article | 09 Feb 2021

The Digital Services Act. Does it concern your company, what is it and what happens now?

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The European Commission (the EC) has proposed a Digital Services Act (the DSA). It concerns providers of digital services such as

  • intermediary services (e.g. domain name registrars and internet access providers),
  • hosting services (e.g. cloud and webhosting services), and
  • online platforms (e.g. app stores, marketplaces and social media).

The purpose of the DSA is to ensure user protection and users’ fundamental rights online. To accomplish this purpose, the DSA establishes strict obligations and accountability on providers of digital services, especially on online intermediaries and online platforms. The rules obliges providers of digital services to e.g. deal with and moderate illegal content, goods and services online (such as terrorism content, counterfeit products and non-authorised use of immaterial property rights on streaming sites respectively).

However, the final legislative product is still being discussed. Negotiations regarding the proposal began in the Council of the European Union on 6 January 2021 and several steps consequently still remain in the legislative process. It will probably take years before we see the act finally being adopted and implemented. Although, it is never too early to prepare. We will therefore explain how the DSA will affect start-ups, as well as small- and medium-sized enterprises (SMEs) and what these can do before the DSA enters into force.

A start-up shall mean any micro-sized enterprise that

  • employs fewer than 10 persons, and
  • has an annual turnover/balance sheet not exceeding EUR 2 million in total.

A small-sized enterprise shall mean any enterprise that

  • employs fewer than 50 persons, and
  • has an annual turnover/balance sheet not exceeding EUR 10 million in total.

A medium-sized enterprise shall finally mean any enterprise that

  • employs fewer than 250 people, and
  • has an annual turnover not exceeding EUR 50 million and/or annual balance sheet not exceeding EUR 43 million in total.

In addition to the above definition of a medium-sized enterprise, a medium-sized online platform is any platform having less than 45 million monthly recipients within the EU.

How will the DSA affect your company’s day-to-day business?
The DSA will, among other things, force all online intermediaries to

  • deal with illegal content, goods and services online, and
  • be transparent towards its users regarding moderation of content.

The transparency obligation extends to e.g. online advertising in medium online platform enterprises. It requires that the users can clearly and unambiguously in real time identify:

  • that the provided information is an advertisement,
  • the person or company standing behind the advertisement, and
  • useful information on the main parameters used to direct the advertisement.

As long as the rules are followed, no liability for the online intermediaries should arise. Good to know is that there is no provision demanding active actions. An obligation to act arises first when something is brought to the online intermediaries attention (e.g. by the relevant national judicial or administrative authorities). Notification(s) to medium online platform enterprises could also come from so called trusted flaggers.

Upon receiving an order, all online intermediaries must however without undue delay take adequate action(s). If the order is not adhered to, the online intermediary runs the risk of receiving a penalty. It can be set at a total maximum 6 % of the annual income or turnover of the provider of the intermediary services concerned.

What should a provider of digital services do before the Digital Services Act enters into force?
Below is a selection of proactive measures we find most relevant for start-ups to medium-sized enterprises based on the requirements set out on providers of digital services in the DSA:

  • All online intermediaries should establish a single point of contact for electronic direct communication with e.g. the EC or national administrative authorities, and make their contact information easily available.
  • All providers of hosting services and online platforms should establish or at least start preparing an illegal content, goods or services report mechanism for their users.
  • All providers of hosting services and online platforms should also start assessing how to best provide explanatory information to users whose content, goods or services are deleted or whose access to such content, goods or services is restricted.
  • Medium online platform enterprises should start developing or discussing an internal complaint-handling system.
  • Medium online platform enterprises should also start assessing how to prevent abusive notices and repeatedly abusive users.
  • Medium online platform enterprises should develop a traceability-system to easier identify wrong-doers, e.g. sellers of counterfeit products.

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