This article has been written by Marta Ottanelli (associate) and Coral Garcia (associate).
You are probably aware of the European Commission’s Digital Single Market Strategy (launched in May 2015) and its flurry of investigations, announcements and publications. The DSM Strategy aims to ensure better online access to digital goods and services. Indeed, the Commission has proposed 16 measures ranging from areas such as consumer contract rules and parcel delivery to audio visual media services and telecom rules. To save your eyes and hours, in this article we summarise the Commission’s current state of play and our predictions about what is likely to happen next and how your business needs to plan for this.
1. Background and overview
As part of the DSM Strategy, since December 2015 the Commission has announced a range of legislation proposals. DSM Strategy has already resulted in a Regulation which puts an end to roaming charges and sets net neutrality rules. So from June 2017, mobile users will not be charged any extra fees when using their mobile phone in an EU country other than the one where they originally subscribed the mobile service. On 30 April 2016, the new net neutrality rules will come into force. Blocking and throttling the internet will be illegal in the EU and users will be free to use their favourite apps no matter the offer they subscribe.
A number of other proposals are expected to be presented during this year which will affect:
- Data ownership and free flow of data – the Commission intends to launch a European Cloud initiative and tackle restriction to free movement of data and data services in Europe;
- Information and communications technology standards – the Commission aims to introduce harmonised standards to promote open platforms, interoperability of devices, applications, systems and services, and avoiding lock-in to vendors using proprietary technologies;
- e-commerce sector – the Commission intends to tackle unjustified geo-blocking practices;
- EU telecom laws, to boost competition between business and consumer rights;
- Copyright rules – the Commission aims to update the current legislative framework to reflect changes in how copyrighted material is being consumed;
- VAT regimes, to reduce the administrative burden businesses face from different national rules.
The Commission is also working on amending rules and directives relating to data protection, audio-visual and media services, satellite and cable services, consumer protection cooperation, and cybersecurity.
The next legislative proposal is scheduled to be presented in May 2016.
A wide range of businesses is likely to be affected by these initiatives, including companies selling goods online, telecoms operators and television companies.
This article outlines the main initiatives aimed at achieving the DSM. Businesses affected by the DSM Strategy would do well to remain informed of these developments. European Union institutions, as well as national entities involved in the legislative process, are organising public consultations, round tables and similar initiatives to collect stakeholders’ input. The effects of any action taken in the digital market are likely to be felt also in more traditional sectors. After all, the rise of the digital economy has already impacted business models in the bricks-and-mortar world.
2. Consumer goods: encouraging cross-border trade online
As a first step, the Commission proposes (Online Goods Proposal) to introduce a full set of harmonised consumer digital contract rules. The Online Goods Proposal would significantly reduce traders' compliance costs while granting consumers a high level of protection. The Online Goods Proposal recommends reversing the burden of proof in favour of consumers, in respect of defective products, for two years; and to remove the consumer's obligation to notify the defect within a certain period of time. The two-year time limit would also apply to the purchase of second-hand goods. Lastly, if the seller were unable or failed to repair or replace a defective product, consumers would have the right to terminate the contract and also be reimbursed in cases of minor defects.
Moreover, the Commission intends to make legislative proposals allowing sellers to rely on their national laws on the basis of a set of key mandatory EU contractual rights for domestic and cross-border online sales of tangible goods. This will be achieved by providing remedies for non-performance and stipulating appropriate periods for the right to a legal guarantee. This is intended to ensure that traders in the internal market are not deterred from cross-border trading by differences in mandatory national consumer contract laws, or arising from product-specific rules such as labelling.
To make the enforcement of consumer rules for online and digital purchases fully effective, the Commission will submit a proposal to review the Regulation on Consumer Protection Cooperation.
Any proposal will need to reconcile its attempt to address unjustified barriers to cross-border e-commerce with preserving retailers' “freedom to contract”, i.e. the freedom to decide the geographical scope of their operations and not be forced to sell in markets where they have not previously been active.
Further legislative initiatives aiming to improve the transparency of cross-border parcel markets and to enforce EU consumer rules across borders will be announced in May 2016. Other measures, such as reducing the administrative burdens for businesses of dealing with differing VAT regimes should also be forthcoming this year.
3. Enhancing access to digital content
In parallel to the Online Goods Proposal, the Commission has presented a proposal (Digital Content Proposal) to harmonise certain aspects of contracts for the supply of digital content.
The Digital Content Proposal seeks to remove the time limit on the supplier's liability for defects. It would be for the supplier to prove that the defect was not present at the time of supply. Consumers would have the right to terminate long-term contracts, and contracts to which the supplier makes major changes. Lastly, if the consumer had obtained digital content or a service in exchange for personal data, the new rules clarify that the supplier should cease using such personal data where the contract has ended.
The Commission has already presented a proposal (Portability Proposal) to ensure portability of legally acquired online content. The underlining aim is to allow Europeans who buy or subscribe to films, sports broadcasts, music, e-books and games to access them when they travel to other EU countries.
Measures will also touch upon the harmonisation of exceptions to ensure greater legal certainty for cross-border use of content for specific purposes. Moreover, the Commission intends to clarify the rules applicable to the activities of intermediaries in relation to copyright-protected content, in recognition of the growing involvement of online intermediaries in content distribution. More specifically, the Commission will propose to enhance cross-border distribution of television and radio programmes online, in light of the review of the Satellite and Cable Directive. In parallel, the Commission aims to facilitate the digitalisation of out-of-commerce works and making them available online, including across the EU. The Commission also announced the review (and modernisation) of the cross-border civil enforcement of intellectual property rights.
4. Geo-blocking related initiatives
Back in December 2015, the Commission published a Roadmap on proposals to address unjustified geo-blocking and other discrimination based on consumers' place of residence or nationality.
To tackle (unjustified) geo-blocking issues, the Commission could introduce transparency obligations to inform consumers of discriminatory practices or of the presence of (other) national websites. In addition, suppliers of goods could be required to clearly indicate separate product delivery costs. The Commission could also impose a ban on discriminatory blocking of access to websites and automatic re-routing, or require that companies explain, upon request, the detailed, objective and verifiable reasons why they treat customers differently based upon their location. The Commission should therefore consider whether to adopt an open-ended approach to regulating geo-blocking practices, or whether it would be preferable (and possibly provide more certainty for e-commerce stakeholders) to identify a list of permitted practices.
Geo-blocking restrictions may also be tackled by antitrust enforcement under existing competition rules. For instance, the Commission is examining the clauses in the contracts that prevent existing and new subscribers from accessing satellite and online pay-tv from outside the area covered by the license. Other e-commerce/digital market practices may fall under the scrutiny of competition agencies, particularly as the Commission progresses its current e-commerce sector inquiry.
5. Closing remarks
The Commission’s current focus on the DSM is commendable, given the importance of the digital economy to the EU’s future. It is important, however, that the Commission takes this opportunity to consider carefully each industry affected by the legislative initiatives, to avoid applying a ‘one size fits all’ approach to the rapidly developing and diversified digital sector.
The DSM Strategy may enable the Commission to develop a more consistent EU framework for regulating the digital sector. The multiplicity of current national legal frameworks can itself be a deterrent for businesses (particularly small-and-medium enterprises) seeking to sell goods or provide digital content in other Member States. However care must be taken to ensure that any legislative measures that are adopted, do not impose disproportionate regulatory burdens on companies. Any legislative proposals must also protect the freedom to conduct business as enshrined in the EU Charter of Fundamental Rights. It would be regrettable if, due to overzealous regulation, the Commission’s well-intentioned legislative proposals had the opposite effect of increasing prices for consumers, reducing product/service quality or stifling innovation.
As regards competition law specifically, the desirability of adopting EU-wide legislation seeking to regulate the digital sector, or at least certain aspects of it (such as online platforms), is less clear cut. On the one hand, the rapidly changing e-commerce sector may be ill-suited for rigid legislation and, it can be argued, current EU competition laws already allow the Commission to sufficiently protect online competition. Where very large e-commerce players are concerned (e.g. Google, Facebook), some critics may take the view that a more interventionist approach may be warranted to constrain market power of such players.
The digital economy thus poses challenges for legislators and competition authorities alike. The treatment of bricks-and-mortar business cannot be simply transposed to the digital world but, relevantly, many sellers of consumer goods still operate physical premises; while the DSM ideal of seemingly encouraging borderless digital content distribution, is not easily reconciled with current territorially-based copyright licensing rules. Companies may do well to voice their concerns or opinions by submitting comments in response to the Commission’s ongoing public consultations relating to the DSM.