A new legal framework for the digital world: will the EU policy be effective?

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While the digital world was evolving towards new limits, EU legislation lagged behind for many years.
Now that things are set to change, we ask ourselves whether the current measures will be effective or if they are somehow flawed.

They have just entered into force and are going to be appliable starting from next year: the Digital Services Act (DSA) and the Digital Markets Act (DMA) are set to define a new legal framework addressing a number of issues related to the digital economy, ranging from merger control to freedom of expression online.

These two new legislative packages represent a milestone for the EU – they were completed in a very short period of time, as the proposal was made by the European Commission in December 2020. This is especially true if compared to one of the previous big acts adopted by the Union, GDPR, which took more than 4 years to enter into force after it was first proposed in 2012

Digital Services Act: content moderation and transparency of intermediaries’ activities

Aimed at giving users better protection and enforcing fundamental rights online, the DSA measures focus on regulating online intermediaries and updating the rules for their liability 20 years after the adoption of the e-Commerce Directive. The regulation applies to a broad category of players, including very large online platforms and search engines, which can be designated as such after reaching over 45 million monthly active users in the EU (10% of the European population.)

In the current legal framework, intermediary service providers (ISPs) act according to the “notice and takedown” principle: when notified of any alleged illegality on its platform, a service provider must immediately disable access to such content. If it fails to do so, a provider becomes liable for the respective content. The DSA preserves this principle and adds the so-called “Good Samaritan” provision: ISPs are not held liable if they have, in good faith, carried out voluntary investigations aimed at detecting and removing illegal content.

But changes in intermediary liabilities do not end here: ISPs must now suspend users labeled as “frequent offenders” for a reasonable period of time if such users, after a prior warning, continue to post illegal content. To ensure that freedom of expression is preserved and that the measure is enforced correctly, the text of the act stresses that each case must be dealt with individually, employing all the specific information involved.

Another breakthrough introduced by the DSA regards the opening of the “black box” of algorithms. Intermediaries must now insert in their Terms and Conditions details on content moderation procedures and tools, which include algorithmic decision-making besides human review. The attempt to shed light on obscure practices online is a fil rouge of this act, which also tries to counter dark patterns in the User Interface (UI) design: from now on, platform providers are forbidden to organize their interfaces in a distorting or deceiving way with respect to the choices taken by users.

The matter of how dark patterns can lead to social media addiction has been greatly highlighted in Netflix’s 2020 documentary “The social dilemma”, which shows, among many other issues regarding our online social life, how Gmail is an extremely centralized platform. While Google’s famous e-mail service is used by 1.8 billion monthly users in 2022, only around 50 people work on its design, and apparently, none of them are responsible for making it less addictive. With the new acts coming into force, this is hopefully set to change, and users will regain a bit of control over their actions online.

Digital Markets Act: gatekeepers’ regulation

Platforms that act as “gatekeepers”, at which the DMA’s rules are aimed, are the ones that have a significant impact on the internal market and serve as an important gateway for business users to reach their end users, in light of their entrenched and durable position.

The European Commission claims that “The Digital Markets Act aims at preventing gatekeepers from imposing unfair conditions on businesses and end users and at ensuring the openness of important digital services.[…] Common rules across the single market will foster innovation, growth, and competitiveness, and facilitate the scaling up of smaller platforms.”¹

Key changes here include the obligation to allow end users to easily uninstall apps, change default settings, and install third-party apps or app stores. Gatekeepers must also provide the companies advertising on their platform with access to the performance measuring tools of the gatekeeper and provide business users (businesses holding an account on the gatekeeper’s platform) with access to the data generated by their activities on the gatekeeper’s platform.

Thanks to the prohibition of parity clauses, gatekeepers must now allow business users to promote their offers outside the gatekeeper’s platform. This might seem counterintuitive, as this practice could induce businesses to free-ride and in turn, decrease gatekeepers’ incentives to innovate. However, while this could be the case in some instances, the overall effect of the rule has been considered the opposite one, increasing both competition (thanks to the new sales channels) and gatekeepers’ incentives to innovate (thanks to the more competitive environment.)

When it comes to prohibitions, gatekeepers will now face a ban on listing their products and services as more favorable compared to third parties. Simultaneously, they will not be able to track end users outside of their core platform service for the purpose of targeted advertising in cases where effective consent has not been granted.

The last big change regards the interoperability of messenger services, which must be granted by gatekeepers upon request by third-party providers and is going to concern basic messaging functionalities at first, while more complex features will become gradually interoperable, too.

Possible concerns and the road ahead

From the above analysis, it seems clear that these two acts will help the EU catch up on legislation of the digital world and put it on the right track to stay up to date with future innovations in this rapidly evolving industry. Privacy online will be preserved for users and gatekeepers will stop acting as private rulers. Competition in digital markets will be enhanced and total welfare should increase as a result of all these combined improvements.

But will DSA and DMA be truly futureproof as they claim? In the last few years, huge companies like Amazon, Apple, Facebook, Google, and Microsoft have engaged in aggressive Mergers and Acquisitions (M&A) activity, acquiring hundreds of small and young companies they regarded as potential future competitors. Due to the very small market shares of the acquired firms, only a handful of these deals were investigated by Antitrust Authorities, while none of them was prohibited. The issue here is that predicting the evolution of the acquired firms is usually very difficult, not to say impossible. But this specific type of perfectly legal M&A activity by big corporations risks to systematically eliminate all their potential future rivals.

Overall, the DSA should end up showcasing more benefits than flaws, potentially setting the pace for similar laws being enacted elsewhere around the world. Unfortunately, it seems the same cannot be said about the DMA. This act curbs gatekeepers’ powers, but it is not paying sufficient attention to the above-mentioned M&A matter. While trying to make European digital markets more competitive, it may in fact hide bottlenecks that will allow actual gatekeepers to keep their status virtually forever.

Bibliography

1. Questions and Answers: Digital Markets Act: Ensuring fair and open digital market. European Commission – European Commission. (n.d.). Retrieved November 20, 2022, from https://ec.europa.eu/commission/presscorner/detail/en/IP_22_6423
2. The Digital Services Act Package. Shaping Europe’s digital future. (n.d.). Retrieved November 20, 2022, from https://digital-strategy.ec.europa.eu/en/policies/digital-services-act-package
3. Questions and Answers: Digital Services Act. European Commission – European Commission. (n.d.). Retrieved November 20, 2022, from https://ec.europa.eu/commission/presscorner/detail/en/QANDA_20_2348
4. The Digital Services Act – an overview of the new online intermediary liability rules. http://www.kinstellar.com. (2022, November 20). Retrieved November 20, 2022, from https://www.kinstellar.com/news-and-insights/detail/1819/the-digital-services-act-an-overview-of-the-new-online-intermediary-liability-rules