EU passes Digital Services and Digital Markets acts with teeth for non-compliance

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The EU Parliament voted overwhelmingly to adopt the Digital Services Act (DSA) and the Digital Markets Act (DMA), which are designed to blunt the oversized market power of the largest online platforms, promote equity of access and functionality across all platforms doing business in the EU, and minimize the distribution of content and services that are harmful toEU consumers.

Neither Act mentions ‘piracy’ by name, and the use of the term ‘infringement’ appears to reference infringement of the Acts, not copyright infringement.

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New obligations under the Digital Services Act include:

  • New measures to counter illegal content online and obligations for platforms to react quickly
  • Strengthened traceability and checks on traders in online marketplaces to help ensure product and service safety
  • Increased transparency and accountability of platforms about their use of recommendation algorithms and content moderation
  • Bans on misleading practices and types of targeted advertising, to minimize attempts at manipulating users

The Digital Markets Act

  • Dominant online platforms that act as gatekeepers will have obligations to ensure a more fair business environment and more services for consumers, including:
  • Allowing third parties to interoperate with the services of large online platforms, such as messaging; to avoid lock-in
  • Allowing business users to access the data they generate on the gatekeeper’s platforms, and conduct business without obligation to the gatekeeper

Gatekeepers can no longer rank their offerings more favorably than third parties, not interfere with consumers that want to uninstall pre-loaded software, use third party app stores, or use consumer data for targeted advertising without explicit consumer permission.

Online platforms and search engines with 45 million or more monthly users will be obligated to prevent the dissemination of illegal content, minimize adverse effects on fundamental rights, on electoral processes and on gender-based violence or mental health. Platforms will also be required to offer consumers the choice to opt out of recommendations, to facilitate access to their data and algorithms to authorities and vetted researchers, and be subject to independent audits.

Penalties for violations

Violators will be subject to fines of up to 10% of a gatekeeper’s total worldwide revenue for the preceding financial year if it does not comply with the rules. This increases to as much as 20%, in cases of repeated non-compliance.

What’s next

After formal adoption of the DMA in July and DSA in September, they will be published in the EU Official Journal and go into force twenty days after that.  The DSA will be applicable across the EU fifteen months later, or on January 1, 2024; whichever comes later.  DSA will apply earlier for search engines with more than 45 million monthly users: four months after going into force.

The DMA will begin to apply six months after entry into force, and gatekeepers will have up to six months thereafter to comply.

Digital Services Act (DSA): Press release and summary of provisions

Digital Services Act: Text of the provisional agreement (June 15)

Digital Markets Act (DMA): Press release and summary of provisions

Digital Markets Act: Text of the provisional agreement (May 12)

Why they matter

Like the General Data Protection Regulation (GDPR) before them, the DSA and DMA are likely to have a fundamental impact on the practices of non-EU companies doing business in the EU, including Google, Facebook, Amazon, Microsoft and Apple, in order to comply with the new obligations over the long run.  Prepare for grumbling by such market leaders; the penalties have teeth.

In a comment regarding the Digital Services Act, Christel Schaldemose (S&D, DK), rapporteur for the Digital Services Act said: “For too long tech giants have benefited from an absence of rules. The digital world has developed into a Wild West, with the biggest and strongest setting the rules … Now rules and rights will be strengthened. We are opening up the black box of algorithms so that we can have a proper look at the moneymaking machines behind these social platforms.”

Andreas Schwab (EPP, DE), rapporteur for the Digital Markets Act said: “The purpose of the digital single market is that Europe gets the best companies and not just the biggest. We need proper supervision to make sure that the regulatory dialogue works.”

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