Technology | Digital Services Act Takes Effect: What You Need to Know
Who will be required to comply with the regulations set forth by the DSA?
The DSA entered into force in the European Union (“EU”) on 16 November 2022 and will replace the E-Commerce Directive (Directive 2000/31/EC). The proposed implementation of the DSA is currently under review in Norway and other EEA/EFTA countries. Given that the DSA applies to businesses offering services to citizens in the EU, companies in the United States and the United Kingdom will also be affected.
Both the DSA and the Digital Markets Act (“DMA”) aim to regulate the same entities, however the DMA focuses on competition and antitrust issues, while the DSA aims to regulate harmful and illegal goods, services, and online content. The entities that will be regulated under the DSA are those that provide:
- Network infrastructure services, such as internet access providers and domain name registrars
- Hosting services like cloud computing and webhosting
- Very large online search engines serving more than 10% of the 450 million consumers in the EU and thus have greater responsibility in preventing the dissemination of illegal content online
- Online platforms connecting sellers and consumers, such as online marketplaces, app stores, collaborative economy platforms, and social media platforms
- Very large online platforms with reach to over 10% of the 450 million EU consumers, which may pose significant risks in terms of the dissemination of illegal content and societal harms
How will the DSA work in practice?
The DSA aims to ensure fairness, competition, and security in EU’s online marketplace. The obligations imposed upon these entities under the DSA are proportionate to their role, size, and effect on the online environment. Some of the key provisions of the DSA include:
- Obligations for online platforms to prevent the spread of illegal content and illegal activities, such as the sale of counterfeit goods or services that infringe on intellectual property rights
- Requirements for platforms to monitor and enforce their terms of service, as well as cooperating with national authorities to investigate illegal activities
- Provisions for user complaints and reporting mechanisms, including the use of “trusted flaggers” to identify and report illegal content or activities
- Requirements for platforms to provide greater transparency about their algorithms and decision-making processes, as well as data protection and privacy measures for users
- Measures aimed at promoting competition, such as limiting the ability of dominant platforms to engage in unfair business practices or to discriminate against certain users or businesses
- Provisions for ensuring the safety and protection of minors online, such as limiting the availability of harmful content and services to minors.
What will be the consequence of non-compliance and infringements?
To ensure that companies stay compliant with the DSA the Commission will carry out market investigations, designate companies as subject to the DSA and design remedies to tackle infringements of the DSA. Remedies for non-compliance with the DSA include:
- Financial penalties: Companies may be fined up to 6% of its total annual worldwide turnover, or periodic penalty payment up to 5% of the average daily worldwide turnover or income of the provider of intermediary services.
- Reputational damage: Non-compliance with the DSA can damage a company’s reputation and lead to loss of consumer trust.
- Legal liability: Companies may face legal liability for any harm caused by non-compliance with the DSA, such as the spread of illegal or harmful content.
- Suspension or termination of services: In severe cases, non-compliance with the DSA can result in suspension or termination of a Company’s services within the EU.
The DSA is expected to increase accountability and transparency for online intermediaries and digital platforms, as well as provide a more secure online environment for EU citizens. The DSA may also impact the operation and business models of online intermediaries and digital platforms, potentially leading to changes in the way they provide services within the EU. The remedies that include fines up to 6% of the company’s total worldwide annual turnover, should motivate companies to perform an assessment of compliance with the DSA before 24 February 2023.