NEW RULES FOR ONLINE BUSINESSES – THE UPCOMING DIGITAL SERVICES ACT IN THE EU
In December 2020, the European Commission took another step in implementing its strategy for a Digital Europe by publishing a proposal for Regulation on a Single Market For Digital Services (Digital Services Act) and amending Directive 2000/21/EC (the e-Commerce Directive).
Below we will review some of the main aspects of the forthcoming regulation, which for convenience will be hereinafter referred to by its popular name “Digital Services Act”.
Purpose of the Digital Services Act
The main objectives underlying the Digital Services Act are better protection of the consumer rights in the electronic environment, greater transparency and accountability of the online platforms, and stimulating the innovation and the competition in the common market.
Generally speaking, the Digital Services Act targets its rules towards the intermediary service providers, but differentiates the scope of their obligations depending on the specifics and volume of their activities. In the figure below we have depicted the ratio of the different types of services to each other.
- „Intermediary service“ – any of the following services: services of mere conduit that consists of the transmission of information in a communication network; „caching“ and hosting services. It is important to mention that the definition of the Digital Services Act differs from that for “intermediation services” under Regulation 2019/1150 for promoting fairness and transparency for the business users of online intermediation services, therefore higher attention is advisable when identifying the persons concerned depending on the type of relationship being observed.
- „Hosting service“ – service that consists of storing information provided by the recipient of the service at its request.
- „Online platform“ – means a hosting services provider that, at the request of the recipient of the service, stores information and disseminates it to the public, unless this activity is minor and purely ancillary to another basic service of the trader.
- „Very large online platforms“ are those online platforms that provide their services to a certain number of active average monthly users of the service within the European Union (“EU”), equal to or more than 45 million. In the event of a change in the total EU population, the European Commission will adjust the above value so that it always corresponds to 10% of the EU population.
The Digital Services Act applies to all intermediary service providers that provide their services in the EU, regardless of whether their seat or management address is within the Union. This means that American digital giants such as Facebook, Google and Amazon will also be subject to the provisions of the forthcoming regulation insofar as they provide services in Europe.
In order to determine whether a provider provides services to consumers in the EU, it should always be examined whether it has a substantial connection to the EU. A substantial connection is considered to exist in the following cases:
- The service provider has an establishment in the EU; or
- There is a significant number of users in one or more Member States, or
- The provider targets its activities towards one or more Member States. Indications for „targeting the activities“ are, for example: the use of a language or currency commonly used in that Member State, the possibility to order products or services or to use a national top-level domain, the presentation of local advertising, the provision of local service, etc.
The new obligations that the Digital Services Act is expected to create are grouped according to the type of intermediary service provided. The observed tendency is that the more the scope of the service is narrowed in accordance with the figure above, the greater in number and stricter the responsibilities for the persons who provide them become.
1. Obligations for all intermediary service providers
- Establishment of single point of contact allowing for direct communication with Member States’ authorities by electronic means;
- Appointment of a representative of the provider in the EU – in case the trader does not have an establishment in the EU, it should appoint in writing a natural or legal person as its legal representative in one of the Member States where it provides services, whose main task will be communication with the relevant competent authority;
- Publication once a year of a report on any content moderation in which the provider has engaged in during the relevant period. Micro (less than 10 employees and annual turnover of less than EUR 2 million) and small enterprises (less than 50 employees and annual turnover of less than EUR 10 million) shall be exempted from this obligation.
2. Obligations for hosting services providers (in addition to the obligations under item 1 above)
- Establishment of mechanisms allowing any person to send them notifications of illegal content;
- Clear and specific statement of the reasons for removing or blocking information provided by the recipients of the service;
3. Obligations for online platforms (not applicable for online platforms that can be classified as micro or small enterprises) – in addition to the obligations under item 1 and item 2 above
- Establishment of internal complaint-handling-systems and systems for out-of-court settlement of disputes raised by service recipients in regard to decisions of the online platform to remove / block content, to suspend or terminate the service or the recipient’s account;
- Introduction of the “trusted flaggers” figure, whose messages for illegal content will be processed immediately and with priority;
- Obligation for traceability of the traders in cases where the platform allows the conclusion of distance contracts with consumers – in this case the platform will be obliged to collect certain information and documents from the traders (e.g. copy of identification document, bank account details, declaration of conformity, etc.);
- Ensuring transparency regarding what information is an advertisement, who provides it and the basic parameters used to determine the recipient to whom the advertisement will be displayed.
4. Obligations for very large online platforms (in addition to the obligations under items 1-3 above)
- Establishment of an annual risk assessment of the following systemic risks stemming from the provision of the services in the EU: (i) the risk of dissemination of illegal content through their services; (ii) the risk of negative effects for the exercise of fundamental rights to respect for private life, freedom of expression and non-discrimination; (iii) the risk of intentional manipulation of their service, which has or may have negative effects on the public health and safety, civic discourse or electoral processes;
- Implementation of measures, mitigating the above risks;
- Carrying out an independent audit for the compliance with some of their legal obligations at least once a year;
In the event of a breach of their obligations under the Digital Services Act, very large platforms may be subject to severe penalties of up to 6% of the total turnover for the previous financial year.
5. Conditions for liability discharge
In addition to the above obligations, it should be mentioned that the Digital Services Act also provides several important criteria for releasing the service providers from liability in case of detected illegal content in the course of providing mere conduit, caching or hosting services – the provider could be discharged mainly in the case that it has not been aware of the illegal content or has taken immediate measures to eliminate the illegal content, after becoming aware of it.
In order to comply with the obligations described above, the Digital Services Act provides that each Member State should designate at least one competent authority to monitor the application of the Regulation and to act as a digital service coordinator. In addition to the general supervisory powers, the digital service coordinators will be responsible for administrating complaints from digital service recipients against intermediary service providers and they will also be entitled to coordinate relevant issues at European level.
The effective implementation of the Digital Services Act in all Member States also provides for the establishment of a new supranational advisory body, namely the European Board for Digital Services, consisting of all digital service coordinators at national level. The main functions of the European Board for Digital Services will include coordinating joint investigations, assisting national authorities, issuing opinions and recommendations, etc.