The EU’s Vision for a Digital Single Market: Regulating the Platform Economy
Updated: Jun 25, 2020
As coronavirus-induced lockdowns and travel restrictions around the European Union have begun to lift, the European Commission has swiftly picked up where it left off prior to the pandemic. On 2 June, the Commission officially launched a public consultation for the development of its flagship digital platform and services regulation.
The public consultation allows the Commission to consolidate perspectives from an array of stakeholders, such as citizens, businesses, academics, government bodies, and platforms themselves, in order to “shape a modern regulatory framework” for digital platforms and services and ultimately “Europe’s Digital Future”.
Why regulate online platforms and services?
Under the EU law, platforms and service providers such as Facebook and Amazon currently have no obligation to take any action against the propagation of illegal content or goods on their platforms. Because they face no liability, they have little incentive to proactively take down such content. And even if the platforms decide to do so, the EU law doesn’t necessarily require them to disclose the reasons for removal.
The platforms effectively shape the information received by the end users. The lack of regulation provides the platforms with a wide berth of discretion in determining what the users can and cannot see — all without having to reveal how these important decisions are made. Instagram, for example, uses computer algorithms to determine which posts and advertisements to display first on a user’s home page. Popular crowdfunding platform Kickstarter carries out a mere cursory screening of the viability of projects before allowing them to launch.
Even with increasingly stringent data protection laws, the Cambridge Analytica scandal has taught us that this type of autonomy can potentially create serious vulnerabilities for the users.
So, the premise behind the proposed regulation is simple: it seeks to better protect the end users by making the companies more transparent and accountable — at least to some degree — for what’s published on their respective platforms.
The current legal position on digital platforms
The EU’s initial framework for the provision of digital services was established by the e-Commerce Directive in 2000. It sets out the foundational principles for the cross-border provision of digital services in the EU.
However, it has largely failed to keep up with modern technological developments. The non-commercial nature of many platforms today means that they may not fall within the scope of the Directive, and therefore might not be subject to its provisions. The line between e-commerce and the provision of digital services has also become increasingly blurred: Facebook offers social media services, for instance, but also provides online businesses with a “digital storefront” through which they can peddle their goods.
Importantly, platforms today provide innovative features and possibilities which lawmakers couldn’t have possibly dreamed of 20 years ago, but they have also generated novel risks to users and society by “exposing them to a new range of illegal goods, activities or content”. In other words, the e-Commerce Directive “does not give answers to many of today’s pressing questions on the role and responsibility of online platforms”.
In two recent cases, the European Court of Justice (ECJ) attempted to reposition the EU’s legal oversight of the activities of platforms. In 2017, the ECJ held that Uber could not rely on free movement provisions of EU law and must instead be subject to the national laws of the Member State bringing the proceedings. But in 2019, the ECJ ruled the opposite way for another digital platform: Airbnb was entitled to rely on free movement provisions of EU law. The ECJ distinguished Uber from Airbnb on two grounds:
(1) Uber users can easily access a similar service without the Uber app, and
(2) Uber exercises a greater decisive influence over the provision of the service. In simple terms, Uber users can flag down a regular cab instead of using the app, and Airbnb users set home rental prices, so it cannot be considered an estate agent, whereas Uber itself sets fares.
The European Court of Justice is located in Luxembourg. Photo: Reuters / Francois Lenoir.
The second distinction is problematic for two reasons. Firstly, it discourages digital platforms from being closely involved with the services they provide. If their influence is deemed to be too decisive, then they may not be entitled to the benefits of free movement laws and could instead be subject to less commercially favourable national legislation.
Secondly and as a consequence of the first point, this distinction provides platforms with a clear disincentive to self-regulate since it could be seen by courts as an exercise of decisive influence — even if they purport to have internal regulatory procedures in place. Coupled with the outdated e-Commerce Directive, the result is effectively no substantive oversight over information propagated on digital platforms.
Facilitating the digital single market
Perhaps the most striking feature of the EU is its largely unqualified single market: businesses, governments, and individuals are entitled to the free movement of goods, services, capital, and workers.
The notion of the single market, however, has arguably been frustrated by the emergence of the unregulated platform economy. The lack of oversight has caused Member States to instead implement their own legislation to regulate digital platforms.
For instance, France recently adopted laws requiring online platforms to take down expressions of hate speech within 24 hours or else face harsh financial penalties. More extreme content such as child pornography or terrorist activity must be deleted within one hour. Germany, on the other hand, took a more lenient approach and passed laws requiring companies to hand over the IP addresses of offenders who propagate hate speech.
The fact that Member States have resorted to fashioning their own laws reinforces the notion that current legal frameworks are ill-equipped to address the transversal challenges of digital technology. Digital platforms often transcend national boundaries, which can erode the delineation between jurisdictions.
Mutually exclusive national laws also create commercial obstacles for the platforms; what is lawful in one Member State might not be lawful in another. Similarly, platforms may have certain legal obligations in one Member State, but not in others.
Without legislative harmonisation, the EU’s commercial landscape for digital platforms is at risk of “regulatory fragmentation”. This could very well frustrate the economic efficacy of the single market since platforms would have to jump through multiple hoops to carry out commercial activities and provide digital services within the EU. So, the economic thrust behind developing the new regulations appears to be the facilitation of the digital single market.
Competition and innovation in the platform economy
The global platform market is effectively monopolised by a few large tech companies (also known as “Big Tech”). For example, Amazon is the go-to e-commerce platform, Google is the go-to search engine and online services provider, and Facebook’s suite of social media offerings garner nearly 3 billion monthly users — about 37% of the world’s population.
The dominance of Big Tech, however, has created imbalances in the market which make it much more difficult for smaller or alternative platforms to operate in similar areas. Their unwieldy influence stifles competition and acts as a disincentive for alternative platforms to innovate. Google, for instance, has been accused of reengineering search results to “favour big businesses over small ones”.
The European Commissioner for Competition, Ms. Margrethe Vestager, has been described as “the most powerful regulator of Big Tech on the planet”. Photo: Ryan Lash / TED.
Fortunately, anti-competitive behaviour isn’t something the Commission takes lightly — European Commissioner for Competition, Margrethe Vestager, is notorious for taking a hardline stance against Big Tech and their unfair business practices. In 2016, she played a pivotal role in the Commission’s levy of a colossal $14.5 billion fine on Apple for tax evasion. To date, her office has fined Alphabet subsidiary, Google more than $9 billion for abusing their market dominance.
Ms. Vestager is spearheading the development of the flagship digital platforms and services regulation, so we can reasonably expect the legislation to aim to facilitate competition and innovation.
The pandemic has shown that digital platforms and services are critical to the functioning of society and the economy. In the depths of lockdowns and travel restrictions, these platforms have kept the world ticking — court hearings, business meetings, and social interactions have all been carried out online. In the long-run, maybe it was a good thing that the Commission postponed the public consultation until after the pandemic. Stakeholders are now more likely than ever to appreciate the merits of digital platforms and services.
That’s why it’s important that the Commission gets this right. The regulation should encourage competition, but also not demand too much from platforms so as to stifle innovation. In other words, it should demand transparency and accountability, but also allow platforms to continue to do what they have evidenced to do best — improve our abilities to live, work, and play.
By Taran Narula