Commission consults on New Digital Services Act

The European Commission has launched a public consultation on a proposed new Digital Services Act package, which could have significant implications for online operators and all those impacted by their activities. The consultation, which is open until 8 September 2020, covers a wide range of issues including online harms, online advertising, online competition, smart contracts and governance. A key part of the consultation and subsequent legislative process will be a review of the current limitations of liability enjoyed by online intermediaries for user-generated content and the need for increased regulation for large gatekeeper platforms. 

The consultation, which runs alongside a separate consultation on a new competition tool, will be key for all digital players particularly large online platforms. It follows a similar consultation last year on proposed UK legislation covering online harms arising from user-generated content. Taylor Wessing is able to assist with responses to the consultation.

What are the aims of the consultation?

The Commission is seeking input from a range of stakeholders including people, businesses, online platforms, academics, civil society and all interested parties on the future regulation of digital services. It will result in a Digital Services Act due at the end of this, or beginning of next, year. The consultation covers two main work strands:

• The first relates to the fundamentals of the eCommerce Directive, including the country of origin principle and the safe harbour provisions limiting the liability of online platforms for user-generated content. The Commission says that it aims to establish clearer and more modern rules concerning the roles and obligations of online intermediaries and a more effective governance system for the enforcement of such rules.
• The second relates to the level playing field in European digital markets, where currently "a few large online platforms act as gatekeepers". The aim is to explore rules to address market imbalances, to ensure consumers have the widest choice and the market remains competitive and open to innovation. The Commission has said that this could be achieved through additional general rules for all platforms of a certain scale and/or through tailored regulatory obligations for specific gatekeepers.

They develop the Commission President's Political Guidelines which said that the Digital Services Act "will upgrade our liability and safety rules for digital platforms, services and products, and complete our Digital Single Market."

In addition, the Commission is also taking the opportunity to consult on other emerging issues relevant to digital services. The proposals will potentially affect not just online operators based in the EU but also those based outside of, but active within, the EU. It will therefore be relevant after the end of the Brexit transition period to those offering digital services in the EU. 

What does the consultation tell us?

The range of illegal activities within scope is broad

The first part of the consultation focuses on illegal activities online. Its scope is broad, including the availability online of illegal goods (such as dangerous products, counterfeit goods, prohibited and restricted goods, protected wildlife, and illegal medicine), content (such as illegal hate speech, child sexual abuse material and content infringing intellectual property rights), and services or practices infringing consumer law (such as scams, misleading advertising and exhortation to purchase made to children). It covers all types of illegal activities, under criminal and civil law. In contrast with the scope of the UK government's proposals on online harms, intellectual property is classed as an illegal activity for these purposes.

Legal but harmful activities are also covered

Importantly, the consultation also extends to activities which are legal but nonetheless harmful to users such as the spread of online disinformation or harmful content to minors (both of which are a focus). This mirrors the somewhat controversial proposals in the UK to regulate legal (but nonetheless harmful) as well as illegal user-generated content and demonstrates the potential willingness of law-makers to address a wide range of perceived harms. 

The obligations and regulation of online intermediaries is under scrutiny

The first part of the consultation explores the nature and extent of illegal activities online, the potential risks of the erroneous removal of legitimate content and the processes that could be put in place by online intermediaries to address illegal content. Depending on the outcome of the consultation, greater obligations might be imposed on online operators in areas such as user terms and conditions, notice and takedown procedures, rights of appeal, content moderation, use of algorithms, transparency, auditing, co-operation with regulators and law enforcement, and data sharing and reporting. All are covered in the consultation. It is also possible that new regulators (at national or EU level) will be created. Importantly, while the focus is online platforms, questions are also asked about the roles and responsibilities of other types of online intermediary.

Supplies from those outside of the EU are also covered

It is clear from the consultation that the Commission is also concerned about the regulation of the supply of digital services from those outside of the EU to those in the EU. There is also concern about the offer for sale on online platforms of products by those based outside of the EU to European customers which do not comply with EU rules on safety and consumer protection. Existing loopholes might be tightened or closed. 

The safe harbour is a focus – again

We already knew that the current liability regime of online intermediaries as set out in the E-Commerce Directive would be under review. However, it is not clear from the consultation itself what the proposed direction of travel might be. As expected, the consultation covers the safe harbour provisions, the prohibition on a general monitoring obligation and the different categories of services (so-called "mere conduits", "caching services" and "hosting services") in the Directive. It also asks whether there are other provisions which require legal clarification. 

The review of the safe harbour exemption will be critical for online platforms. It comes at a time when similar provisions in the USA have been put under greater regulatory scrutiny, with the issuing of an Executive Order by President Trump. The safe harbour provision is often cited as the single most valuable law to the technology industry and has enabled a number of platforms to flourish. However, creators and others have long argued that they are unfairly prejudiced and argued for it to be cut back. This was to some extent achieved in the recent Directive on Copyright in the Digital Single Market. Whether it will be further cut back remains to be seen.

Gatekeepers might be subject to greater obligations

The second part of the consultation addresses the level playing field. It explores whether additional general rules should be put in place for platforms of a certain scale (such as rules on self-preferencing) and/or tailored regulatory obligations imposed on specific gatekeepers (such as non-personal data access obligations, specific requirements regarding personal data portability, or interoperability requirements). It runs in parallel with a separate consultation on a new competition tool (the introduction of market investigations) focusing on addressing structural competition issues that tilt the market in favour of a small number of market players.

A variety of emerging issues are covered

Lastly, the consultation considers a range of emerging issues relevant to digital services. On the advertising side, it asks about transparency around the source of advertising (particularly political advertising), processes for detecting illicit offerings and data sharing. It follows calls for tighter regulation of targeted advertising. 

There are also sections in the consultation on the regulation of smart contracts (particularly from a cross-border perspective), issues and opportunities surrounding the provision of services through online platforms by the self-employed (such as pricing and contractual issues) and governance (including the country of origin principle and cross-border regulation). 

How does this affect me?

The consultation is wide-ranging in scope and the resulting legislation is likely to impact all those who offer or consume digital services. Those affected are advised to respond to the proposal by the 8 September 2020 deadline.