The EU Parliament and the EU Council recently adopted their respective versions of the Digital Markets Act (DMA) and Digital Services Act (DSA), which intend to create new antitrust-related (DMA) and regulatory (DSA) rules applicable to digital platforms.¹

The adoption of the draft amendments by the EU Parliament and the EU Council constitutes a critical step towards final adoption of these laws. Now, the EU Commission (EC), Parliament, and Council are undergoing negotiations (so-called "trilogues") to agree on a final version of the laws. The institutions could reach an agreement on the DMA and the DSA within the coming months, but it may take some time before it is enacted.

Background

The EC prepared the DMA/DSA proposals in the context of its review of the rules applicable to digital platforms, with the aim of ensuring Europe's global competitiveness and data sovereignty. According to the EC, the DMA is intended to address a perceived lack of contestability in the digital sector by targeting a set of practices such as leveraging data collected from competitors across markets, self-preferencing, and erecting barriers to switching.

Based on the EC's DMA Proposal, the EC will be in charge of ensuring that platforms qualifying as "gatekeepers" do not harm competition, with national authorities playing an advisory role. The DMA is not designed to apply across the entire digital space, but rather focuses on certain "core platform services," such as online intermediation (e.g., marketplaces, app stores), online search, and social networking.²

Conversely, the DSA governs the content, products, and services offered by intermediary service providers. It lays down rules concerning the taking down of illegal content and the handling of complaints about platforms' content. It also contains transparency requirements and rules on advertising.

For more information about the initial EC proposals, see our previous client alert here.

Amendments to the DMA

Key Changes in the Parliament's DMA Position³

• The scope of the DMA is extended. The Parliament proposes to include web browsers, virtual assistants, and connected TVs within the scope of the DMA, and to increase the quantitative thresholds in terms of European Economic Area (EEA) annual turnover and market capitalization.⁴ As it is, the DMA is expected to apply to the following digital platforms that are likely to meet its current thresholds: Google, Apple, Facebook, Amazon, and Microsoft.⁵
• The Parliament proposed further data use restrictions in the DMA. The Parliament suggests introducing new provisions which, inter alia, require interoperable messaging services and social media, prohibit practices impeding users from unsubscribing from a core platform service, and mandate fair and nondiscriminatory conditions of access to all ‘core platform services' (not merely to application stores). Gatekeepers will also be prevented from combining personal data for the purpose of delivering targeted or micro-targeted advertising, except where there is a "clear, explicit, renewed, informed consent."⁶
• The Parliament confirmed the EC's power to impose structural and behavioral remedies in case of systematic non-compliance (i.e., after only two non-compliance or fining decisions from the EC under the DMA).⁷ Gatekeepers could also be asked to notify any intended mergers, with the EC being entitled to block gatekeepers' acquisitions in areas relevant to the DMA.⁸ As for sanctions, the Parliament increased the maximum level of fine from 10 percent to 20 percent of the gatekeeper's total worldwide turnover in the preceding financial year.⁹

Key Changes in the Council's DMA Position¹⁰

• The Council proposed shortening the deadlines for the designation of gatekeepers.¹¹ Gatekeepers will have two months after the thresholds are met to notify the EC, and the EC will have 45 working days to decide on designation.
• The Council proposed a new obligation that enhances the right of end users to unsubscribe from core platform services.¹² Gatekeepers will have to refrain from making unsubscribe conditions disproportionate and ensure that unsubscribing can be done without undue difficulty.

On February 3, 2022, the Council, the Parliament, and the EC reached a consensus on areas such as the DMA scope and the obligation to notify any acquisitions in areas relevant for the DMA to the EC.¹³ However, there remain disagreements over the Parliament's proposal to prohibit the combination of personal data of minors for targeted advertising (which might be moved within the scope of the DSA), and over the extent of the interoperability requirements and whether they should apply to interpersonal communications.

Amendments to the DSA

Key Changes in the Parliament's DSA Position¹⁴

The following amendments were drafted by the EU Parliament:

• Targeted advertising to minors or using sensitive data is prohibited. The Parliament's DSA Position prohibits the display of targeted advertising to minors.¹⁵ In addition, the Parliament prohibits the display of targeted advertising on the basis of personal data qualifying as sensitive data under the General Data Protection Regulation (GDPR), such as data revealing ethnicity, sexual orientation, or religion, as well as health data. Online platforms would need to review their age-gating procedures to ensure that only contextual ads (and not targeted ads) are shown to users under 18. Furthermore, ad targeting technologies used on platforms would need to be reviewed to ensure that sensitive data is not leveraged for advertising purposes.
• Online platforms are required to use due diligence efforts to identify illegal or counterfeit products. The EC's DSA Proposal required providers of intermediary services to reasonably enforce their terms and conditions. The Parliament adds that online platforms should use due diligence to identify traders offering illegal products and services, including by carrying out random checks.¹⁶
• The Parliament introduced an article regulating the way in which platforms obtain GDPR consent. Where platforms need to obtain consent under the GDPR, the Parliament's DSA Position prohibits giving more visual prominence to any of the consent options over the others (e.g., using a large font for the "accept" option and a much smaller font for the "decline" option), or repeatedly surfacing the company's consent mechanism where users have declined such consent.¹⁷ In the Parliament's draft, these obligations cover any providers of intermediary services, which include "mere conduit" and "caching" services like internet access providers and domain name registrars.¹⁸

Key Changes in the Council's DSA Position¹⁹

The following amendments were drafted by the EU Council:

• Online search engines are expressly covered by the DSA. The Council's DSA Position clarifies that online search engines (i.e., online services which allow users to search websites on the basis of a given query) fall within the scope of the DSA. Online search engines will need to comply with similar obligations as "caching" services. Moreover, search engines with a number of average monthly active recipients in the EU above 45 million will qualify as "very large search engines"²⁰ and will need to comply with a set of targeted rules.
• Enforcement against very large online platforms is centralized in the EC. The Council's DSA Position significantly amends the enforcement mechanism of the DSA. According to the Council's DSA Position, the EC will be primarily responsible for enforcing the DSA with regard to very large online platforms and search engines.²¹ In the EC's DSA Proposal, the EC was able to impose sanctions in cases where national authorities decided not to do so.

Next Steps

The trilogues between the EC, EU Council, and EU Parliament are currently ongoing, and we expect that the institutions will aim to agree on the final drafts of the DMA within the coming months, and the DSA, also still this year. The final drafts prepared by the EC, Council, and Parliament during the trilogues will need to be formally adopted as laws before they can be applicable. We expect that the final drafts will provide for a period between six months and two years before they are enforceable.

However, on February 23, 2022, a bipartisan group of 30 U.S. lawmakers urged President Joe Biden to push EU officials to revise the DMA to make it focus less on American companies.²² They raised concerns on potential harm to technological innovation and asked President Biden to engage further with the EU to prevent the Council from adopting the DMA without further revisions later next month.²³

For more information, please contact the firm's privacy and cybersecurity or antitrust practices.

Roberto Yunquera Sehwani, Laurine Signoret, and Deirdre Carroll contributed to the preparation of this Wilson Sonsini Alert.

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[1] EU Commission, Proposal for a Regulation of the Parliament and of the Council on a Single Market For Digital Services (Digital Services Act) and amending Directive 2000/31/EC, December 15, 2020, COM(2020) 825 final, available at https://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:52020PC0825&from=en (“DSA Proposal”).

[2] DMA Proposal, Article 2(2).

[3] EU Parliament, Legislative Resolution on the proposal for a regulation of the Parliament and of the Council on contestable and fair markets in the digital sector, December 15, 2021, available at https://www.europarl.europa.eu/doceo/document/TA-9-2021-0499_EN.pdf (“Parliament’s DMA Position”).

[4] Parliament’s DMA Position, Art. 3, para. 2. The Parliament’s suggested quantitative thresholds are either an annual EEA turnover equal to or above €8 billion in the last three financial years (€6.5 billion in the original proposal), or the average market capitalization or the equivalent fair market value of the undertaking to which it belongs amounted to at least €80 billion in the last financial year (€65 billion in the original proposal).

[5] PaRR, Watchdog: EU DMA agreement sets stage for tricky trilogues (Nov. 26, 2021), https://app.parr-global.com/intelligence/view/intelcms-qz7k6s.   

[6] Parliament’s DMA Position, Art.6, para. 1.

[7] Parliament’s DMA Position, Art. 16, para. 3.

[8] Parliament’s DMA Position, Art. 12, para. 1.

[9] Parliament’s DMA Position, Art. 26, para. 1.

[10] Council, General Approach on the proposal for a regulation of the Parliament and of the Council on contestable and fair markets in the digital sector, November 16, 2021, available at https://data.consilium.europa.eu/doc/document/ST-13801-2021-INIT/en/pdf (“Council’s DMA Position”).

[11] Council’s DMA Position, Art. 3, paras. 3 and 4.

[12] Council’s DMA Position, Art. 6, para. 1.

[13] PaRR, EU DMA trilogue sees consensus on scope, differences on personalised ads, February 4, 2022, available here.

[14] Parliament, Legislative Resolution on the Proposal of a Regulation of the Parliament and of the Council on a Single Market For Digital Services (Digital Services Act) and amending Directive 2000/31/EC, January 20, 2022, available at https://www.europarl.europa.eu/doceo/document/TA-9-2022-0014_EN.pdf (“Parliament’s DSA Position”).

[15] Parliament’s DSA Position, Article 24(1b).

[16] Parliament’s DSA Position, Article 22(2a).

[17] Parliament’s DSA Position, Article 13a.

[18] DSA Proposal, Article 2(f).

[19] Council of the European Union, General Approach on the proposal for a Regulation of the Parliament and of the Council on a Single Market For Digital Services (Digital Services Act) and amending Directive 2000/31/EC, November 16, 2021, available at https://data.consilium.europa.eu/doc/document/ST-13203-2021-INIT/en/pdf (“Council’s DSA Position”).

[20] Council’s DSA Position, Article 33a.

[21] Council’s DSA Position, Article 51.

[22] CNBC, Bipartisan lawmakers want Biden to tell Europe to stop ‘unfairly’ targeting U.S. tech companies, February 23, 2022, available here. 

[23] PaRR, US lawmakers urge President Biden to demand changes to EU tech bill, February 23, 2022, available here.