The Future Lawyer Weekly Briefing- w/c 27th September

The Digital Services Act: The EU Cracks Down On Online Platforms

Briefing By Idil Delmas

An overview

With the traditional laissez-faire attitude towards regulating the internet, today’s online platforms enjoy limitless discretion in conducting their businesses. Big Tech companies have repeatedly been found to use their monopoly positions to oust smaller competitors, inconspicuously collect user data for commercial purposes, and increase activity on their platforms by any means necessary – even if that means allowing and facilitating disinformation campaigns and illegal activity to run amok.

The EU, however, has vowed to make the 2020’s Europe’s “Digital Decade” with the introduction of the Digital Services Act, on which a political agreement was reached between the European Parliament and Council on the 22^nd of March 2022. It is set to become applicable from the 1^st of January 2024 onwards and comes as part of a ‘package’ alongside the Digital Markets Act, which covers antitrust obligations for online service providers.

The motivation behind the Act is clear. In the words of the Commissioner of the Internal Market, Thierry Breton, “Russian disinformation, the revelations about the Capitol Hill attack, online harassment and hateful content…demonstrate the urgency of the DSA”.

The Act’s impact

The Act recentres around regulating the abuses of “gatekeeper platforms”, i.e. platforms with more than 45 million users through “algorithmic accountability”. Users will have better insight into the nuts and bolts of recommender algorithms, which enable targeted advertising through the collection of personal data, and will have the option of opting out of algorithms based on profiling systems.

Targeted advertisement companies will be completely forbidden to draw from specific categories of sensitive information such as religion or sexual orientation to target consumers. “Dark patterns” will also be banned entirely. These purposefully tricky user interfaces trick users into purchases with hidden costs, hinder them from price comparisons or encourage them to make poor decisions about the processing of their personal data.

According to the European Parliament website, the aim is to “empower users and civil society” and reign in on the coercive power that the “too big to care” platforms have enjoyed until now.

The Act also aims to eliminate illegal online content, such as incitements to terrorism, hate speech and child sexual abuse. It will add traceability obligations on online business owners and create a more sophisticated system enabling cooperation between platforms and “trusted flaggers”. Users will nonetheless be allowed to appeal against content moderation decisions, which suggests the Act is aiming for a balance between the protection of consumer rights and freedom of speech.

Violations of these rules by gatekeeper platforms carry more severe consequences than under the GDPR, with sanctions rising to 6% of global annual turnover. For Meta, for instance, this would imply a fine of around 7 billion dollars.

Aside from financial penalties, enforcement is emphasized as the primary way to ensure the rules are followed. Each Member State will designate Digital Services Coordinators (DSC) to synchronize enforcement procedures, together forming the “European Board for Digital Services”.

Commentators seem to agree that the main issue will indeed be harmonization, which is necessary for effective cooperation between the Member States. However, the maturity of the national digital economies varies wildly across Europe. The DSA will hopefully speed up the process of European digital harmonization, with Europe already claiming to have created the world’s first adequately regulated “single digital market”.

Another hurdle will be differentiating ‘illegal’ content from just ‘harmful’ content. There is no legal EU-wide definition yet, and each Member State draws the line at a different place. For example, whilst the defamation of religion is illegal in Poland, Germany, Italy and Spain, it is not in France or Denmark. Dot Europe, an organization that brings together the biggest internet companies in Europe, urges only illegal content to be moderated.

Whether this will be so remain to be seen. In the wait for the final text of the DSA to become publicly available and the Act to be formally adopted, companies can only speculate based on clues given by several press releases published by the European Parliament.

The Act is being hailed as an essential step for modern democracy and the rule of law within the EU and is in line with the philosophy of the President of the European Commission, Ursula von der Leyen, who famously stated that “what is illegal offline should be illegal online”. There is widespread hope that the DSA, similarly to the GDPR, will create a ripple effect for the protection of data privacy rights and consumer empowerment across the globe.

Implications for law firms

Law firms must ensure that their clients conducting business in the EU know the new transparency, due diligence and content moderation requirements. They should focus on companies that offer “intermediary services” such as hosting services, online search engines and online platforms, as these are among those targeted by the DSA.

Hogan Lovells already boasts a ‘DSA Taskforce’ dedicated to tracking the Act’s evolution, and many law firms have published a guide on the topic.

Sources:

‘EU agrees on landmark law aimed at forcing Big Tech firms to tackle illegal content’, Ryan Browne, CNBC, the 22nd of April 2022

<https://www.cnbc.com/2022/04/22/digital-services-act-eu-agrees-new-rules-for-tackling-illegal-content.html>

‘Finalized EU Digital Services Act Promises Transparency in Recommender Algorithms, New Restrictions on Targeted Advertising’, Scott Ikeda, CPO Magazine, the 4th of May 2022

<https://www.cpomagazine.com/data-protection/finalized-eu-digital-services-act-promises-transparency-in-recommender-algorithms-new-restrictions-on-targeted-advertising/>

‘Sneak Peak: how the Commission will enforce the DSA & DMA’, Blog of Commissioner Thierry Breton, the 5th of July 2022

<https://ec.europa.eu/commission/presscorner/detail/en/STATEMENT_22_4327>

‘Digital Services Act: Commission welcomes political agreement on rules ensuring a safe and accountable online environment’’, Press Release from the European Commission, the 23rd of April 2022

<https://ec.europa.eu/commission/presscorner/detail/en/ip_22_2545>

‘Digital Services Act: agreement for a transparent and safe online environment’, Press Release from the European Parliament, the 23rd of April 2022

<https://www.europarl.europa.eu/news/en/press-room/20220412IPR27111/digital-services-act-agreement-for-a-transparent-and-safe-online-environment>

‘The Digital Services Act (DSA) Transforms Regulation of Online Intermediaries’, Debevoise & Plimpton, the 19th of July 2022, <file:///Users/IdilDelmas/Downloads/Digital%20Services%20Act%20DSA%20Transforms%20Regulation.pdf>

Further Reading:

Aina Turilazzi et al., “The Digital Services Act: An Analysis of its Legal, Ethical and Social Implications” [2022] SSRN Electronic Journal

<https://www.researchgate.net/publication/357803324_The_Digital_Services_Act_An_Analysis_of_Its_Ethical_Legal_and_Social_Implications>

Move over Starlink; Inmarsat Is Back With A Bang!

Briefing by Divya Tejwani

In November 2021 US and UK government came together to attempt to take over the communications market with Viasat Inc., (NASDAQ:VSAT) US-based global communications company taking over Inmarsat, the UK-registered provider of global mobile satellite communication services. Earlier this year, the takeover was valued at $7.3 billion, comprising 850.0 million in cash, approximately 46.36 million shares of Viasat common stock valued at $3.1 billion based on the closing price on Friday, November 5, 2021, and the assumption of $3.4 billion of net debt.[1] The merger is viewed as a shot to counter rising competition from firms including Elon Musk’s Starlink and OneWeb.

Double trouble:

Buying private equity-backed Inmarsat significantly expands Viasat’s broadband network globally in multiple orbits and spectrum bands.

The acquisition is already subject to a long list of regulatory approvals on both sides of the Atlantic Ocean, including new national security procedures in the United Kingdom.[2] What’s more? SpaceX has claimed Viasat unfitness regarding its acquisition of Inmarsat as Viasat will be allegedly violating its current frequency rights.

In response, Viasat has denied all allegations from SpaceX and addressed their revenues for three months to the end of March increased by 18% compared to the previous year. While their revenues climbed 8% for the first quarter of 2022.

End game?

Earlier this week, Jacob Rees-Mogg, the UK’s secretary of state for business, energy and industrial strategy (BEIS), found that the acquisition does “not pose a risk to the UK’s national security”, approving it under UK’s recently introduced new security laws, namely National Security and Investment Act.

Viasat has been a trusted partner of the UK’s defence and national security communities for more than a decade, including in the provision of its market-leading encryption products Viasat CEO Mark Danberg said, “The combined company…will build upon the strong UK relationships that Viasat and Inmarsat already enjoy and allow us to deepen our contribution to the UK’s National Space Strategy.

Inmarsat CEO Rajeev Suri asserted, “Together, we will be well-positioned to compete in a robust market that has both well-funded new entrants and other industry players in the process of consolidating, an expansion in the number of highly skilled jobs in key areas and a “30% increase in overall research and development spending in the UK”.[3]

In March 2022, the companies committed to economic undertakings with BEIS, which underlined their pledge to strengthen and advance the UK’s National Space Strategy.

The merger will control a fleet of 19 satellites, with 10 more in the pipeline to be launched sightings in the next three years.

Set up in the 1970s as a United Nations-linked marine safety vehicle and only being listed in London in 2005 due to digital communications taking off as a digital money-spinner, Inmarsat has come a long way. In the same year, being owned by Apax Partners, Permira, and Warburg Pincus in partnership with Canada Pension Plan Investment Board and Ontario Teachers’ Pension Plan Board and taking over Stratos Satellites and SkyWave Mobile communications in 2009, Inmarsat turned the tables. Viasat taking over Inmarsat is a new chapter for the communications market. Will the merger be able to compete with Starlink and OneWeb? Only time will tell.

[1] https://www.inmarsat.com/en/news/latest-news/corporate/2021/viasat-inmarsat-to-combine.html

[2] https://spacenews.com/viasat-shareholders-approve-inmarsat-acquisition/

[3] https://www.tradewindsnews.com/finance/uk-government-clears-inmarsat-acquisition-by-viasat/2-1-130551

Patagonia Did What?!

“Truth be told, there were no good options available. So, we created our own”[1]

 Briefing by Shaznee Seraj

 Patagonia, the company that keeps you warm in winter gave the company away. You must be wondering what is different about the Patagonia story. It is a known fact that companies are often being bought and sold. Think; buying and selling, merging and acquiring. Nothing new in the corporate world.

So, what is the catch? Let me tell you. (Hint: gave, not sold)

Rather than selling the company or taking it public (as most companies would), Yvon Chouinard, the brainchild of the company, alongside his wife and 2 children, transferred their ownership of Patagonia, valued at approximately $3 billion to a specially designed trust and nonprofit organization.[2] You heard it right. A non-profit organization. They were established to maintain the business’s independence and guarantee that all earnings would be spent to fight global warming and safeguard undeveloped land. Now that’s something. Unexpected! (Capitalism: 0, ESG: 1) Ding, ding, ding!

Rationale

To quote Chouinard : “Hopefully this will influence a new form of capitalism that does not end up with a few rich people and a bunch of poor people.” He said, “We are going to give away the maximum amount of money to people who are actively working on saving the planet.”[3] This is a very interesting approach to ESG.

Click here to read a letter from Yvon if you are interested in the company.

What does it mean for the company and its ESG contributions over the past years?

Warning: do not be alarmed or confused. The company will continue to operate as a private, for-profit corporation based in sunny California, but the Chouinards, who have been controlling Patagonia, will no longer own the company – all for the betterment of the environment. Very admirable indeed.

A partner at a financial and management consulting firm, Dan Mosley (BST&Co), mentioned that the company did not get a charitable deduction for it, which means that there is no tax benefit here. That said, there are also speculations that he’s avoiding a $700 million tax hit by giving it away, resulting in Chouinard facing backlash after giving his company to a climate crisis non-profit organisation.[4] More research is required to understand this speculation in more detail.

Chouinard’s personal interest aside, Patagonia has been a fan-favourite for quite some time now, especially among environmentally conscious customers (and your doctors, tbh). If you have been shopping at Patagonia, you’d know that the company is pretty much the opposite of Boohoo Inc. The company is transparent about its supply chain and durable clothes and is a member of the 1% for the Planet (although some people might not like the style), but you get the message.

There has been a stark increase in companies investing more resources to better their ESG credentials which meant that Companies Law must continue to evolve, especially in the UK. This is not to say that companies should give their company away to a non-profit organization to be “ESG friendly” or environmentally conscious, but the law must keep track of the companies that often get away with poor ESG practices to balance the ESG scale.

After all, it is counterproductive if some companies devote their resources to do good for the environment ESG while others harm the environment to make a profit. Balance is key!

Sources: 

[1] https://eu.patagonia.com/gb/en/ownership/

[2] https://www.nytimes.com/2022/09/14/climate/patagonia-climate-philanthropy-chouinard.html

[3] https://www.lemonde.fr/en/economy/article/2022/09/14/patagonia-s-founder-leaves-his-company-to-mother-nature-without-a-sale-or-ipo_5996978_19.html

[4] https://plantbasednews.org/news/economics/owner-patagonia-gives-away-company-climate-crisis/