Two major pieces of legislation entered into force this month in the European Union: on November 1, 2022, the Digital Markets Act became the first regulation imposing ex ante obligations on digital platforms defined as “gatekeepers” under the law; on November 16, 2022, the Digital Services Act entered into force, providing a graduated set of rules for online intermediary services, depending on the number of users, the role and impact of each entity.
Both of these landmark regulations are directly applicable within the Member States of the European Union. The European Commission will work with national authorities to implement and enforce the law but critically, Member States may not pass local laws transposing the regulations into domestic law.
The Digital Markets Act
The purpose of the DMA is to identify large online platforms that act as gatekeepers in digital markets, and ensure that they behave fairly so that businesses that depend on gatekeepers to offer their services will have better access, innovators will have enhanced opportunities and will not be compelled to comply with unfair terms and conditions, and consumers will obtain better, more competitive services.
Pursuant to the DMA, a platform is a gatekeeper if it provides a core platform service in at least three EU member states and achieves a certain annual turnover throughout the European Economic Area, provides a core platform service to more than 45 million monthly users and 10,000 yearly business users in in the European Union, and has an entrenched and durable position in the market.
By early July 2023, companies identified as potential gatekeepers will have to notify their core platform services to the European Commission. If, according to the EC, a business meets the gatekeeper criteria, it will have six months to comply with the requirements of the DMA.
The DMA empowers the EC to carry out market investigations, and to impose penalties and fines of up to 10% of a company’s worldwide turnover – as much as 20% in the case of repeated infringements. The EC will have the authority to impose structural remedies, require changes in behavior, and even ban further acquisitions in the case of systematic infringements.
The Digital Services Act
The DSA is aimed at tackling the spread of illegal content and services. It focuses on accountability and transparency and introduces new restrictions on dark patterns and profiling-based advertising. The regulation covers internet access providers, domain name registrars, cloud and web hosting services, online marketplaces, app stores, social media platforms, and “very large online platforms” – those that reach over 10 percent of consumers in Europe. Online intermediaries serving the European market must comply with the DSA, whether they are established inside or outside of the European Union. It imposes transparency reporting obligations, and requires cooperation with national authorities. Other requirements, such as criminal offense reporting, complaint redress mechanisms, trusted flaggers, bans on targeted advertisements to children, risk management and crisis response, independent auditors, and an internal compliance function, are imposed only on very large companies.
While providing for stronger protections of consumers’ rights, the DSA also creates greater public oversight of online platforms, particularly for the largest among them. A new body, the European Center for Algorithmic Transparency (ECAP) will be established to oversee online platforms pursuant to the DSA. From the effective date of the DSA, online platforms have three months to report the number of users on their websites. The ECAP will use the data to categorize each platform; a designation as either a very large online platform or search engine would trigger an obligation to carry out annual risk assessments and report the results to the European Commission. Under the DSA, each member state must designate a Digital Services Coordinator to supervise entities covered by the Act, and coordinate with the European Commission through a European Board of Digital Services.