The impact of the Digital Services Act on marketplaces

In a continuing effort to regulate digital services that act as intermediaries by connecting consumers with goods and services, the European Parliament and Council have agreed on a new set of rules that will impact European platforms and marketplaces. 

The Digital Services Act and the Digital Market Act  aim to: 

• Create a safer digital space where the fundamental rights of all users of digital services are protected.
•  Establish a level playing field to foster innovation, growth, and competitiveness within the European Single Market, as well as globally. 

The Digital Services Act (DSA) will apply to all online intermediaries providing services in the EU, imposing new obligations and restrictions based on the nature of the services and products concerned and the number of users of the online platforms. As a consequence of this proportionate approach, very large online platforms (VLOPs) and very large online search engines (VLOSEs) will be subject to more requirements after analysis of their activities than smaller platforms.

Why do regulators want new rules for digital services? 

Current rules are over 20 years old: the digital transformation has completely transformed and reshaped human activity, and European citizens are exposed to increasing harm online. Due to the large volumes of information and commercial offers, platforms, in particular, carry immense weight and responsibility in the online ecosystem. Antiquated regulations need to be modernized and clarified to meet the current challenges related to user safety, public opinion and discourse, and, of course, online trade. 

Furthermore, national responses to the spread of illegal content have not necessarily been successful thus far: coordinated European action and harmonized rules are expected to better protect and empower European individuals and businesses. 

Finally, implementing a single set of rules is expected to be a more cost-effective solution compared with complying with 27 different regulatory regimes in a single market.

What will the DSA change for marketplaces?

Marketplaces will be under close surveillance. The European Council has nevertheless provided exemptions for micro and small enterprises with under 45 million monthly active users in the EU (i.e. 10% of the 450 million consumers in the EU) with the aim of safeguarding the development of start-ups and smaller enterprises in the internal market.

Here are the key actions that will impact marketplaces:

• Measures to counter illegal content, goods, and services online: Regulations will impose the swift removal of illegal products and services from online marketplaces. Platforms will have to meet new requirements, such as a duty of care towards sellers hosted on their online marketplace. Marketplaces will have to ensure that consumers are properly informed about the products and services sold and inform users of the illicit nature of the product or service, the identity of the seller, and legal remedies if such a product or service is detected.
• New tracing rules for sellers: Marketplaces will be requested to trace their traders and carry out random checks as under the “Know Your Business Customer” principle.  
• Ban on targeted advertising: In line with GDPR, providers of online platforms will not be allowed to profile minors or individuals based on special categories of personal data. Platforms and influencers will be required to be more transparent in this respect.
• Ban on “dark patterns”: Dark patterns can refer to pop-ups and misleading practices carried out online. Platforms will be prohibited from using deceptive ploys to manipulate users into making choices or using their services. 
• Risk-based action: Very large online platforms must prevent abuse of their systems, including oversight through independent audits.

How will it work?

Trusted flaggers, i.e., entities with expertise, will be able to report illegal content. National laws will also give local authorities the mandate to order platforms operating within the EU, irrespective of where they are established, to remove illegal content. This means that even if a platform is based outside of the EU, if it does business within a single market, it will have to appoint a legal representative to apply to or deal with the consequences of DSA. 

When will the DSA be applied?

When the Council officially adopts the final text in September, it will be published in the Official Journal of the EU and will enter into force 20 days after its publication.

The DSA shall then apply across the EU fifteen months after entry into force or from 1 January 2024 (whichever comes later). Regarding the obligations for very large online platforms and very large online search engines, the DSA will apply earlier - four months after they have been designated as such by the Commission.