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Impact of new EU regulation on digital service market

ANTI-COUNTERFEITING
BRAND PROTECTION
REGULATION
August 1, 2022

We discuss the impact that DMA and DSA will have on a variety of companies and how they will transform the digital services market and create a safer and more open.

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*This article discusses the DSA and DMA based on the present available information; however, due to the nature of this topic, the regulations, definitions and sanctions may be subject to change when these two new regulations are published in the following months.

After two years in the making, since in December 2020 it was first published that the European Union would create a new legislation to regulate major digital platforms, the Digital Market Act ( DMA) and the Digital Service Act (DSA) have finally been approved by the European Commission and will soon be published in the Official Journal of the European Union, meaning it will be applicable to all European Union countries without the additional need of creating state regulations. 

These two new regulations have as an objective to guarantee loyal competition, increase the level of supervision to which digital companies were subject to as compared to before, and protect consumers by increasing the extent of which companies are transparent in regard to how they run their business and products/content being offered. 

The DMA and DSA come just three years after the new General Data Protection Regulation (GDPR), the toughest data protection regulation worldwide, was approved by the European Commission. In fact it triggered enormous change in the way companies recollected personal information from it’s leads and, in somewhy, became the downfall to third party cookie use. Although it is yet unknown to what extent will the end of third party cookies change the digital environment, we have seen how it has already impacted the advertising and marketing industry and has directly struck Google’s advertising business. 

Legislation worldwide has become somewhat outdated as the world continues to adopt digitization at a pace never seen before, new players continue to emerge and change the status quo of the world. The DMA and DSA are encompassed within the European digital strategy known as “A Europe fit for the Digital Age”. The European Union wishes to become digitized by 2030 and has taken the first steps to regulate what will become all European citizen’s futures. Within this, they have set the basic obligations and rights for European citizens, of which the following stand out:

  • Priority of people: Technologies should protect and defend people, democracy and guarantee that all parties involved act in accordance with the law and with responsibility.

  • Freedom of choice: People should be guaranteed access to a fair online environment, and be protected from harmful and illegal content. 

  • Security and protection: All users, regardless of their age, have the right to a safe and protective space. 

Digital Markets Act (DMA)

The European Union has always fought to establish the grounds for fair and transparent competition on offline channels. Now, with the rapid adoption of digitization, the European Parliament and Council have approved the Digital Market Act (expected to be adopted later this year) so that what is illegal offline is also illegal online and to ensure equal opportunity and space for new businesses, innovative ideas, and competitive prices. 

The Digital Market Act is no more than a regulation to ensure that the digital ecosystem is fair and contestable, and that “gate-keepers” don’t abuse it’s position of power and create barriers to entry that can not be overpassed by smaller companies.  For this, they have defined a set of criteria that differentiate “gate-keepers” from other medium/large businesses from the digital market. 

“Gate-keepers” are those companies that:

  • In the past 3 years, have had an annual turnover of, at least, €7.5 billion within the European Union or alternatively a valuation of at least, €75 billion. Moreover, these companies must have as a minimum 45 million monthly end users or, alternatively, 10000 business users in the European Union. 

  • Control one or more core platform services (including: marketplaces, app stores, search engines, social networks, advertising services, web browsers…) in  at least in 3 member states of the EU. 

Small and medium enterprises (SME’s) can not be considered as gatekeepers, nevertheless the DMA does allow the imposition of certain obligations when SMEs are on the rise to becoming as such.

"What we want is simple: Fair markets also in digital. We are now taking a huge step forward to get there - that markets are fair, open and contestable. Large gatekeeper platforms have prevented businesses and consumers from the benefits of competitive digital markets. The gatekeepers will now have to comply with a well-defined set of obligations and prohibitions. This regulation, together with strong competition law enforcement, will bring fairer conditions to consumers and businesses for many digital services across the EU.”

Executive Vice-President for a Europe Fit for the Digital Age, Margrethe Vestager

Impact of the DMA on gate-keeper platforms

Companies classified as gatekeepers will have to, among many, ensure here forward the interoperability of their instant messaging services, give sellers access to their performance data and inform of any acquisition and merger to the European Union. Even though those companies that have been classified as gate-keepers have 6 months to comply with the DMA they will also have a chance to fight this title and be disqualified. 

Gate-keepers will no longer be allowed to present their products in a more favorable way than those of others. The DMA also prohibits the reuse of data for other purposes than those for which it was collected, the pre-installing of a particular software in technological devices, and to establish unfair competition practices that  disfavor innovation and market development. 

Non-compliant gatekeepers open themselves to fines up to 10% of their total worldwide turnover and, if they are repeat offenders, the fines increase to 20% of their total worldwide turnover. 

Digital Service Act (DSA)

The European Union has always legislated to defend the interests of the whole union and of all its citizens. However, the emergence of illicit and illegal content was not within their reach.  Until now, all 27 member states had to fight and protect their citizens individually as there was no European Directive and this lack of unified regulation threatened the basis of the Union: unified market and equal protection. 

The Digital Service Act intends to protect customers from illicit content and create a more transparent navigation through the internet independently of where the user lives. The intent is that the adoption of this new regulation will facilitate the elimination of illicit content (sales of counterfeits, brand impersonation, hate speaches, pronography, terrorism claims…). 

“Today's agreement on the Digital Services Act is historic, both in terms of speed and of substance... It will ensure that the online environment remains a safe space, safeguarding freedom of expression and opportunities for digital businesses. It gives practical effect to the principle that what is illegal offline, should be illegal online. The greater the size, the greater the responsibilities of online platforms…”

European Commission President Ursula von der Leyen

The DSA is based on:

  • Responsability: Content service providers will continue not having responsibility towards the type of content published on their site until they are notified; however, from now one they will have to create and facilitate specific processes for requesting removal of illegal or unauthorized content and they will have to collaborate with the authorities for removal and identification purposes. 

  • Due diligence to increase transparency: Companies will now be obliged to communicate transparently the policies, procedures or measures they take when they classify a content as well as the algorithm they use. They will also have to publish removal of content requests made by companies, individuals or public organizations.

  • Specific obligations for online platforms and big online platforms:  These measures are specific to them because, as it occurred with the DMA, SMEs companies are not subject to these specific obligations as they could undermine their expansion in the market. 

Impact of the DSA on digital service providers

Those digital service providers will be obliged, and held accountable,  to include new measures to fight illegal online content in a quick way and increase trade checks on online marketplaces sellers to ensure that consumers are kept safe from harmful products.

Moreover, these providers will also be forced to increase the transparency of how they do practices by, for example, providing information on how their algorithms work or to communicate in a transparent way the terms and conditions of the platform. On top of this, digital service providers will be banned from using advertising and misleading practices to manipulate consumers behavior. 

Lastly, and on behalf of transparency and safety for users, platforms will have new rules to trace sellers to directly fight scammers. Marketplaces, through the use of technological solutions, will have to place random checks to look out for non-compliant sellers and products, product traceability. 

Conclusions

The Digital Market Act (DMA) and the Digital Service Act (DSA) are expected to create 

an open digital market more competitive, safer, and as transparent as possible to favor users, consumers and sellers thanks to unprecedented digital laws. Not only that, but these two laws are expected to close the gaps between social and economic issues within the market. 

Even though the full impact will not be seen until the DMA and DSA come into force, which will start happening 20 days after they are published on the Official Journey of the EU, there are explicit rules and sanctions to ensure that the digital market adopts and showcases the values of the European Union: equality, progress, freedom, and protection. 

The DSA will increase the transparency of online service providers with respect to users, companies and clients and this will ultimately lead to an increase in the efficiency rate of which illegal and/or unauthorized content can be removed online (as from now on the responsibility measures by which service providers are regulated will be tightened). 

For online protection companies, like Smart Protection, these new regulations will allow to improve the service provided to clients and increase the efficiency of such, as DSA will decrease the time both intermediaries and digital service providers (online marketplaces, content sharing platforms, social networks, travel and accommodation platforms,etc) have to act.

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