New EU Legal Framework for Platform Economy
dr. Dóra Petrányi, Partner, Global Co-Head of Technology, Media and Communications, CMS and dr. Katalin Horváth, Senior Counsel, Technology, Media and Communications (TMC), CMS
The European Commission has recently published the final text of the Digital Services Act (DSA) and Digital Markets Act (DMA). These two crucial EU regulations will shape the operation of intermediary service providers, host providers, providers of online platforms, social media networks, online search engines, online marketplaces, cloud services, operation systems, virtual assistants and web browsers.
DSA Brings new Legal Framework
The DSA sets out uniform, harmonized rules for intermediary service providers (ISPs) to:
• foster innovation, growth and competitiveness;
• better protect consumers and their fundamental rights online;
• ensure a safe, predictable and trusted online environment;
• offer more choices for users and less exposure to illegal content;
• provide access to business users to EU-wide markets through platforms; and
• to facilitate the scaling up of smaller platforms, SMEs and startups.
The new rules establish a framework for the conditional exemption from liability of ISPs, rules on specific due diligence on business partners and other obligations tailored to different categories of ISPs and law enforcement rules, and a new regime for cooperation and coordination between the competent authorities.
The DSA does not change the rules on the liability of intermediary service providers for illegal content; it repeats almost word-for-word the relevant sections of the E-Commerce Directive. However, the DSA creates new obligations for ISPs at several levels. Common obligations will apply to all forms of such providers, including online and very large online platforms. Hosting providers will have additional responsibilities, and the DSA will impose specific obligations on online platforms compared to other hosting providers.
In addition, online platforms and popular search engines have additional obligations: to manage systemic risks; publish detailed transparency reports; manage illegal content; maintain an internal complaint management system and arbitration procedures; and maintain measures against abuse. Detailed provisions apply to interfaces, transparency of online advertisements and recommendation systems.
DMA Establishes new and fair Business Environment
The DMA creates a new competition law framework for large online platforms, representing the critical structuring elements in today’s digital economy, intermediating most transactions between end users and business users. TheDMA deals with those large online platforms acting as gatekeepers in digital markets that meet its qualitative and quantitative criteria and have a significant effect on the internal market. These include providers of online intermediary services, online search engines, video-sharing platforms, operation systems, web browsers, virtual assistants, cloud services, online advertisement services, social media networks, and online marketplaces.
The DMA aims to ensure that these platforms behave fairly online; that other businesses will have new opportunities to compete and innovate in the online platform environment without having to comply with unfair terms and conditions that limit their development; and that consumers will have more and better services to choose from, more opportunities to switch their provider if they so wish, direct access to services, andfairer prices.
The DMA obliges gatekeepers to introduce measures to ensure business freedom for end users in pricing, access to content, removing software applications, modifying settings, and installing software and app stores. The gatekeepers must also ensure data portability, access to data, equal access to application stores and access to software features. Furthermore, the gatekeepers must follow strict transparency rules on online advertisements, search engines and during profiling.
Meanwhile, the regulation also imposes prohibitions and restrictions on gatekeepers regarding data protection, direct or indirect restriction of business users, mandatory use of the platform’s services, mandatory subscription to other platform services, discrimination in rankings, and the use of unfair general terms and conditions.
The DSA will be directly applicable across the EU and will apply in 15 months or from January 1, 2024 (whichever is later) after it enters into force. The DMA will become applicable on May 2, 2023, so the gatekeepers have only six months to prepare to comply with the new obligations.
This article was first published in the Budapest Business Journal print issue of November 7, 2022.
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