European Reform of Digital Services

WHAT IS GOING ON? The internet space has experienced a huge boom in the last months. The European Commission therefore reflected the need to take steps for its further regulation and at the end of December 2020 presented a plan to reform the digital space regulation. Twenty years after the e-Commerce directive has been passed, the Commission introduced two packages of new legislation on 15 December – the Digital Services Act (DSA) and the Digital Trade Act (DTA). The press release of the Commission states that the proposed legislation will not only serve to the citizens of the European Union, but also digital service providers and 1 their business users. Moreover, both DSA and DTA’s provisions are to support small and medium sized enterprises (SMEs), platforms and startups.


WHY IS IT IMPORTANT? There are more than 10,000 platforms in the EU, and 90% of those are small and medium sized enterprises. According to Eurostat, 40% of the companies that sell products online do it through online marketplaces. Under current legislation, they have to deal not only with different legislation of all 27 member states when entering the single market, but also (unlike large platforms) they do not even have access to data and information about their customers. Because of this, the SMEs are at a competitive disadvantage compared to large platforms (the “gatekeepers”) and face undue legislative requirements without the possibility of developing a relevant market strategy.


The regulation proposed by European Commission is to empower the small and medium sized enterprises via wide range rules concerning obligations towards service providers; for example, DSA and DTA include measures related to online advertising and its algorithms, which is to make the providers more transparent. Another area of regulation aimed to empower the small and medium size businesses is to increase legal certainty. According to the Commission, the DTA should set clearly-defined rules concerning obligations for providers, thus creating a better and more opened environment for other businesses – such as SMEs. The Commission wants them to achieve easier access to potential customer, which would lead to growth of a healthy competitive environment. DTA also deals with procedural rules. Those will ensure quick decisions, beneficial for the SME users and consumers. The DSA includes rules for online intermediary services themselves – the Act divides them into four sub-categories: intermediary services offering network infrastructure, such as internet access providers. Another category is hosting services, such as cloud and webhosting services. The DSA sets rules also for online platforms, including social media, app stores, online marketplaces and collaborative economy platforms. A very large risk poses very large online platforms, which is the last category of the services. All of the categories mentioned have different obligations. In addition, all online intermediaries offering their services in single market will have to comply with the new rules. Therefore, the legislation will apply to intermediaries based in the EU as well as to those based outside of the Union.


WHAT WILL HAPPEN NEXT? The need to pass the new law which would reflect dynamically changing online space is present also in the European parliament. The proposed bills – Digital Services Act and Digital Trade Act will be the subject to the ordinary legislative procedure within the European Parliament, and therefore Member States. Once adopted, the new rules will be directly applicable across the EU.


Falath & Partners

Ján Falath

partner, associate
T: +421 905 866 438

Share it