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The European Commission's Digital Single Market Strategy

It's not surprising that the DSMS identifies a need to reinforce public trust in the handling of personal data. Every day brings a new headline about a data breach at another high profile company.

Creating a digital single market across Europe is a key objective of the current European Parliament. The Commission released its Digital Single Market Strategy (‘DSMS’) on 6 May 2015, containing more detail about how the Commission intends to make this happen.

There is no doubt that use of the internet and other digital technologies have changed the way that businesses and consumers interact. However it has been recognised that barriers still exist in the digital market within the European Union that do not exist within other large single markets such as the United Sates. Breaking down these barriers within the European Union is the principle behind the European Digital Single Market Strategy. By creating a digital single market it is hoped a better environment for European technology businesses, startups and investors will be created, by presenting them with a larger, more accessible market on their doorstep.

The DSMS was eagerly anticipated by many, but those who were hoping to glean a clear idea of the Commission’s intentions for the implementation of the digital single market are likely to be disappointed. Instead of setting out a concrete set of proposals, the DSMS outlines what is currently not up-to-scratch from a digital point of view across the EU and then makes promises of review and proposed reforms with a view to fixing the issues.

The DSMS identifies three pillars on which the digital single market will be built:

i) better access for consumers and businesses to online goods and services across Europe;

ii) creating the right conditions for digital networks and services to flourish; and

iii) maximising the growth potential of the European digital economy.

Cross-border e-commerce

A key concern of the Commission is that many aspects of consumer law differ across the 28 Member States of the EU when it comes to online purchases. As a result of this, many companies are deterred from selling online to consumers in a different Member State. This in turn means that consumers cannot benefit from a full range of online goods and services at the most competitive prices.

As such, the DSMS promises measures to harmonise EU rules for online purchases, both in relation to digital content and tangible goods. This includes a promise to submit a proposal for a review of the Regulation on Consumer Protection Cooperation, to ensure consumer protection rules are more rapidly and consistently enforced.

However, what is not clear is exactly how the Commission intends to change the rules to achieve this harmonisation. Some aspects of consumer law are already harmonised, such as the provision of relevant information, through the Distance Selling Regulations and, since June 2014, the Consumer Rights Directive. Will the changes arise simply out of amendments to the existing legislation, or will the Commission see fit to introduce separate legislation so soon after the implementation of the Consumer Rights Directive? It is impossible to tell from the DSMS and it is likely that we will have to wait until the Commission’s proposal is published to find out, which is scheduled to be before the end of the year.

Geo-blocking and crossborder access to digital content

The DSMS also raises serious concerns around geo-blocking, the prevalent practice of denying consumers access to websites based in other Member States. Being denied access to digital content through services such as BBC iPlayer, or even certain YouTube videos, is commonplace and often justified by reference to copyright licensing issues. However it is not so obvious what the justification is for geo-blocking access to sites offering physical goods and services or where geo-blocking of digital content is associated with differential pricing.

It is the Commission’s objective to improve access to sites and outlaw practices such as differential pricing based on location, which run contrary to the principles of a single market. The DSMS makes it clear that from the Commission’s point of view, geo-blocking based purely on territorial rights is incompatible with the digital single market. Though again there are no concrete proposals, it is however clear that the Commission aims to outlaw the ability of companies to operate geo-blocking in a way that results in discrimination against a consumer based on residence.

The Commission has left open a window by saying it is only opposed to ‘unjustified’ geoblocking. In regards to ‘justified’ geo-blocking, the DSMS simply provides the rather vague example: ‘where the seller needs to comply with specific legal obligations.’ There will be a fine line for the Commission to draw between geoblocking that is ‘unjustified’ and that therefore should be prevented, and geo-blocking that can be justified for certain reasons. It is hoped that the proposed legislation will give greater clarity over what would be permissible within this exception. The DSMS also promises a more general review and harmonisation of the European copyright regime to ensure that digital content can be more freely and easily accessed across all Member States, although no details have been provided.

Not surprisingly there has been some concern and backlash against this proposal, particularly from the film, TV and music industries that have traditionally licensed content and agreed distribution agreements on a territory-by-territory basis. Intellectual property rightsholders are concerned that releasing restrictions on cross-border access to protected content could undermine the existing systems of intellectual property (‘IP’) protection that is crucial to their success. Indeed, a group representing the film and television industries released a statement the day after the DSMS was officially made public, outlining their concerns and claiming that the film and audiovisual sectors would be adversely affected by the Commission’s proposals.

The Commission, no doubt aware of this backlash, has promised in the DSMS that any changes would respect the value of rights in the audiovisual sector. Gunther Oettinger, Commissioner for the Digital Economy and Society, speaking at the recent Cannes Film Festival, revealed that the Commission understands that filmmakers need territoriality and that the Commission will be careful to ensure that the creation of the digital single market does not threaten the interests of the film industry.

The DSMS itself also recognised the need to review in parallel the rules on cross-border enforcement of IP rights to ensure that the interests of rightsholders are balanced with the digital single market. This suggests that the Commission is already building into the digital single market a thorough consideration of the protection of rightsholders, but until more concrete proposals are published, it remains unclear how that will be achieved and whether the media industries will be satisfied.

VAT

In January 2015, changes were introduced to the VAT regime which mean that companies must charge VAT in the buyer’s country rather than their own country. While intending to create a more level playing field the changes have resulted in companies having to get to grips with numerous different VAT regimes if they want to sell abroad, and many small businesses and sole traders have been forced to register for VAT when they would not otherwise have needed to do so. As a consequence, rather than the changes increasing access to the market, many smaller operators have simply stopped selling to other EU countries in a move that is entirely antithetical to the concept of the digital single market.
By the Commission’s own admission, this has not turned out quite the way it had hoped and the DSMS attempts to go some way towards reversing the January changes, or at least towards making life a bit easier for small businesses for whom the changes have represented a major stumbling block in their cross-border ecommerce plans.

Of particular importance in the DSMS is the proposal to introduce a common EU-wide VAT threshold. Whilst this would undoubtedly remove, or at least alleviate, the administrative burden for some small businesses, the level of the proposed threshold is not specified and so it is impossible to predict how many businesses and of what size would benefit from the proposals. Either way, only a certain number of businesses will feel the benefit of a common threshold. Those over and above the threshold will still have to deal with differing regimes across the EU, and this problem will remain for as long as there are differential VAT rates and systems across the EU.

Online platforms to face increased scrutiny from regulators

Online platforms such as search engines, auction sites and content sharing platforms play an ever increasingly important role in life and business across the EU but the central role these platforms are playing has caused the Commission some concern. Quite apart from the ongoing Google investigation (briefly alluded to in the DSMS), the DSMS reveals concerns around, and promises to review, the power and influence of online platforms over consumer choice, which can lead to unfair terms and conditions, unfair practices applied by platforms and a lack of transparency in search results and preferences.

The DSMS also looks at the role of online platforms in tackling the distribution of illegal content on the internet. The current position is broadly that if online platforms are passively transmitting, storing or hosting content, they will not be liable if that content is illegal, but they must take steps to remove it if the illegality of such content is brought to their attention. However, the boundaries of what a platform can do without going beyond ‘transmitting, hosting or storing’ are not clear and nor are the steps that should be taken if illegal content is identified. Having illegal content removed can often be a time-consuming and complex process and the Commission promises to assess how illegal content on the internet can best be tackled. Again there are no concrete indications of what this assessment might involve or what proposals for change might be made but the proposal will be under close scrutiny from the platforms who will fear that the increasing weight of regulation could stifle the innovation that to date has driven growth and investment.

Information handling

It is not surprising that the DSMS identifies a need to reinforce public trust in the handling of personal data. Every day brings a new headline about a data breach at another high-profile company and public trust is, perhaps not surprisingly, being undermined.

The Cyber Security Directive, according to the Commission, will go some way towards responding to cyber threats and the theft of personal data. The DSMS promises to establish a Public-Private Partnership on cyber security in 2016 to examine further solutions for online network security. However, it is unclear how this will differ from the Cyber Security Directive and, as the Directive is currently making its way through the legislative process, the timescales are impossible to predict.

From the point of view of the protection of personal data, the DSMS promises a review of the ePrivacy Directive once the new General Data Protection Regulation (‘GDPR’) is adopted. Although the DSMS predicts, rather ambitiously, that this will be by the end of 2015, with no clear steer on when the final version of the GDPR will be agreed and adopted it could be many months, and even years, before any additional proposals are made concerning data protection.

What next?

The potential impact of the DSMS is rather difficult to assess until the more concrete proposals are published. The release of the DSMS certainly marks a step in the right direction for the creation of a digital single market, but arguably all it does is confirm the high-level statements of intent that have previously been announced without putting forward any solid proposals for change or explanation of how some of the practical issues will be addressed.

Some are of the view that the DSMS does not go far enough in tackling barriers to a digital single market. Politico, which leaked the DSMS prior to its official publication, has questioned whether the DSMS actually changes anything at all, being, according to Politico, rooted in past attempts at change that have already failed. Politico has criticised a lack of innovation in the proposals, suggesting that many are recycled from former announcements, and those that are new and exciting are not necessarily backed up by sufficiently robust evidence.

In the other camp are those who think that the DSMS goes too far. This view largely centres around the proposals on geo-blocking and copyright harmonisation, and the scepticism is mostly from copyright industries concerned that rightsholders might not get the protection they need if cross-border access to content is opened up too far.

So when can we expect to see more concrete proposals being made and measures being taken? The various reviews and proposals outlined in the DSMS are set out in a ‘roadmap’ at the end of the document and are due to take place over the next two years, with measures in place under all three pillars by the end of 2016.

Whether the Commission will be able to stick to that timetable is another matter. Some proposals are contingent upon outside factors, such as the adoption of the GDPR, which may still itself be delayed. Furthermore, if Politico’s prediction is correct and Member States are not fully on board with the DSMS proposals, and the copyright lobby continue to oppose any change, any legislation to implement the proposals may take time to push through. It therefore remains to be seen how large a step the DSMS proves to be towards a single digital market in Europe.

First published in E-Commerce Law & Policy June 2015.

This publication is intended for general guidance and represents our understanding of the relevant law and practice as at July 2015. Specific advice should be sought for specific cases. For more information see our terms & conditions on www.TLTsolicitors.com

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