(January 2021) Digital Services Act: Reform of the eCommerce Directive – and New „Basic Law for Online Services“?

The European Commission has presented its draft Digital Services Act

The draft Digital Services Act (DSA) unveiled on Dec. 15 is a key project of the new EU Commission that is considered to be of fundamental importance for the order of the digital single market. While the announcement in February 2020 initially discussed antitrust regulations for gatekeepers under this heading, these have now been spun off into the draft Digital Markets Act, which was also presented on December 15.

The Commission’s draft DSA now on the table not only includes a reform of the e-commerce Directive from 2000, but also provides for new regulations for online platforms. The legislative project thus touches on central regulations for digital business models. It proposes considerable deviations from the status quo and, above all, regulatory enforcement – including by the Commission itself – as well as substantial fines. So far, the draft is only available in English.

 

What is at stake? 

The DSA contains extensive new regulations for digital service providers. Particular attention is paid to the regulation of online platforms, especially „very large online platforms,“ to which the draft devotes an entire section of substantive regulations as well as its own – in the end stricter – regulations on enforcement. Of the three options discussed in the Inception Impact Assessment, the draft opts for the third option, which is the most regulation-intensive.

The draft primarily imposes transparency obligations and the establishment of complaint procedures on intermediaries („providers of intermediary services“), especially providers of online platforms. In addition, the draft is intended to replace some rules of the eCommerce Directive and elevate them to the status of a regulation, the liability rules from Artt. 12 to 15 eCommerce Directive, which form the basis for the German Secs. 7 et seq. Telemedia Act. All regulations of the DSA are enforced inter alia by the authorities. Due to their status as a regulation, the regulations would be directly applicable and no further implementation by the member states would be required.

The DSA is intended as a horizontal regulation for all digital services. It is intended to supplement sector-specific regulations which, however, take precedence over the DSA in their scope of application as lex specialis, such as the Audiovisual Media Services Directive, or the Platform-to-Business Regulation (P2B Regulation) with regard to search engines. The EU Copyright Directives and the EU GDPR also remain unaffected.

 

What would the impact of the Digital Services Act be?

The draft DSA contains far-reaching innovations – not only for the operators of online platforms. The regulations initially affect all intermediaries, such as access providers) (Chapter II, and Chapter III Section 1), which explicitly include online platforms. Additional rules apply to host providers (Chapter III Section 2, such as cloud or web hosting services) and providers of online platforms (Chapter III Section 3, such as online marketplaces, app stores or social media). Further supplementary rules as well as special regulatory oversight by the Commission apply to the so-called „very large online platforms“ (Chapter III Section 4, Chapter IV Section 3).

 

New Liability Rules for Intermediaries

Artt. 3 to 9 of the DSA contain liability rules for intermediaries, which are information society services according to Art. 2 lit. f of the DSA-draft and are described in more detail in Art. 3 to 5 of the DSA-draft. These are the access and host providers already known from the eCommerce Directive and the regulation for caching services. Article 15 of the eCommerce Directive, according to which there is no general monitoring obligation, is also adopted in Article 7 of the DSA-draft. The „new“ regulations are almost identical in wording. Artt. 12-15 of the eCommerce Directive are to be repealed at the same time (Art. 71 (1) DSA-draft).

Art. 5 (3) DSA-draft is however new. According to this, the liability privilege from Art. 5 (1) DSA-draft for host providers shall not apply to liability under consumer protection law of online platforms, where such an online platform presents the specific item or information in a way whoch creates the impression that that the service offered originates from the host provider himself or that he is otherwise responsible for it. The concept is reminiscent of the „attribution of ownership“ figure familiar from German case law.

The new Art. 6 DSA-draft, according to which intermediaries do not lose their privileged liability under Art. 3 to 5 DSA-draft due to voluntarily implemented measures to remove prohibited content, is to be welcomed. Such a „good samaritan“ provision had often been suggested previously.

Arts. 8 and 9 DSA-draft are also new, which require intermediaries to respond when they are notified of illegal content by authorities or courts.

Arts. 10 to 13 of the DSA-draft are intended to ensure effective enforcement and removal of illegal content. Providers must designate a contact person for the competent authorities (Art. 10 DSA-draft). Providers not established in the EU must appoint a legal representative (Art. 11 DSA-draft), who is also liable for infringements and must have the possibility to stop them.

The transparency rules in Arts. 12 to 13 DSA-draft are intended to enable users of the service to better assess why their content has been deleted and, if the service is a host provider or platform, to take action against it.

 

New rules for host providers and platforms

Notice and take down

Art. 14 and 15 DSA-E provide for a „notice and action“ procedure as a reaction to illegal content. This is also reminiscent of the „notice and take down“ procedure for infringing content from third parties, which has already been developed in the context of, amongst others, German case law. For the first time, however, Art. 14 DSA-draft contains a detailed provision on the necessary content of such a takedown notice, which is in part reminiscent of the U.S. Digital Millennium Copyright Act.

Effective action against illegal content and avoidance of overblocking

Artt. 16 ff. DSA-draft only apply to online platforms. Platform users are entitled to an internal complaint-handling system (Art. 17 DSA-draft) and out-of-court dispute settlement (Art. 18 DSA-draft) against the deletion or blocking of their contributions or their user account, as well as against the discontinuation of the service as a whole.

The DSA-draft provides that the notices (Art. 14 DSA-draft) of officially selected „trusted flaggers“ (Art. 19 DSA-draft) will be prioritized. The service shall be suspended for users who are repeat infringers (Art. 20 DSA-draft). Indications of certain criminally relevant transactions are to be reported by the platform operator (Art. 21 DSA-draft) and traders active on the platform must be better traceable and present identification documents, bank accounts, etc. to the platform (Art. 22 DSA-draft). Platforms are also subject to supplementary transparency rules (Art. 23 DSA-draft).

Transparent advertising

Advertising on platforms shall be clearly recognizable according to Art. 24 DSA-E. While this already follows from the law on fairness and other sector-specific regulations (such as the Interstate Treaty on the Media) in Germany, Art. 24 lit. c DSA-E contains a significant innovation. According to this, the user should also be explained why a certain advertisement is displayed to him.

 

What is actually an online platform?

The term „online platform“, which is central to the DSA-draft, is defined in Art. 2 lit. h of the DSA-E. It refers to a host provider which, at the request of a recipient of the service, stores and disseminates that information to the public, unless that activity is a minor and purely ancillary feature of another service.

Possible use cases

According to Recital 13, such platforms are, in particular, social networks and online marketplaces. The exception, on the other hand, should refer to the commentary section of a news site, for example. App stores are also likely to fall under the definition of platform; the apps offered there, however, not in every case. For search engines, on the other hand, the P2B Regulation is likely to be applied as lex specialis.

 

Very large online platforms

„Very large online platforms,“ i.e., platforms with an average of more than 45 million monthly users in the EU, will be subject to additional rules. In addition to special transparency, audit and self-audit obligations (Artt. 26 to 30 and Art. 32 f. DSA-draft), a data access right for public authorities (Art. 31 DSA-draft), which can explicitly also be exercised for the benefit of research institutions, should be mentioned here in particular. Such a right of access had previously been explicitly demanded by NGOs in particular. The very large online platform must respond to such a request within two weeks (Art. 31(6) DSA-draft).

 

Enforcement and fines

Finally, the draft introduces a significant innovation – especially from a German perspective – in the area of enforcement. This will be done by authorities appointed by the member states, one of which will act as a „Digital Services Coordinator“ to enforce and implement key provisions of the draft. Pursuant to Art. 41 et seq. DSA-draft, the Digital Service Coordinators are to be granted extensive rights to information, search, order and impose sanctions under Member State law. The DSA-draft sets minimum standards and allows fines of up to 6% of the annual income or turnover of the service provider concerned, and in the case of recurring payments, of up to 5% of the average daily turnover of the previous year per day (Art. 42 DSA-draft). The wording suggests that it is not the group turnover that is meant here, but the turnover of the respective active company. It is at the discretion of the member states whether the full amount of the fine is applied.

Country of origin principle

With regard to local jurisdiction, the draft follows the country of origin principle (Art. 40 DSA-draft). According to this principle, the Digital Service Coordinator of the country in which the main office of the intermediary is located, or its legal representative pursuant to Art. 11 DSA-draft, has jurisdiction. If, contrary to Art. 11 DSA-draft, the provider has not appointed a representative, each Member State shall be responsible.

Commission’s right to intervene in the case of large online platforms

In the case of measures against very large online platforms, the responsible Digital Service Coordinator of the respective Member State must inform the Commission, which has a right of intervention pursuant to Art. 51 DSA-draft. This right can be exercised in particular if the Digital Service Coordinator of the Member State does not react to an infringement of the very large online platform. The Commission shall also be able to impose fines of up to 6% of the annual turnover or up to 5% of the daily turnover per day for infringements.

 

What’s next?

The legislative process is still at an early stage. In view of the almost 100 comments received in each of the Inception Impact Assessments, it is to be expected that the draft will be discussed in a controversial manner. It will also be important to see how the relationship to other recent EU legal acts will be further balanced, whose regulatory scope overlaps with the submitted draft, such as, above all, the Copyright Directive 2019/790/EU, the AVMSD Directive and the already mentioned P2B Regulation.