• Simran Kambo

The Digital Services Act: A New Era of Big Tech Regulation?

On 15 December 2020, the European Commission published its Digital Services Act package which proposes two pieces of legislation: the Digital Services Act and the Digital Markets Act. The Acts are aimed at increasing the responsibility of tech businesses for the way in which they operate and connect customers to goods, services and content. By providing the scope to impose significant fines for non-compliance, the package will profoundly change the way companies offer and use digital services in the EU.


With the measures being spearheaded by commissioners Margrethe Vestager and Theirry Breton, both of whom have a history of strong rhetoric against the biggest tech giants, the European Commission is demonstrating a renewed commitment to constraining the market power of Big Tech.


What is the Digital Services Act?

The Act aims to improve what European lawmakers view as a lack of oversight over large tech companies by introducing new obligations on platforms to reveal information and data to regulators about how their algorithms work, how decisions are made to remove content, and how adverts are targeted at users.


The Act imposes additional compliance, accountability and risk management obligations on "very large online platforms" – defined as online platforms which provide their services to at least 45 million recipients in the EU (with mechanisms to adjust this figure to reflect changes in population numbers). Among other things, they will also be obliged to appoint a compliance officer, commission independent audits of their compliance and allow access to data by both regulators and independent researchers to verify their compliance.


The Digital Services Act will also create a new network of national regulators, known as Digital Services Coordinators, with powers including the ability to impose fines, investigate complaints, carry out on-site inspections and require the provision of information. Large platforms can be fined up to 6% of global turnover with any following non-compliance potentially resulting in a temporary suspension of service. Thus, the act will give European regulators more power to demand information from tech companies about how both their moderation teams and their algorithms work at scale. The threat of large fines, officials hope, will force companies to roll out new institutional practices even before a single fine is imposed.


What is the Digital Markets Act?

With the development of the technology sector, economic activity increasingly happens online—but in some cases “online” means within the bounds of specific services designed by big tech companies. According to the European Commission, such systems open the door to anti-competitive practices. For example, the European Commission is currently investigating Amazon, alleging that it has been acting anti-competitively by collecting data on independent sellers using the Amazon platform in order to boost the sale of Amazon’s own competing products.


The Digital Markets Act specifically targets such ‘gatekeeper platforms’ - platforms which (a) serve as an important gateway for business users to reach their customers; (b) enjoy a significant and durable market position and; (c) have a significant impact on the internal market. The Act provides a presumption that a business meets this test where over the preceding 3 years it has an annual EEA turnover of at least EUR 6.5 billion and over 45 million monthly active users. Thus, the new rules are very likely to affect Google, Apple, Facebook and Amazon.


The legislation is designed to ensure that these platforms don’t abuse their market power and to guarantee equal opportunities for digital players by the imposition of ex-ante regulations (rules which discourage conduct that has either the intent or effect of preventing entry of a rival where entry would otherwise be possible). The kinds of unfair practices which the Act prohibits include gatekeepers giving preferential treatment to their own products and services, and preventing consumers from linking up to business outside their platforms.


It should be noted that the proposal grants an impressive scope of power to the Commission. Not only will it be in charge of designating gatekeepers, but it will also specify the measures to be adopted by a given gatekeeper in order to ensure compliance. Furthermore, the regulations provide the Commission with a broad range of investigative powers, similar to those available to the national regulators under the Digital Services Act. In respect of the sanctions for breach, the Commission will be able to impose fines of up to 10% of the company’s annual turnover and repeat violations may lead to divestiture and companies being broken up.


In addition, the regulations mark a considerable shift in the EU approach to antitrust enforcement which has previously consisted of assessing the outcomes of actions ex-post. This has seen antitrust remedies often come too late and only after lengthy investigations which have proven unsustainable given the rapid evolution of the digital markets. By precisely defining prohibited behaviour, the Commission will be able to address abuses more quickly.


For some tech businesses, the additional compliance burden could prove to be similar to, if not in some cases greater than, the GDPR. For other tech businesses, particularly those which have to interact with gatekeeper platforms, some aspects of the proposals may create opportunities by constraining the market power of some of the key tech gatekeepers.


Conclusion

Armed with the proposed DMA and DSA, the Commission will be able to exercise greater control over the digital markets in Europe. The regime proposed by the Commission will help it to prevent and to address abuses more quickly. However, the DMA and the DSA have yet to be individually addressed by the Council of the European Union and the European Parliament, which may lead to drastic amendments. It remains to be seen whether they have sufficient confidence in the Commission to grant it the proposed powers.


By Simran Kambo and Yash Tenneti