How ‘Brussels’ wants to turn the digital services sector upside down with the Digital Services Act and Digital Markets Act.

On 15 December, EU Commissioners Margaret Vestager and Thierry Breton, on behalf of the European Commission (EC), published the long-awaited Digital Services Act (DSA) and the Digital Markets Act (DMA). In doing so, the Commission proposes future European internet and digitisation policies with the primary aim of protecting consumers and ensuring fair competition. At the same time, the EU hopes to set the standard for digital regulation at a global level. Because of their impact, these proposals have led to intense discussions on (i) the responsibilities of digital platforms and (ii) limiting market power of the largest platforms. It is therefore interesting to look ahead: what will happen now in Brussels and how can this be influenced by an interested party?

Ready?

The proposals are far from unexpected. The then newly installed Von der Leyen Commission already announced the proposals in its 2019-2024 guidelines. Moreover, the previous Commission had already hinted in the Digital Single Market Strategy (2015) that the 2000 e-Commerce Directive needed updating. Last spring, the current Commission eventually published its initiative, and several committees in the European Parliament (EP) started writing so-called own-initiative reports. These reports are not binding, but require action by the Commission and serve as a preliminary position paper in an attempt to influence the writing process of the Commission. In fact, such a report says: include these points in the legislative proposals, otherwise it will be difficult to reach an agreement with us. Last October, these three reports were adopted by the European Parliament and the public consultation (by the Commission) closed. After this, the Commission was able to officially start the drafting process, while several Member States communicated their positions drop by drop in non– and position papers. The Netherlands, for example, did this together with France: an unusual cooperation between The Hague and Paris.

The initial publication date of 2 December was postponed several times due to internal struggles (e.g. between Vestager and Breton). Although not an unusual practice in Brussels, this fight provided an interesting insight into both the individual ambitions of Vestager and Breton and the aims of various Commission Directorates-General. In the run-up to 15 December, several draft texts were leaked, and the Commission’s legal watchdog, the Regulatory Scrutiny Board, further hampered progress by questioning the legal basis of various components. For example, the most powerful variant of the planned ‘New Competition Tool’ (an instrument to remedy structural market failure) was dropped. In the last few weeks, therefore, people were still busy smoothing things over in advance.

Set?

On 15 December at 3 pm, politicians, the press, the business community and other interested parties stood ready to follow Vestager and Breton’s press statement. Cheered to early: the press moment was postponed for almost two hours because at the very last minute there was still some disagreement about the proposals. The weight of the proposals is more than obvious, but what exactly does it say?

Digital Services Act

The DSA is an update of the e-Commerce Directive from 2000 – when Facebook, for example, did not yet exist, and Google had just moved out of a garage for two years. The update aims to clarify the liability regime for digital platforms operating in the EU and to strengthen monitoring and enforcement. Digital service providers will have to take more responsibility for illegal and harmful content on their platforms, be more transparent about how their algorithms work and take various measures to empower consumers. The bigger the platform, the more obligations. To make this distinction in size, the Commission proposes to define ‘very large platforms’ as those that have more than 45 million active users on the European market. In order to guarantee all the new requirements, the DSA also provides for the designation of Digital Services Coordinators (DSCs) in each European Member State. These DSCs are responsible for compliance by tech platforms.

Digital Market Act

The DMA focuses on regulating competition in the digital market. This goal rests on two pillars. The first provides for ex ante (‘do’s and dont’s’) regulation in order to prevent digital service providers from acquiring a market dominant position that stifles competition in the same market. In concrete terms, this means a series of obligations and prohibitions relating to self-preference, interoperability, data-related practices and tying. The second pillar provides for the Market Investigation Tool: a weakened version of the previous New Competition Tool (see above), which allows market investigation of structural competition problems on a case-by-case basis. Who will be subject to these new rules? Some will apply to all online platforms, but the focus is on so-called gatekeepers of the digital market: large players who have such market power that medium-sized and small digital service providers have no way around them, and therefore no fair competition. This is not only disastrous for the entrepreneurial spirit, but also for consumers who see their options restricted. The Commission proposes to define these ‘gatekeeper platforms’ with three cumulative criteria relating to (i) their impact on the internal market, (ii) the number of consumers they provide access to with their platforms and (iii) the extent to which the first two criteria are met over time (anchoring of position).

GO!

At just before 5 pm, Vestager and Breton came to the podium and presented the DSA and DMA. Breton did this in quick French, with which he seemed to leave his Danish colleague in the blue. Internal struggles aside, the presentation paved the way for the ordinary legislative procedure by which the European Parliament and the Council of the European Union (‘the Council’), as legislators, decide on the proposals.

Portugal holds the rotating Presidency of the Council in the first half of 2021, succeeding Germany. The examination of the proposals will not be long in coming: on Wednesday 6 January, the DSA was already on the agenda of the Council’s Working Party Competitiveness and Growth (Internal Market). The DMA will be dealt with by the Working Party on Competition. France, which will take over the presidency from Slovenia in the first half of 2022, has already expressed its ambition to conclude the negotiations in its term. However, this does not seem realistic given the many different interests involved. A conclusion in 2023 or later is more in line with expectations with which Sweden, Spain or even Belgium could only give the final blow.

A battle has been raging in the European Parliament for a while now regarding the lead in the parliamentary process. The IMCO committee (Internal Market) is likely to take the lead on both proposals, and the Maltese MEP Agius Saliba (Social Democrats/S&D) and German MEP Andreas Schwab (Christian Democrats/EPP) have been named as potential candidates for the rapporteurship. Saliba was previously rapporteur for the IMCO committee’s above-mentioned own-initiative report on the DSA. Other MEPs are in favour of shared competence between the IMCO, JURI (Legal Affairs), LIBE (Civil Liberties), ITRE (Industry) and ECON (Economic Affairs) committees. The ITRE Committee had made an advance on this by already appointing a rapporteur for the DSA: the Finnish MEP Henna Virkkunnen (Christian Democrats/EPP). It is expected that other committees will either challenge IMCO leading the dossiers, or make clear that they to be associated. Then the Conference of Committee Chairs, made up of the chairs of the various committees, will take a decision on the final allocation of responsibilities presumably in January.

Once all the starting positions have been taken, debates, internal negotiations and the writing of report texts will begin in Brussels. Both the Council and the European Parliament will gradually work towards their own positions, as negotiating mandates for the trilogues (inter-institutional negotiations) between the Commission, Council and Parliament.

Throughout the decision-making process, there is ample room for interested companies and organisations to get involved, express their perspectives and exert influence. A strong narrative in Brussels and continuous presence in the midst of all stakeholders during the process will be badly needed to keep a grip on the global impact that the Digital Services Act and Digital Market Act will have.

Public Matters advises companies and other organisations that are active in the tech sector, or which are impacted by the DSA and/or DMA. See this page for more information.