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The EU Digital Services Act – What does it mean and are there implications for the US?

-- By SebastianValdezOranday - 01 Mar 2024

BACKGROUND:

In 2000, the European Union made its first attempt at regulating digital services through the employment of the Electronic Commerce Directive [https://www.privacyshield.gov/ps/article?id=European-union-ECommerce#:~:text=The%20Electronic%20Commerce%20Directive%20(2000,established%20(country%20of%20origin]. The directive was aimed at requiring online service providers to abide by those already existing consumer protection rules in the regions where they operated. With rapid advancements in technology and internet service, the directive’s goal of telling companies to comply with the already existing rules, predictably, went out of style both in scope and capability. Internet legislation from 2000 simply could not keep up, and the directive only provided a basic skeleton for requiring providers to post information publicly and comply with advertising regulations.

By the 2020s, the EU sought to greatly update the original directive to reflect the changed media landscape. This objective culminated in the passage of the Digital Services Act (“DSA”) and the Digital Markets Act (“DMA”); twin acts passed in 2022 to revamp the old directive [https://www.globalcompliancenews.com/2022/11/16/https-insightplus-bakermckenzie-com-bm-intellectual-property-european-union-the-digital-services-act-dsa-and-the-digital-markets-act-dma-finally-approved_10312022/]. Like the General Data Protection Regulation, the new acts apply to both EU operators and non-EU companies that interact with the EU or its citizens. To understand the implications of the DSA and the DMA, we’ll need to examine what responsibilities both acts impose on their subjects, and who those subjects even are.

WHAT THE DMA AND DSA ACTUALLY DO:

To cover the DMA quickly, it suffices to say that the DMA allows the EU Commission to designate certain digital providers as “gatekeepers” in digital markets [https://commission.europa.eu/strategy-and-policy/priorities-2019-2024/europe-fit-digital-age/digital-markets-act-ensuring-fair-and-open-digital-markets_en]. A “gatekeeper” is any large online platform with an advantageous economic position that influences digital markets. This designation makes a provider subject to the DMA, requiring them to, among other things, provide advertising for other companies, list their products at the same level as third-party products, and allow other businesses to access the data generated through that business’s use of the platform. The DMA, then, is intended to promote competition by leveling the playing field where one team is designated a gatekeeper by forcing the gatekeeper to advantage third parties on its platform.

On the flip side, the DSA applies to any online intermediary, including social media platforms and digital storefronts. Among these providers, the EU makes distinctions between multiple levels of providers, with their obligations under the DSA matching their size/influence. Thus, intermediary services like internet providers and hosting services have the fewest obligations under the DSA, while providers with the designation of “very large online platforms/search engines” (“VLOP/SE”) are subject to the strictest obligations, as they pose “particular risks in the dissemination of illegal content and societal harms” [https://commission.europa.eu/strategy-and-policy/priorities-2019-2024/europe-fit-digital-age/digital-services-act_en#:~:text=Digital%20Services%20Act%20(DSA)%20overview&text=Its%20main%20goal%20is%20to,and%20open%20online%20platform%20environment]. Because of their size, these VLOPs and VLOSEs (examples include Google, Amazon, X (still listed as Twitter)) must analyze societal risks, like those related to illegal content, freedom of expression, media freedom, pluralism, discrimination, election information, and others [https://digital-strategy.ec.europa.eu/en/policies/dsa-vlops]. If these risks exist, they must be reported to the EU Commission and the provider must address the risks, while making its information available to the EU both for examination and for the EU to independently vet platform data.

These specificities in the DSA’s language indicate sharp departures from the original directive in 2000, notably by attempting to combat what the EU identified as a “risk” beyond the ordinary consumer protection hurdles. Now, the EU’s lofty goal is an attempt to reign in misinformation, disinformation, and possible threats to freedom of expression.

The act’s overarching goal is to prevent “illegal and harmful activities online and the spread of disinformation" [https://commission.europa.eu/strategy-and-policy/priorities-2019-2024/europe-fit-digital-age/digital-services-act_en#:~:text=Digital%20Services%20Act%20(DSA)%20overview&text=Its%20main%20goal%20is%20to,and%20open%20online%20platform%20environment]. While the EU highlights its goals of setting bright-line rules to lessen confusion around content moderation and to increase competitiveness among businesses, most interesting is the focus on a possibly paternalistic goal to protect “society at large” by ensuring companies are accountable to democratic control.

IMPACT SO FAR:

In the second half of 2023, the DSA began coming into effect for subjects. On February 17, 2024, any grace periods associated with the DSA expired, and its provisions and rules applied to all platforms. So, how did the EU, and subject companies, react to the implementation?

For its part, the EU wasted no time in acting on its newfound authority under the DSA. Two days after its complete implementation, the EU Commission announced an investigation and possible proceedings against TikTok? for violations of the DSA [https://ec.europa.eu/commission/presscorner/detail/en/ip_24_926]. The investigation is targeting violations related to the promotion of behavioral addictions due to system design and a failure to conduct an assessment to counter risks for a person’s mental health and radicalization.

Businesses, meanwhile, have had positive and negative public reactions to the DSA. In 2023, Meta welcomed the transparency required by the DSA and lauded the harmonization of compliance requirements among large providers [https://about.fb.com/news/2023/08/new-features-and-additional-transparency-measures-as-the-digital-services-act-comes-into-effect/]. Still, compliance with the DSA for large providers costs money –– and the larger the provider, the more it will pay. Meta and TikTok? are among companies challenging the fees they were assessed to fund EU regulators to ensure compliance; these fees are calculated based on a provider’s profits. Effectively, larger companies must pay more for regulation, while loss-leaders will pay less, if anything at all [https://www.theverge.com/2024/2/8/24065809/meta-european-union-digital-services-act-monitoring-compliance-charge-challenge].

While the DSA’s requirements are limited to the EU and its citizens, the effects are largely on American businesses, and it’s possible that shifting attitudes in American society bring the goals of the DSA to American shores, namely efforts to combat disinformation and free speech risks for online content [https://www.thenation.com/article/politics/european-union-digital-services-act-us-tech-regulation/]. These issues, or at least their identification, are increasingly popular in America in a time where the Senate questions tech leaders over concerns with platform privacy, free speech, and election misinformation. This being an election year, I suspect these conversations will only be amplified. If American providers have these systems and assessment mechanisms in place already, a cultural shift toward accepting more government control of the operations of online providers is not out of the realm of possibility.

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