Impact of DSA (Digital Service Act) on platforms and marketplaces: What it means for your business

With the growth of the number of social networks, websites and other platforms, there was a need for legal regulation of the digital space. The European Parliament understood this need and the result of the work on solving this issue was the adoption of the DSA (Digital Service Act). So Before we look at how the regulation will affect you as an Internet user, let’s first understand what the regulation is, when it will come into effect, and whether it applies to you.

The DSA (Digital Service Act) is a regulation in EU law that, unlike the E-Commerce Directive, will apply immediately in all member states without the need for further implementation into national law. The DSA updates the E-commerce Directive on illegal content, transparent advertising and misinformation. It is worth noting here that the DSA will not replace the E-Commerce Directive, which remains the cornerstone of the legal framework for all digital services. The main purpose of DSA is improving content moderation on platforms, social networks to solve problems related to illegal content.

Is DSA valid today?

The DSA was published in the Official Journal of the EU on October 27, 2022. On August 25, 2023, the DSA entered into force for very large online platforms та very large online search engines. It is fully applicable to other subjects from February 17, 2024.

Does the DSA apply to you?

This is probably one of the most relevant questions today. Firstly, it should be noted that unlike the e-Commerce Directive, DSA will apply to you if you offer services as individuals residing in the EU, and legal entities, established or located in the EU, regardless of where you are or where your company is located.

At the same time, it is clear that if one user from the European Union starts using your services, it does not mean that you must apply DSA in your activity. However, if many of the people who use your services reside in one or more countries of the European Union, or if your activities are targeted at one or more of those member countries, DSA will also be applicable to you.

Nevertheless, please bear in mind that even if the DSA is applicable in your situation, it doesn’t automatically make you responsible for any illicit content posted on your platform.

There are cases where the platforms are released from liability, what you can read below:

1. “Mere conduit” exemption – if you are a passive transmitter of information, namely, it refers to cases when you “do not initiate the transmission; do not select the transfer recipient; and do not select or change the information contained in the transmission” you are not responsible for violating the requirements of the regulation. For example, ISPs, direct messaging services, virtual private networks, domain name systems, voice over IP, top-level domain name registries.
2. “Caching” exemption – similar to “Mere conduit”, consists in the fact that you are not responsible for information, content that is stored automatically, intermediately and temporarily in order to increase the efficiency of the resource. An example can serve content delivery networks, content adaptation proxies або reverse proxies;
3. “Hosting” exemption – The DSA has moved the exemption of hosting service providers from the E-Commerce Directive. Subject to this exemption, providers are not responsible for user information they store if:

• The provider is not aware of any illegal activity or content.
• Upon becoming aware of any illegal activity or content, they take measures to remove or restrict access to it.

At the same time, it is worth noting that the exemption from liability in accordance with “Hosting” exemption is not an absolute circumstance and is illustrated by several court judgments such as: L’Oreal v eBay and Google France case, where CJEU ruled that online marketplaces cannot be used “Hosting” exemption in cases where they play an active role in relation to the data provided by the user, for example by promoting or optimizing sales offers.

Under the DSA provision, it’s important to note that platforms are not absolved of liability for violating consumer protection laws when they present information, services, or products in a manner that might lead consumers to believe they are the ones offering them. In other words, if the platform gives the impression that they are directly selling goods or offering services, and not acting on behalf of a third party, the exemption cannot be applied.

So we’ve looked at when the DSA may apply to you and when you may be exempt from liability for breaching the DSA. However, it remains unclear exactly which DSA requirements apply to you as a social network, website or other participant in the Internet space. Therefore, we will consider this issue in more detail in the next section.

Duties of participants of the Internet space

DSA defines different levels of members and your responsibilities depend on which level you are at. DSA distinguishes between several levels of participants, and the number of responsibilities increases cumulatively at each level. Cumulative duties mean that if you are in the third level, the duties listed in the third, second and first levels of the DSA apply to you.

So, below you will find more information about the specific levels and responsibilities for each of them. For your convenience, we have presented this information in the form of a table. It is also important to remember that duties have a cumulative effect.

Therefore, the duties listed above are only part of the requirements that the DSA provides. In case of non-fulfillment of these obligations, including the above, a fine of 6% of annual worldwide turnover of the company for the previous financial year. This amount is significant and motivates companies to comply with the new rules.

In conclusion, it is important to note that the DSA also addresses issues related to advertising and expands existing rules. The DSA is introducing two new restrictions on targeted advertising on online platforms. First, DSA prohibits targeted advertising to minors based on their profiling. Secondly, targeted advertising based on profiling using special categories of personal data, such as sexual orientation or religious beliefs, is prohibited.

The new rules also empower users to understand and make informed decisions about the ads they see. They need to know clearly whether advertising is directed at them and for what reasons, as well as who paid for it; should also clearly see when content is sponsored or natively hosted on the platform, and track commercial messages from influencers. The obligations regarding disclosure and measures also apply to potentially illegal advertising, as well as to any other type of content.

Conclusion

Therefore,the DSA establishes the foundation for new regulation that applies not only to companies operating within the European Union but also to those operating beyond its borders. This requires all companies to review their current policies and make necessary changes in accordance with DSA requirements to avoid potential fines and ensure compliance with the new regulatory standards.