Digital services regulation: opportunities and challenges

Event report

The Digital Services Package is an initiative that seeks to establish a single set of rules regarding the digital provision of services online for the European Union.

As explained by Mr Denis Sparas (Legal Officer, DG CONNECT), the package addresses two main issues. First, it promotes a well-functioning internal market by maintaining a safe online environment, encouraging providers and users to act accountability and responsibly, and protecting rights online, such as freedom of expression and the right to conduct freely online businesses. Second, it addresses the market dominance of large service providers, mostly from the United States and China, and gives European players a fair chance to compete. To accomplish these goals, the package is composed of the Digital Markets Act (DMA) and the Digital Services Act (DSA).

DMA: competition and platform regulation

According to Mr Tommaso Valletti (Professor of Economics, Imperial College Business School), the DMA focuses on competition and platform regulation. It addresses large platforms referred to as gatekeepers, which have certain obligations. When a sector of the digital economy is dominated by gatekeepers, externalities and market failures are significant, making regulation necessary. The DMA does not replace legislation on consumer protection and competition, but complements existing regulatory frameworks and serves as an ex ante tool.

The DMA ensures that the services market remains competitive, increasing innovation and consumer choice. Although these policy objectives are important, Mr Oliver Bethell (Director, EMEA Competition, Google) remarked that their contours are not very clear. For example, ‘what does consumer choice mean, in practice?’, he asked. According to him, more clarity about the goals and policy objectives of the DMA would reduce future litigation and conflict. The digital services package should be granular and clear enough so actors are capable of understanding it and complying, but it also needs to be flexible, and open to revision and update based on evidence and actual response from the market.

Bethell also argued that product design is an important step in achieving norm compliance. Product design should be mindful of existing regulations and help to fulfill their policy objectives. Other technical aspects, such as interoperability, on levels of applications and standards, are important to enhance consumer choice, as noted by Ms Amandine Le Pape (COO and Co-founder, Element). Interoperability, especially in communication services, could support the implementation of the DMA.

The fact that the DMA does not cover issues related to mergers and acquisitions was pointed out as a shortcoming by Valletti. He called for an open and diverse ecosystem in which competition allows European entrepreneurs to exist and thrive in the digital economy. Currently, the main goal of many entrepreneurs is to sell their business to a large player.

Digital Services Act: content regulation and moderation

The second pillar of the Digital Services Package, the DSA, applies to providers of intermediary services, such as access providers, domain name providers, online marketplaces, app stores, and cloud services or web hosting. As pointed out by Ms Gabrielle Guillemin (Senior Legal Officer, ARTICLE 19), civil society organisations particularly welcome three aspects of the DSA. First, the DSA builds upon principles enshrined in the E-commerce Directive, such as conditional liability and prohibition of general monitoring obligations. Second, the DSA has detailed obligations concerning transparency of content moderation policy, helping to overcome the opacity of the present system. Third, the ‘good Samaritan’ clause of the DSA serves as a shield from liability for good-faith efforts to remove illegal content in a proactive manner. In other words, voluntary measures taken by intermediaries on their own initiative should not be the sole reason for the loss of immunity from liability.

One of the main issues with regard to the DSA, according to Guillemin, is the chilling effect that the notice-and-action system could have on freedom of expression. While large companies would likely have the resources to properly analyse content-removal requests, smaller players would likely take down content without a thorough review in order to minimise legal problems.

Application and enforcement of the DSA were seen as major issues for the success of the regulation. Ms Jutta Croll (Chairwoman of the Board, Stiftung Digitale Chancen) highlighted that the application of the DSA depends on the capability of competent regulators to fulfill their oversight role. Consequently, the implementation of the DSA could become problematic if the country of establishment of digital services is overwhelmed with policing of large platforms or if platforms establish themselves in a country with low oversight resources.

According to Croll, the DSA needs to be flexible regarding the text of the law, but count on a hard enforcement system in case of infringement. It must guarantee a level of protection below which companies shall not fall, without precluding the provision of additional protections, especially for vulnerable groups like children.

A significant challenge mentioned by several speakers related to the application of the DSA across jurisdictions. For example, according to Mr Frane Maroevic (Director of the Content & Jurisdiction Program, Internet & Jurisdiction Policy Network), while the DSA addresses illegal content, the definition of what is illegal is not present in the DSA, but is found in national laws. Important differences from one country to another with regard to what is considered illegal could lead to conflicts of law.

Implementation and enforcement of the Digital Services Act package

In terms of implementation and enforcement, the DSA relies on enforcement authorities in the country of establishment of the service provider, whereas the DMA has centralised enforcement, which relies on the European Commission. Tools to facilitate cooperation will be necessary, both between European legislators and between companies.

The Digital Services Package represents a significant step to overcome the polarisation that has dominated policy discussions for many years. On the one hand, some actors have advocated that reform in the field of digital services provisions was necessary. On the other hand, others have warned that regulation could be detrimental to innovation. Currently, the important question is not whether to regulate, but to have clarity on the core policy objectives that the regulation seeks to achieve.