2021 predictions: increased regulation of online platforms

In 2021 online platforms will be subject to a host of new regulations at both UK and EU level.

In addition to potential new legislation on online harms, platforms will face heightened scrutiny and greater intervention from competition authorities and will be required to comply with new consumer protection laws.

The new regulations will impact not only the platforms that must comply with them, but also the organisations that deal and compete with those platforms, which may be able to leverage the regulations to their own advantage. 

New competition regimes – a level playing field?

New competition laws and regulations in the UK and at EU level will introduce pro-competitive measures designed to create a level playing field in digital markets. In each case, the measures respond to a perception that large digital services providers are able to control important digital ecosystems, which allows them to leverage their position from one area of activity to another. 

Although the initiatives are being developed independently in each jurisdiction, there are some shared features. In both the UK and EU, competition authorities are expected to introduce measures to limit the extent to which platforms can give preference to their own services, benefit from 'default' positions, and leverage user data across different business areas.

At the same time, platforms may be required to facilitate interoperability and user choice, provide competitors with access to data and inventory, and increase transparency in relation to digital advertising. Platforms with particular importance in the market will be subject to more stringent oversight.

UK – Digital Markets Unit and Taskforce

In the UK, the government plans to set up a new Digital Markets Unit (DMU) following the CMA's recommendation in its digital advertising market study. Certain platforms will be designated as having "Strategic Market Status" (SMS) and required to comply with an enforceable, principles-based code of conduct.

The DMU will also have power to undertake "pro-competitive interventions" in digital markets to tackle the underlying reasons why market power becomes concentrated. These may include the types of measures referred to above and, in the most serious cases, power to order ownership and operational separation between business areas.

The government anticipates that the DMU could also be given powers to suspend, block and reverse decisions of "tech giants". The Digital Taskforce, led by the CMA, will provide further recommendations to government regarding the new regime before the end of year. The DMU will begin its work in April 2021, and there will be a consultation on its form and function in early 2021. 

EU – Digital Services Act, New Competition Tool and Digital Services Levy

At EU-level, the European Commission is expected to publish its draft Digital Services Act (DSA) on 15 December 2020. It contains black, grey and whitelists of activity that address similar areas of activity to the proposed UK "pro-competitive interventions". It also covers wider provisions regarding intermediary liability and processes for addressing unlawful content online. 

Separately from the DSA, the European Commission will introduce a new competition tool that provides powers to undertake market investigations aimed at addressing structural competition problems. The Commission is expected to adopt the new tool in the coming months and is likely to deploy it in digital markets once it is available. 

The Commission's work programme for 2021 also includes a legislative proposal to introduce a digital services levy. In this regard, the UK is ahead of the of the EU, having introduced its own Digital Services Tax in April 2020. A revised taxation regime for cross-border online platforms, is seen as an essential tool in helping to create a level playing field in the market.

New consumer rules – will resistance be futile?

The EU's Digital Content and Services Directive and the Sale of Goods Directives must be implemented by Member States by 1 July 2021. To a large (but not complete) extent, the Directives mirror the UK's Consumer Rights Act. There are, however, major differences. For example, the Digital Content Directive provides that personal data is counted as consideration in the EU legislation. This is important because all but one of the provisions protecting consumers under the CRA in relation to digital content apply only where the content is paid for. The scope of the EU legislation is, therefore, considerably wider than the CRA in this area which means that 2021 will almost certainly see divergence between the UK and EU online consumer environments.  

The incoming Directives are part of the EU's plan, set out in its New Consumer Agenda, to make the online environment as friendly for consumers as the offline one. Included in its focus on digital transformation, the Commission plans to adopt legislation setting out requirements for AI and to revisit a wide range of consumer protection legislation. It is also harmonising enforcement and redress under the Omnibus Directive which will start to apply in 2022, and introducing legislation to allow for collective redress for consumers.

The scope of incoming EU consumer protection legislation goes well beyond platforms but platforms selling to EU consumers will need to ensure they stay on top of requirements, whether they are located in the EU or selling to EU consumers from the UK. We expect many to adopt the most stringent provisions in an effort to have as uncomplicated a set of terms and conditions and trading practices as possible.

The question going forward, is whether the government will simplify the position for cross-border businesses by implementing new rules which mirror those in the EU. Although facing a fragmented consumer protection regime across the EU has always been an issue for businesses, the UK may well choose to revise its own legislation rather than face legislation through the back door. We don't, however, anticipate this will be top of the long list of priorities following the end of the Brexit transition period.

A changed landscape in 2021?

As the various level playing field measures are implemented, we expect to see new market entrants and smaller players attempt to take advantage of these new tools to challenge the position of incumbent platforms. 

Governments around the world have arguably been slow to adapt regulation to digital platform business models. The UK has been used to doing this as part of the EU but will now have to go it alone. Depending on your point of view, and on the outcome of the future relationship negotiations, this could be an opportunity for or a threat to the UK. But either way, platforms will be facing increased scrutiny and more regulation in the UK and the EU in 2021.

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If you'd like to discuss any of the issues raised in this article in more detail, please reach out to a member of Technology, Media & Communications team.