The European Parliament’s Committee on Internal Market and Consumer Protection (IMCO) met on 21 June to discuss the proposed regulation of online platforms and digital service providers, the Digital Services Act (DSA). ACT | The App Association has concerns that some of the provisions Member of the European Parliament (MEP) and the IMCO rapporteur Christel Schaldemose makes in the draft report could compromise small and medium (SMEs) and micro enterprises’ ability to grow and compete in the European Digital Single Market (DSM).

During the co-decision procedure, Parliamentary Committees advise the European Commission in the process of drafting legislation by producing reports, proposing amendments to the draft legislation, and providing, if necessary, a drafted legislative resolution. Draft reports adopted by the whole committee move on to the plenary for a vote by all MEPs before transmission to the Commission.

Key points of concern with the draft report:

  • Overburdening administrative costs for SMEs: due to takedown procedures and related costs, SMEs are disincentivised from offering their services in the EU.
  • Threatening access to information and freedom of expression for European consumers: SMEs and start-ups have limited human resources which may cause ‘overblocking’ to avoid noncompliance with the DSA.
  • Lack of proportionality for SMEs: the IMCO draft report removes much-needed exemptions for SMEs from many of the obligations in the DSA. 

Overburdening administrative costs

By the Commission’s own estimates, an average micro-enterprise receiving 50 takedown notices per year, of which only five percent require a counter-notice procedure, already sustains an administrative cost of approximately €15,000. On top of that, the Commission estimates an additional cost of €50,000 to establish a legal representative in the EU, as required by the DSA. If the proposed obligations from the IMCO draft apply as well, both European and non-EU SMEs and micro-enterprises will be disproportionately disadvantaged and financially discouraged from offering their services to European consumers.

Access to information: prevent ‘overblocking’

While it is possible in today’s app economy to reach large numbers of consumers, SMEs and start-ups still have limited human resources. Mike Sax, our chairperson and founder, highlighted that “within small businesses, there are still ultimately only a few people responsible for compliance, in addition to finding investors, developing new technologies, and troubleshooting problems. Such teams cannot be subject to the same obligations as larger enterprises.” Disproportionate obligations could lead smaller players to ‘overblock’ consumer content rather than risk noncompliance. The access to information and freedom of expression of European consumers would be threatened in this case.

Stakeholders across industries share concerns about proportionality

On 16 June 2021, the. App Association also participated in an SME Connect webinar on the DSA. MEP and Industry, Research and Energy (ITRE) Committee rapporteur Henna Virkkunen and MEP Alex Agius Saliba cohosted the event. The App Association was joined on the panel by Manon Tabaczynsky from Allied for Startups, Fabian Fechner from Handelsverband Deutschland (the German Trade Association), and Justyna Romanowska from the Permanent Representation of Poland to the EU. The webinar focused primarily on the DSA Draft Report by IMCO Rapporteur, MEP Christel Schaldemose. All industry participants expressed serious concerns with this Draft Report, most notably with the disproportionate obligations it aims to impose on small digital actors. By removing the exemptions for SMEs and micro enterprises from the Commission’s original proposal, the IMCO Draft Report exposes smaller players to substantial administrative costs.

Rapporteur Virkkunen’s draft report, on the other hand, recommends new safeguards and resources for micro, small, and growing enterprises, which we greatly appreciate. We continue to urge the Commission and the IMCO Committee to consider including the recommendations from the ITRE Draft Opinion in their proposals. We must ensure that the DSA meets its goal to improve the market for small business users and consumers rather than disadvantaging them both.