In July 2022, the European Parliament (EU) passed the Digital Services Package, which includes the Digital Services Act (DSA) and the Digital Markets Act (DMA). The DSA and DMA build on the EU's existing e-commerce regulations by creating a legal framework and digital economy for the EU. The two laws, reached in record time and by large margins, have been hailed as landmarks - receiving prominent coverage in the press in many nations and even praise from a former US President. The EU is the world's first jurisdiction to establish a comprehensive digital regulation standard.
How much these new rules will affect your business depends on the type of online business you run, the size of your operations, and other factors. Unlike GDPR, where the provisions are more consistent, it remains a relevant example. Starting soon with understanding the new rules and assessing your circumstances is crucial to avoiding serious problems later.
Digital Services Act (DSA)
The DSA requires digital platforms to meet comprehensive benchmarks for online safety. The DSA sets continent-wide safety standards for online businesses and services to ensure a safe user experience and provide effective ways to report illegal activity. The DSA will establish rules for the design, development, operation and promotion of digital services across the EU. It aims to improve the transparency, comparability and quality of digital services in Europe by setting minimum standards for service providers. The DSA also aims to protect users against harmful practices in digital markets, such as scams and fake reviews.
Digital Markets Act (DMA)
The DMA compels member states to take action against online platforms that harm competition or promote illegal activities. This includes measures such as requiring platforms to disclose their ownership structure and prevent them from using “unfair” or “deceptive” business practices that hinder competitors. It aims to create a level playing field between ‘real’ and ‘virtual’ traders, protecting consumers from unfair practices such as price discrimination and unfair contract terms.
Enforcement of the DSA and DMA
In his blog post, European Commissioner Thierry Breton provides a sneak peek into how the new laws will be enforced. He states, “Each platform, big and small, will have to have a legal representative in Europe. So we will now know who to call if there is a problem. And each Member State will have a regulator with the necessary powers to enforce the rules.” The blog continues by outlining that a network of trusted flaggers, such as NGOs, hotlines, or rights-holders, will ensure that platforms respond to flagged illegal content as a priority. And that class actions against platforms breaking the rules will be made easier, to ensure damaged consumers are compensated. After the Council's adoption in July (DMA) and September (DSA), the final texts will be published in the Official Journal of the EU, and it will enter into force 20 days after. While the DSA will apply after fifteen months or starting 1 January 2024, whichever comes later, the DMA has a 6 months before it applies.
DSA and DMA Sanctions
Enforcement for both acts Companies that have not complied by that time will be fined up to 6% of their annual global revenue. The DMA's sanctions range from 10% of global revenue to as high as 20% for serial offenders, who may also be subject to the ultimate sanction of divestitures and structural separation when they systematically breach their obligations. And consequences are serious for digital platforms operating in the EU. Courts can impose a ban on a company operating in Europe if there are serious and repeated violations.
The Bottom Line
The adoption of these two pieces of legislation marks a major step forward in the European Union’s efforts to regulate the digital economy. It will help protect European consumers against harmful practices in digital markets, and ensure that consumers have access to clear and accurate information when choosing digital services. The DSA and DMA stipulate that companies offering digital services must comply with consumer protection standards and provide effective remedies when those services fail to meet those standards. As a result, these new laws will close loopholes that have long existed in European consumer protection laws, which have allowed big tech companies and others to escape accountability.