Devil in the Details for Digital Markets and Digital Services Acts

It isn’t imminent, as we are still at the early stages of what will likely be an 18-month process at least, but the effects will be profound. At the heart of the debate surrounding the initiative are opposing views of the best way to regulate the market.

Broadly speaking, the Digital Services Act (DSA) will focus broadly on all   participants of the online value chain, while the Digital Markets Act (DMA) will target the so-called gatekeeper platforms of the Big Tech internet giants; in other words, the DMA has Silicon Valley in its sights, whereas Hungarian companies are more likely to be impacted by the DSA.

“If I had to summarize it in one sentence, DSA is about fake news, about illegal/potentially harmful content. DMA is more about the platforms, and especially the gatekeeper platforms. This has a Silicon Valley impact for sure,” says Dóra Petrányi, partner and CEE managing director at law firm CMS.

This is very much her territory; she heads the technology, media, and telecommunications (TMT) and data protection practices as well as being a partner of the competition team in the Budapest office.

Szabolcs Szendrő views matters from the competition law perspective and is a freshly appointed partner and head of competition at CMS. “For me, the difference is that the DMA is about market structure and access, whereas the DSA is about behavior, who can do what,” he says.

Digging a little deeper, Petrányi says you can make a superficially benign interpretation of both the DSA and the DMA.

Szabolcs Szendrő, Partner, CMS.

Strong Purpose

“They do serve two very strong purposes. The first is creating a safer digital space protecting the fundamental rights of all users; everybody wants that. The second is as undisputed as the first, and that is fostering innovation, growth, and competitiveness. Of course! Yes, where can I sign? When you look into the details.… Well, let’s say the devil is in the details,” adds Petrányi.

Part of that devil lies in the fundamentally different approach taken by U.S. and EU regulators. The Americans have historically been happy to adopt a laissez-faire approach to regulation, letting the markets sort themselves out as set out by the Chicago School of economic thought in the 1930s. The Europeans, on the other hand, have been more interventionist to try and secure a level playing field.

Szendrő says a good example of the difference is the 2014 Facebook acquisition of WhatsApp. American regulators approved the move easily at first, while the EU heavily scrutinized and imposed a procedural fine. However, the U.S. has since revisited its original position, bringing the two sets of regulators closer together and Facebook now faces lawsuits in the U.S. that could force the sale of WhatsApp and Instagram.

“Chicago School would say that there may be failures, but the market will survive; there will be another gatekeeper in a few years. Look back 15 years, and there was more of Yahoo, and less of Google,” he explains.

“But Europe says we should help these newcomers instead of the gatekeepers. And I think this is an appropriate use of the word because here is the problem; these gatekeepers are keeping the others out and restricting access to the market,” he outlines.

“Maybe ensuring access will help a new startup that can be the next big player, but if we let the big ones kill the little ones on day one, there will be no new Google. Europe has said, ‘We want to give a chance to those newcomers, and we will see how the other regulators follow,’” Szendrő says.

The question of other regulators raises the specter of what Russia and China might do. Petrányi says their attitude against data protection, access and ownership of data is so different from the European approach that the two are not comparable systems.

Stunningly Different

“I wish there was a global digital sector regulation because I don’t think it is advisable that one continent has a stunningly different approach. In an age of globalization where the gatekeeper platforms have global reach, it is very difficult to operate under a segmented regulatory environment,” she says.

Be that as it may, the European Commission has decided to move ahead. These are very early days in what Szendrő admits is a “complex and hotly debated” area. CMS itself was involved in collecting advice and opinion for the Hungarian comments to the legislation proposals.

“Certain parts [of the acts] should be changed because it must be much clearer; for example, the powers, the relationships within the authorities and institutions.”

Petrányi points out that there is a political will in Europe behind the concepts of innovation and a safer online environment, meaning the pertinent questions now are how and when it is brought about.

Szendrő agrees: “This is just a first step. Of course, there will be lobbying, but this is something that has a huge need behind it at the same time. They can maybe postpone, win some time, but this kind of regulation will take place sooner or later,” he says.

CMS’ CEE managing director does admit to some concerns. “The two objectives are very noble, that is indisputable. On the back of the success of GDPR, there is a role for the DSA and DMA in the European ecosystem. But over-regulation can kill competition and European competitiveness very quickly. It has to strike the right balance to leave room for both local specialties and global imperatives. I am an optimist by nature, and that is why I do think it can work, but we should be very careful,” she warns.

The European Commission has proved it can deliver effective legislation for complex matters: Petrányi describes GDPR, despite all the industry fears, as a model regulation.

“Perhaps the biggest thing is that there will be legislation at all; that such regulation can be enforced and take place in itself is a very strong message,” says Szendrő. “Not all the goals will be achieved, but the main fact will be that there is an EU regulation that can be modified over time and not the need to build it up from scratch.”

This article was first published in the Budapest Business Journal print issue of June 4, 2021.