Digital Single Market: delays and controversy as Commission’s proposals on e-commerce, connected cars and digital content are finalised

Written on 15 Apr 2016

1. e-Commerce package delay

If you were expecting the European Commission’s e-commerce package in mid-May, you’ll have to wait a bit longer, with the debate on how to promote cross-border sales rumoured to have delayed its completion. The Commission considers that geo-blocking of websites is the main barrier to cross-border trade, with almost all complaints about geographical discrimination faced by consumers related to online cross-border purchases. “Tackling” geo-blocking is therefore its absolute priority.

While DG Competition is focused on anti-competitive agreements to geo-block (read more here), DG Connect and DG Grow are drafting the broader e-commerce package. There is still no guidance on what is “unjustified” geo-blocking; and the Commission’s proposal on which activities will be banned is therefore likely to be the sticking point. Any proposal to force all retailers to sell to consumers in all 28 Member States is naturally facing stiff opposition.

In order to progress the dialogue, the Commission is engaging with business and Member States. We understand the Commission will table unjustified geo-blocking within a workshop organised on 19 May 2016 in Vienna, and make use of the outcome of the exchange between Commission’s officials on expected measures and national policy makers on best practice examples, together with comments from industry.

For more on the EU action on geo-blocking, please see our previous article analysing unjustified geo-blocking here.

2. Connected cars and the digitisation of Europe

The Commission’s resolve to promote vehicle automation in Europe is a key part of the Digital Single Market initiative and has recently been the subject of a leaked draft of the Digitizing European Industry Communication. The official Communication was awaited last week, but is expected to be published in the course of the next week (commencing 18 April 2016).

Following the Report published by DG Move on Road Safety, which underlines the potential of automated cars in reducing road fatalities and injuries. Commissioner for Transport, Violeta Bulc, said “Technology and innovation are increasingly shaping the future of road safety. In the medium to long term, connected and automated driving, for instance, has great potential in helping to avoid crashes, and we are working hard to put the right framework in place.

The leaked draft Communication confirms how the Commission will publish a Masterplan for connected and automated cars by the end of the year. This commitment also includes the development of IPR policies to be applied within this framework, in accordance with last year’s Council announcement on the need to ensure consistency of protection of both industrial and personal data in the commercial use of digital data.

Reading the text, we see that the action for the digitisation of European industry will be accompanied by four other communications, namely:

  • Communication on a European Cloud Initiative, aiming to put in place the European Open Science Cloud, to provide engineers and scientists with wide computing and data handling capacity. This will be issued together with two staff working documents on High-Performance Computing and on Quantum Technologies;
  • Communication on Priorities for ICT Standardisation, to identify ICT standards, which will be fundamental to the development of connected cars;
  • an E-Government Action Plan, to digitalise public services; and
  • staff working document on the Internet of Things.

All these measures stress the importance of the digital sector for the Commission, highlighting that it represents a EUR 580 billion industry in Europe and setting out how it is expected to drive European productivity and increase employment. The Commission takes the automotive sector as an example, stating that more than a quarter of its growth comes from the integration of digital innovation in design and production of cars. The Commission also mentions wearables and smart home appliances as key technological advances.

The common point of the Commission’s proposals is standards. Common standards will certainly be key to allowing interoperable solutions, as the European Union should avoid consumer lock-ins. In working towards common standards, Europe will face numerous regulatory challenges, which will be addressed through the REFIT programme initiated by the Commission to reform outdated legislation.

The Commission’s proposed regulatory framework will clarify:

  • data ownership rules and their interactions with data protection and privacy, in relation to which the Commission announced the issuance of the initiative on free-flow of data to remove unjustified localisation in the EU and define data ownership/access/re-use;
  • safety and liability issues in autonomously acting systems, such as self-driving cars or drones, for which related studies the Commission will allow large scale testing in real life conditions; and
  • safety risks of apps, concerning which the Commission is only assessing the need of EU action for the time being.

3. “YouTube Tax”

Most people are of the opinion that the Internet should be kept free-of-charge. However, the question echoing in the Commission’s corridors is “how to insure fair compensation to creative businesses?”, particularly over free streaming services such as YouTube.

As part of the Digital Single Market initiative, the Commission is evaluating the best way to ensure artists’ compensation, included considering a levy on those internet platform services – the so-called value gap proposal, or “YouTube tax”. This would mirror the current government-imposed levy on hardware products, which aims to to help compensate artists for the financial harm caused by private copying of a song, video, or e-book onto a smartphone, hard drive or other electronic device. This is itself controversial, with the amount of the levy varying significantly between Member States.

This controversy is rumoured to extend to the Commission, with Andrus Ansip, Commission Vice-President for the Digital Single Market, opposed to the levy. However, Günther Oettinger, Commissioner for Digital Economy and Society, is reported to be positively considering it. To know more, we’ll have to wait for the Commission’s Communication announced for June.

4. Portability of digital content

The Commission also believes that content that has been lawfully purchased in a consumer’s home Member State should still be available to them when they travel to another (read more here). “Portability” of digital content has therefore been as a flagship proposal of the Digital Single Market.

Although portability has generally received support from industry, finalising the draft Regulation has proven more difficult, with a leaked draft from the European Council earlier this month removing the Commission’s original deadline for implementation and still missing some important clarification around when content should be portable.

Another leaked draft compromise proposal, dated 13 April is now available (here).

The Council has added some key provisions:

  • clarification that the Regulation does not affect any provision relating to taxation;
  • confirmation that the payment of a mandatory fee such as a broadcasting licence fee should not be regarded as a payment of money to receive an online content service;
  • free providers of online content services have the option of being included in the scope of the Regulation. The Commission draft included all providers of online content services, to the extent that these services verify the residence of their subscribers. The Council states that the inclusion of these providers would “involve a major change to the way these services are delivered and involve disproportionate costs” and so its draft focuses only on pay for services;
  • to provide legal certainty, the Council has set out in more detail how providers should verify the home Member State of its subscriber – together with additional means of verification (including a declaration by the subscriber on their Member State of residence); and
  • the new version strengthens copyright contracts rules.

In order to establish residency in one Member State, the subscriber will need to prove some nexus, such as a billing address, bank account and/or paying taxes in that country. The Council also requires that the subscriber “returns regularly” to this Member State, although there is no explanation of what “regularly” means. Once this residency is established, the presence of the subscriber in another Member State is always treated as “temporary”, meaning online content providers may be required to provide services to subscribers outside the home territory for prolonged periods of time.

The leaked draft is tabled for discussion at the next meeting of the Working Party on Intellectual Property (Copyright) on 18 and 19 April 2016. Once finalised, it will need to be adopted by the European Parliament.

We’ll continue to update our DSM hub on this and all developments in the Digital Single Market initiative.