What is the DSA?

The DSA and DMA together form an ambitious digital legislative package of the European Union. By setting rules for online platforms and search engines, the aim is to create a safer, more transparent, and more fair digital ecosystem. This includes obligations such as setting up content moderation and appointing contact points for users.

The DSA is a European regulation. This means that the DSA is directly applicable in all EU member states, without the need for separate national legislation. Since February 17, 2024, the DSA applies to all providers of digital services and online platforms in the EU. This includes online marketplaces, social networks, search engines, cloud providers, internet service providers, content platforms, and online travel and accommodation platforms. In short, a wide range of online service providers, although it is expected that the focus will predominantly be on the larger platforms and providers. This is somewhat similar to the DMA, which primarily applies to the so-called ‘gatekeepers’ that offer core platform services. These are mainly the big tech companies, such as Amazon, Google, Meta, and the like.

Impact on SMEs

Although the focus seems to be on ‘big tech’, it is important to recognize that the DSA applies to and therefore has consequences for all providers of digital services within the EU. This includes SMEs. This raises the question: is it fair that SMEs have to comply with legislation that seems to have been primarily designed for the tech giants within the digital industry?
It seems difficult to provide an affirmative answer to this question. This legislation is initially intended and created for big tech companies, the ‘gatekeepers’. Although one of the goals of the DSA is to promote a level playing field with innovation, growth, and competitiveness, the broader application also leads to ‘overregulation’ for SMEs. This actually hinders innovation, growth, and competitive position of SMEs rather than stimulating it.
It is relevant to note that the DSA has a tiered system of obligations, distinguishing between different types of online service providers based on their influence and size. Smaller players – such as SMEs – are subject to less stringent requirements than the large big tech companies. This system is intended to ensure that the burdens are evenly distributed and that unnecessary pressure is not placed on smaller companies that do not have the same resources or influence as larger companies.

Liability under the DSA

For SMEs, it is essential to understand how the DSA can affect daily processes. Although digital service providers and platforms are not initially liable for digital content posted by a user on the online platform, the DSA requires that it be possible for any user to identify content from a digital service as potentially illegal/infringing. For example, through a notice-and-takedown procedure. If the provider then does not remove the content or does not do so in a timely manner, the provider may be held liable for that content.

Digital service providers must also be more transparent about advertisements on the platform, any recommendation systems that are applied, as well as why certain content has been removed from the platform. When a provider displays advertising on the online platform, they are required to make it clear that 1) it is an advertisement, 2) on behalf of whom the advertisement is being shown, 3) who has paid for the advertisement, and 4) why that advertisement is being shown to the user. In addition, displaying advertisements based on personal profiles that consist of special personal data (such as sexual orientation, political preference, and medical data) is out of the question.

When certain “recommendations” or “relevant to you” are displayed at the top of the search results on a platform, the service provider must inform the user in clear and understandable language why such results are displayed at the top.

Furthermore, the provider must be able to justify why certain content posted by third parties on the platform has been removed. The provider must not only justify why certain content has been removed, but also inform about the possibilities of appealing against such a decision.

Sanctions and supervision

The main risk of non-compliance with the DSA is the financial penalty in case of non-compliance, which is up to 6% of the global annual turnover. In addition, corrective measures can be imposed or, in extreme cases, a ban on certain business activities can be imposed. Furthermore, sanctions will obviously lead to reputational damage.

The responsibility for the supervision and enforcement of the DSA lies primarily with the national authorities of the EU Member States. Each EU country has appointed a Digital Services Coordinator, who serves as a central point of contact for monitoring compliance within their jurisdiction. For the Netherlands, this is the Authority for Consumers & Markets (ACM). Given the significant impact on the internal market and the cross-border nature of their services, the European Commission also plays a major role in relation to big tech companies, with the power to conduct direct investigations and impose sanctions.

Challenges and opportunities for SMEs

Timely acting to the DSA and DMA is essential for companies operating in the digital space, especially big tech companies. Anticipating the DSA and DMA requires an approach from legal, technical, and business strategic perspectives. It is an ongoing process that requires commitment from both internal and external stakeholders. Other preparatory measures could include:

1. Proactively communicating about efforts and willingness to comply with the new regulations;
2. Collaborating with industry peers to develop and share effective approaches based on the common challenges of the DSA and DMA;
3. Opening or strengthening dialogue with regulatory authorities (such as the ACM) to help clarify expectations and timely knowledge of adjustments and/or interpretations of laws and regulations.

While it may be challenging for SMEs to meet the new requirements, it also offers opportunities to compete more fairly in the digital market. By focusing on the core principles of transparency, consumer protection, and fair competition, smaller companies can continue to grow and innovate. This not only prevents sanctions and reputational damage but can also be used as a unique selling point towards consumers and investors. By being compliant and transparent, the organization’s adaptability, resilience, and reliability can be emphasized, which can in turn provide a strategic advantage.

If you want to learn more about the DSA and its (potential) impact on your organization, contact Chantal Bakermans.

Advocatenkantoor Penrose, Amsterdam.