert

Prof. Pollicino Oreste

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