Internet Platform Governance: A Comparison of PRC Law and EU Law

Digital economy, as an important form of economy, is significantly reshaping the mode of production, lifestyles and the way governments regulate, and has become a key force in restructuring global production factors and resources, reshaping the global economy structure, and changing global competition patterns. In particular, with the rapid development, integration and penetration of digital technology, the platform economy, as represented by internet platform enterprises, is embracing its rapid rise, and the governance of internet platforms has become a global topic. This Article intends to sort out and introduce the rules of digital platforms governance from the perspectives of PRC law and EU law, in order to provide references for governments to regulate internet platforms as well as for enterprises to participate in the digital economy.

1. Overview of the digital platform governance in China and the EU

1.1 Overall plan for digital platform governance in China

Xi Jinping, the general secretary of the Communist Party of China (CPC) Central Committee, in his report delivered to the 20th National Congress of the CPC on behalf of the 19th CPC Central Committee, expressly points out that we will move faster to boost China’s strength in cyberspace and digital development.[1] In the Report on the Development of the Digital Economy submitted by the State Council to the Standing Committee of the National People’s Congress for deliberation, it is proposed that the government’s next step will be continuously improving digital economy governance and promoting the sound and sustainable development of the digital economy.[2] In the Outline of the 14th Five-Year Plan for Economic and Social Development and Long-Range Objectives for 2035 of the PRC, it is explicitly proposed to accelerate the promotion of digital industrialization, cultivate and expand emerging digital industries such as AI, big data, block-chain, cloud computing, and cybersecurity, and promote the sound development of the platform economy.[3] In the 14th Five-Year Plan on the Development of the Digital Economy, the government plans to promote sound and sustainable development of the platform economy, to encourage and support the Internet platforms and leading enterprises in the industries to open up digital resources and capabilities based on their own competence, and to help traditional enterprises and small and medium-sized enterprises complete digital transformation.[4]

Prior to the abovementioned reports and plans, the Guiding Opinions on Promoting the Standardized and Sound Development of the Platform Economy (Guo Ban Fa [2019] No.38) issued by the General Office of the State Council clearly pointed out that the government shall promote the healthy development of the platform economy, and supervise the platform economy in a tolerant and prudent manner. It further sets out guiding opinions in respect of platform responsibilities (including but not limited to verification of business information, products and services quality, user’s consent/permission requested by platforms (including App), protection of consumer rights and interests, cybersecurity, data security, and protection of labor rights and interests, etc.) and establishing a level playing field.[5] In alignment with the foregoing, the Several Opinions on Promotion of the Standardized, Sound and Sustainable Development of Platform Economy (Fa Gai Gao Ji [2021] No. 1872) issued by the National Development and Reform Commission, together with other departments, also calls for the sound and sustainable development of the platform economy, improvement of the competition regulation and law enforcement, exploration in the regulation of data and algorithm security, and the establishment of a well-organized and open platform ecology.[6]

The abovementioned documents together constitute an overall plan for the sound development of the platform economy in China, and specify the supervision and administration of the platform economy from the perspectives of competition and platform responsibilities in areas such as cybersecurity, data security, algorithms, protection of consumers’ rights and interests, etc.

1.2 An overview of EU’s digital platform governance

In order to better regulate the digital space, on 15 December 2020, the European Commission published its proposals of the Digital Markets Act (“DMA”) and the Digital Services Act (“DSA”).[7] Following the initial proposal, the DMA was adopted by the European Council and the European Parliament on 14 September 2022, entered into force on 1 November 2022[8], and will be applicable as of 2 May 2023.[9] At a similar pace, the DSA was adopted by the European Council on 4 October 2022, and after being signed by the President of the European Parliament and the President of the Council, it will be published in the Official Journal of the European Union and will start to apply fifteen months after its entry into force or from 1 January 2024 (whichever comes later).[10]

The DSA and the DMA aim to create a safer and more open digital space, guarantee the fundamental rights of digital service users and establish a level playing field.[11] In particular, the DSA emphasizes the protection of the fundamental rights of users, whereas the DMA focuses on creating a fair and free digital economic competition order.[12]

2. Specific rules of digital platform governance in China and the EU

2.1 The definition of “digital platform / online platform” under the PRC law and the EU law

In the current PRC legal system, there is no definition of “digital platform” or “online platform” in any high-level legislation. Only the Guidelines of the Anti-monopoly Commission of the State Council for Anti-monopoly in the Field of Platform Economy (“Anti-monopoly Guidelines”) issued by the Anti-Monopoly Committee of the State Council construes the term “Internet Platform” as a business organization form, under which interdependent bilateral and multilateral entities interact through network information technology and under the rules provided by specific carriers, thereby jointly creating value.[13]

In comparison, under the DSA issued by the EU, “Online Platform” is defined as a hosting service that, at the request of a recipient of the service, stores and disseminates information to the public. Meanwhile, the DSA carves out one exception, i.e. where (i) the foregoing storing or information disseminating activity is a minor and purely ancillary feature of another service or a minor functionality of the principal service and, for objective and technical reasons, cannot be used without that other service; and (ii) the integration of the feature or functionality into the other service is not a means to circumvent the applicability of the DSA, the platform will not be regarded as those online platforms falling into the ambit of the DSA.[14]

Based on the above, it can be seen that the definition of Internet Platform in the Anti-monopoly Guidelines is drafted on the basis of the interaction of market players, i.e., the platform has bilateral and multilateral interactive characteristics, whereas the definition prescribed in the DSA emphasizes the Internet platform’s characteristics of providing technical service, i.e., storing and disseminating information to the public, which reflects the intermediary characteristic of the platform. The different definitions reflect different regulatory concerns.

2.2 The differences in the specific rules governing digital platforms between China and the EU

(a) China

Currently, China is regulating the platform economy mainly from three aspects, i.e. license supervision (for which we will prepare a separate article), competition rules, cybersecurity, data security and personal information protection.

In terms of competition rules, the Anti-monopoly Guidelines issued on February 7, 2021, provides specific rules regulating anti-monopoly issues arising under China’s digital economy; The Provisions on Prohibited Acts of Unfair Online Competition (Draft for Comments) issued by the State Administration of Market Administration (“SAMR”) on August 17, 2021, further regulates online unfair competition; the amended Anti-monopoly Law (2022 Amendment) specifically incorporates rules related to anti-monopoly issues in the digital sphere, specifying that businesses shall not engage in any prohibited monopolistic conduct by taking advantage of data and algorithm, technology, capital advantage, or platform rules, among others.

In terms of cybersecurity, data security and personal information protection, China regulates these aspects mainly with the Cybersecurity Law, the Data Security Law, and the Personal Information Protection Law, coupled with relevant standards. On the basis of the foregoing, the Cyberspace Administration of China and other relevant departments have successively introduced a series of laws, regulations, rules or normative documents in respect of algorithms, Internet information content, e-commerce platforms, and Internet advertisements, etc.

In light of China’s current legislative and regulatory framework, China’s relevant legislations on digital platform governance are multi-faceted and decentralized. Each competent department, based on its own responsibilities, has formulated and introduced specific measures to address specific problems that may arise during the operation of digital platforms. This approach of multi-party-driven regulation and governance lacks coordination from specific upper-hierarchical laws, which may cause issues such as inconsistency or overlapping of regulatory scope and rules, and may increase potential compliance costs for participants of the digital platform economy.

Remarkably, on October 29, 2021, SAMR released the Guidelines for Internet Platform Categorization and Grading (Draft for Comments) (“Guidelines for Categorization and Grading”) and the Guidelines for Fulfilling Entity Responsibility of Internet Platforms (Draft for Comments) (“Guidelines for Entity Responsibility”). The Guidelines for Categorization and Grading specifies fundamental principles of categorization and grading of Internet platforms. It divides platforms into 6 categories, including online sales, life services, etc., and grades platforms into 3 levels, namely, extra-large platforms, large platforms, and small and medium platforms, based on their scale of users, business types, business scale and restrictive capacity. In a similar vein, the Guidelines for Entity Responsibility also takes a grading approach, imposing different responsibilities on all of the Internet platforms and extra-large platforms (i.e. platforms that have an annual active users of no less than 50 million in China in the previous year, a primary business with outstanding performance, a market capitalization or valuation of no less than CNY100 billion at the end of the previous year, and have a relatively strong ability to restrict the operators on the platform from contacting with consumers or users) respectively:

• For extra-large platform operators: the Guidelines for Entity Responsibility lays out rules in relation to fair competition, interoperability, data management, establishment of a compliance mechanism of the platforms, risk assessment and mitigation, security audit, and promotion of innovation, etc.
• For all platform operators: the Guidelines for Entity Responsibility prescribes rules in relation to information verification, recording, disclosure, management of users on the platform, management of content on the platform, management of prohibited or restricted sales, service agreements and transaction rules, credit evaluation, anti-monopoly, anti-unfair competition, access to data, algorithmic regulation, regulation on price behaviors, regulation on advertising behaviors, protection of intellectual property rights, prohibition on pyramid schemes, online underground industry, cybersecurity, data security, protection of personal information, protection of consumers, protection of in-platform operators, protection of special groups, etc.

The Guidelines for Entity Responsibility incorporates rules relating to competition and other responsibilities of the platforms (such as data, advertising, consumer protection, etc.), aiming to maintain a fair and free competition ecology of the platforms, and protect the rights and interests of platform users at the same time. However, it is worth further monitoring how the Guidelines for Entity Responsibility will be implemented and how it will affect the existing governance practice of digital platforms in China.

(b) EU

As mentioned above, after the DSA takes effect, EU’s governance of digital platforms will rely mainly on two laws, namely the DSA and the DMA. Among them, the DSA aims to prohibit the dissemination of illegal content in the digital space and protect the fundamental rights and interests of users.[15] The DSA will apply to intermediary services offered to recipients of the service that have their place of establishment or are located in the European Union,[16] including “hosting” services (e.g. online platform services, online search engine services), “mere conduit” services, and “caching” services.[17]

In general, the DSA adopts a cumulative approach based on categorization and grading.

First, for all intermediary services providers, the DSA sets out a series of general obligations, including: designation of points of contact for Member States’ authorities, the Commission, and the recipients of the services;[18] requiring providers which do not have an establishment in the Union to designate a legal or natural person to act as their legal representative in the EU;[19] requiring providers to include information on any restrictions that they impose in relation to the use of their service in their terms and conditions, etc.[20]

Second, for hosting services of the intermediary services, the DSA additionally requires providers to establish a notice and action mechanism to address illegal content. Under such a mechanism, any individual or entity may notify the service provider of the online illegal content (i.e. information that is not in compliance with the European Union law or the law of any Member State which is in compliance with Union law).[21] Upon receipt of such notices, the hosting service provider shall make a timely, diligent and non-arbitrary decision regarding the information to which the notice relates.[22]

In addition, for online platforms, very large online platforms (“VLOPs”) and very large online search engines (“VLOSEs”) of the hosting services, the DSA further sets out the following requirements:

• For online platforms: the DSA imposes obligations in relation to the establishment of an internal complaint-handling system, trusted flaggers, measures and protection against misuse, online interface design and organization, online advertising, recommender system, online protection of minors, traceability of traders, etc. For example, in terms of online interface design, the DSA stipulates that providers of online platforms shall not design, organize or operate their online interfaces in a way that deceives or manipulates the recipients of their service or in a way that otherwise materially distorts or impairs the ability of the recipients of their service to make decisions[23]; In terms of online advertising and recommender systems, the DSA requires that, for each specific advertisement presented to each individual recipient, the recipients of the service shall be able to identify the main parameters used to determine the recipient to whom the advertisement is presented and, where applicable, about how to change those parameters.  Meanwhile, providers that use recommender systems shall set out in their terms and conditions the main parameters used in their recommender systems.[24]
• For VLOPs and VLOSEs: the DSA imposes additional requirements in respect of risk assessment, risk mitigation, crisis response, independent audits, recommender systems, online advertising, etc. For example, in terms of data access, VLOPs as well as VLOSEs are obliged to respond to requests from digital service coordinators and the European Commission to provide the corresponding data access in order to monitor and assess their level of compliance.[25]

Compared to the DSA, the DMA is aiming at creating a fairer and freer competition order in the Internet economy. In general, the DMA adopts a two-step regulatory approach, under which businesses meeting certain conditions will be designated as gatekeepers, and based on such designation, relevant requirements are imposed on the core platform services provided by those gatekeepers to users (including business users and end users) in the EU.[26] In terms of gatekeepers’ designations, the DMA sets out qualitative and quantitative criteria. Qualitatively, if a business: (a) has a significant impact on the internal market; (b) provides a core platform service which is an important gateway for business users to reach end users; and (c) enjoys an entrenched and durable position, in its operations, or it is foreseeable that it will enjoy such a position in the near future, such undertaking will be designated as a gatekeeper.[27] In addition, if a business meets certain quantitative thresholds (e.g. market capitalization, active end users, etc.), it will be presumed to satisfy the aforementioned requirements, unless it provides sufficiently substantiated arguments to the contrary.[28] In addition, the European Commission may conduct market investigation and designate a company as a gatekeeper on the basis of the qualitative criteria.[29]

Where a company is designated as a gatekeeper, it shall conform to certain active and passive obligations, including those related to the data access and use, interoperability, and self-preferencing and bundling.[30] For instance, in respect of data access and use, the DMA requires that gatekeepers shall not combine personal data from the relevant core platform service with personal data from any other services provided by the gatekeeper or with personal data from third-party services, nor cross-use personal data from the relevant core platform service in other services provided separately by the gatekeeper.[31] In respect of interoperability, the gatekeeper shall allow and technically enable end users to easily un-install any software applications on the operating system of the gatekeeper, without prejudice to the possibility for that gatekeeper to restrict such un-installation in relation to software applications that are essential for the functioning of the operating system or of the device and which cannot technically be offered on a standalone basis by third parties.[32] In respect of self-preferencing and bundling, the DMA requires that the gatekeeper shall not treat services and products offered by the gatekeeper itself more favourably than similar services or products of a third party in ranking and related indexing and crawling.[33]

3. Takeaways from the DSA and the DMA for China’s digital platform governance

In sum, we believe the DSA and the DMA have the following characteristics:

(1) The rules therein have the effect of extraterritorial application. Both the DSA and the DMA are applicable to companies that provide digital intermediary services or core platform services to users in the EU from outside the EU, regardless of whether the company’s place of establishment is within the EU or not.

(2) The DSA and the DMA regulate digital economy on the basis of categorization and grading. Platforms are categorized and graded, and varying legal obligations are imposed on different platforms according to their scales, functions and properties.

(3) The EU legislations are comprehensive, specific and responsive to the latest issues arising from the development of digital platforms. Through the DSA and the DMA, the EU formulated comprehensive and specific rules on platform responsibilities (including illegal content, consumer protection, minor protection, etc.) and creating a level playing field, and responds to the contemporary issues faced by digital platforms in recent years (such as algorithms, interoperability, etc.).

Compared with the EU, China’s governance of digital platforms is also rich in its content, including rules related to fair competition, consumer protection, cybersecurity, data and privacy, etc., and China has also started to explore a governance approach based on categorization, under which varying platforms are imposed with different obligations. From the perspective of legislative technique, China could consider summarizing the requirements of platform governance currently scattered across a number of legal or regulatory documents with varying hierarchical levels into a unified and high-hierarchical law or regulation, and responding to the latest social issues brought about by the development of Internet technology. This will facilitate the formation of an improved, unified, comprehensive and balanced regulatory scheme applicable to digital platforms and their ecosystems, and will also improve regulatory transparency and provide clearer compliance guidance for relevant companies, reduce their compliance costs and increase market vitality at the same time.

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