The digital economy has raised important issues related to international economic relations and governance, particularly in terms of digital service regulation and ensuring competition. Within the last decade, digital platforms and ecosystems have evolved exponentially, becoming the most thriving business model for the digital economy. As well, the pandemic has acted as a catalyst in this trend.
The European Union, in aiming at regulating the digital ecosystem, is currently debating two key pieces of legislation – the Digital Markets Act (DMA) and the Digital Services Act (DSA). The purpose of these two acts is to address some of the issues surrounding the role of platforms and the consequences of their market dominance for competition, consumer welfare, and free expression.
At EU level, the provisions disciplining digital services date back to 2000, when the E-Commerce Directive was adopted. Since then, innovation in the digital field has allowed new technologies to emerge, radically modifying the domain of digital services and thus rendering these provisions inadequate. Against this backdrop, on 15 December 2020, the Commission put forward a digital services act package enshrining the DSA and the DMA proposals.
The Commission and the MEPs of the appointed Committee in charge of discussing the proposed acts – the Internal Market and Consumer Protection Committee (IMCO) – have repetitively stressed how these frameworks represent a unique chance for the EU to set a global standard for the regulation of the digital sector.
The Digital Services Act
The DSA is the EU’s answer to the quest for higher standards of transparency and accountability for online service providers. Specifically, the DSA aims to tackle illegal content (hate speech, disinformation), illegal products and surveillance-based advertising on the Internet. Unlike the DMA, that only targets large platforms, the DSA addresses all online intermediary services. It envisages a 4-tier classification of intermediaries based on their size and impact on the digital ecosystem. It also provides an asymmetrical set of rules for each category of intermediary services, with Very Large Online Platforms (VLOPs) being subject to the full scope of the act. The proposal also focuses on complementing the E-Commerce Directive and on limiting the legal fragmentation among EU countries by introducing harmonised provisions for digital services.
Inter-institutional negotiations for the DSA started on 20 January 2022, when the European Parliament passed its position on the act. Since then, Christel Schaldemose, rapporteur for the Parliament on the file, has recalled that despite certain differences, the co-legislators share the same goal. That is, making sure that what is illegal offline is also illegal online.
As emerged during the vote in the December plenary, the Parliament insists on pursuing the ban on targeted advertising directed at minors and that based on sexual or political orientation. MEPs also reiterated their support for the country of origin principle (COP). Namely, the principle according to which only one authority, that of the country where the company is created (country of origin), is responsible for overseeing intermediaries’ behaviour, even when the reported behaviour occurs in another EU country (country of destination). On the contrary, the Council is in favour of the Commission playing a key role in overseeing intermediaries’ behaviour, while it appears to be less strict when discussing banning targeted ads.
The Digital Markets Act
The proposed regulation presents harmonised rules to discipline the actions of the digital “gatekeepers” – the large online platforms operating a core platform service and responsible for making businesses and consumers overly reliant on their services and, therefore, endangering competition. The DMA also wants to ensure the contestability and fairness of the digital markets. In order to define the expected and prohibited conduct of gatekeepers upfront, the proposal adopts an ex-ante regulatory approach. As such, its provisions complement anti-trust intervention directed at detecting practices of distorted competition which rely on ex-post regulation.
The Parliament adopted its position on the DMA in December during the plenary session. Inter-institutional negotiations started early this year with the first trilogues held on 31 January and 3 February 2022. From the start, the definition of gatekeepers envisaged in the proposal has been at the centre of the inter-institutional debate, as obligations and prohibitions for large online platforms would only flow from them being defined as gatekeepers. Their designation would entail cumulative qualitative and quantitative criteria. For undertakings to be identified as gatekeepers they should prove they have a strong economic position, are in control of a platform service used by more than 45 million Europeans per month, and hold this status for more than 3 years (2 according to the Parliament). While Member States have been pressuring for strengthening the criteria designating gatekeepers and the relevant obligations, the MEPs have increased the quantitative threshold for qualifying a company as a gatekeeper to 8 billion euros in annual turnover, de facto reducing the scope of the regulation.
A further critical point in the negotiations involves the governance of the act and the Commission’s powers. According to the Parliament, the Commission would be the sole enforcer of the regulation. Among others, its powers would include the ability to request information, conduct inspections, order interim measures, adopt decisions certifying gatekeeper infringements, and impose penalties. The Council, on the other hand, would allow national authorities to participate in the governance of the framework by launching investigations and reporting to the Commission, which according to Member States should not be granted veto power.
Beyond these matters, co-legislators still have conflicting views concerning interoperability and data combination. The latter is the practice of combining personal data sourced from gatekeepers’ core platform services with personal data from other services without users’ consent.
Both dossiers have already entered trilogue negotiations. While discussing its priorities at the beginning of this year and given the topicality of the dossiers at stake, the French Presidency of the Council anticipated that it planned to reach a compromise on both files by the end of its mandate in June, and possibly by April for the DMA. This is ahead of the country’s Presidential elections.
Almost two months into the French Presidency, this forecast appears to be a challenging goal. As far as the DMA is concerned, although progress has been made, there still remain significant differences between the Parliament and the Council to be sorted out. In an effort to speed up the consensus amongst institutions, the co-legislators have hinted at possibility linking the next trilogue meetings on DMA to those on the DSA. However, provisionally, for the former the the third round of negotiations is scheduled for 1 March, while for the latter, for 15 March.
Concluding, co-legislators would have to prefer quality over speed as the trilogues for these two paramount pieces of regulation are the last chance for the EU institutions to ensure that European consumers, users and businesses benefit from the digital revolution for the years to come.