European Digital Compliance: Key Digital Regulation & Compliance Developments – Technology

To help organisations stay on top of the main developments in
European digital compliance, Morrison & Foerster’s European
Digital Regulatory Compliance team reports on some of the main
topical developments in this area that have taken place in the
second quarter of 2021.

  1. Dissemination of Terrorist Content Online
  2. German court decision further limits T&Cs amendments
  3. UK Online Safety Bill: New Duties of Care for Online Service
  4. Germany Declares Operation of Illegal Online Marketplaces to Be
    Criminal Offences
  5. New Rules and Uncertainty Under the German IT Security Act
  6. UK’s Product Security and Telecommunications Infrastructure
  7. eBay’s New Portal: Power to the Regulator
  8. German Autonomous Driving Act Is Only the Next Step to
    Self-Driving Cars for Everyone
  9. Algorithms: Potential Harms
  10. Settling Smart Contracts: Digital Dispute Resolution Rules
  11. Looking Ahead
  12. Updates to Topics Covered in Q1, 2021

1. Dissemination of Terrorist Content Online

On 28 April 2021, the European Parliament formally adopted the
Regulation on preventing the dissemination of
terrorist content online
. The Regulation targets content that
incites, solicits or contributes to terrorist offences or solicits
people to participate in a terrorist group. Most notably, the
Regulation will require online platforms to remove terrorist
content within one hour of having received a
removal order from the relevant national authorities. Online
platforms covered by this Regulation will include providers of
social media, video, image and audio-sharing services, as well as
file-sharing services and other cloud services, insofar as those
services are used to make the stored information available to the
public at the direct request of the content provider. These online
platforms will not have a general obligation to monitor or filter
content, but they will have to undertake specific measures to
address the misuse of their services where national authorities
have established that they have been exposed to terrorist content.
We note that content uploaded for educational, journalistic,
artistic or research purposes will not be considered terrorist
content under the Regulation. While the rules on penalties will be
set by individual Member States, the Regulation provides that
companies should face fines of up to 4% of their global turnover
for persistent non-compliance.

What’s Next?

The requirements of the Regulation will come into effect on 7
June 2022. Online platforms should use the next few months to
consider how they will robustly address this type of misuse by
users, including preparing (and testing the capability of) their
internal systems to respond quickly to exposure, and to remove
terrorist content from their servers within the one hour timeframe.
In doing so, they should also review how they moderate content,
more generally, to ensure compliance with existing deletion
obligations, such as the national hate speech rules under the
German “NetzDG” law, and also to look ahead at what may
need changing when the EU’s pending Digital Services Act
(DSA) is adopted.

2. German court decision further limits T&Cs

Organisations who use consumer-facing terms and conditions
(T&Cs) in Europe may have to think again about how they go
about updating and changing those T&Cs.

The German Federal Court of Justice found to be unfair (and,
therefore, illegal and unenforceable) a common way to make changes
to T&Cs used in respect of consumers in Germany.

Germany’s strict rules for T&Cs already make most
clauses illegal that would allow businesses to make unilateral
changes to ongoing agreements (e.g., subscriptions). By
this new decision, which was triggered by a set of T&Cs used by
German banks, the Court has now invalidated one of the remaining
approaches for unilateral amendments that is currently being used
broadly across industries: a workaround whereby changes to T&Cs
are framed not as unilateral acts by the business, but as mutually
agreed amendments, with the consumer’s acceptance deemed to be
given so long as they do not object within a specified deadline
(so-called “tacit consent”). See our full
client alert
for further details.

What’s Next?

Based on the Court’s decision, the continued use of clauses
such as those now declared illegal will mean a higher risk of
enforcement action – by consumers, consumer groups and possibly
government regulatory agencies. These types of amendment clauses
cannot be relied on as a basis to make binding changes to ongoing
agreements, and companies will need to think again about how to
make changes. T&Cs for Germany should therefore be reviewed and
updated. But the problem goes wider than just Germany: T&Cs are
usually drafted to cover all users or consumers globally or
Europe-wide and companies don’t want to have to adopt one
process to amendments for German consumers and a different approach
to the rest of Europe. So the question is how to balance the risk
of unenforceability in Germany against a more laborious or
cumbersome approach applied Europe-wide?

The fairness and transparency of consumer T&Cs also remain
on the agenda in the post-Brexit UK, with a recent court decision
serving as a reminder that businesses may not always be able to
rely on one-sided terms against consumers. See our full client alert for further details.

3. UK Online Safety Bill: New Duties of Care for Online Service

The UK government has published a draft Online Safety Bill (the
Bill“) that is designed to tackle
illegal and harmful content published online.

Announced in May 2021, the Bill imposes a duty of care on
certain online providers to take responsibility for the safety of
their UK users. This means that online service providers,
regardless of their location, will be affected if they have a
significant number of UK users. It also appoints Ofcom (the
existing regulator of the UK communications and broadcasting
sector) as the regulator, with the power to block sites and also
levy fines amounting to the higher of £18 million or
10% of global turnover.

The Bill will require providers of (1) “user-to-user”
services and (2) search services to prevent the proliferation of
illegal content and activity online. The first category includes
companies that allow users to upload and share their own content.
Most obviously, this includes global social media companies but, on
closer analysis, this category is very broad and may include any
provider that hosts user-generated content. The second category
includes companies that enable users to search multiple websites
and databases. Affected companies will also have to make special
assessments and fulfil specific duties where services are likely to
be accessed by children in respect of both illegal and harmful
content. To meet the duty of care, companies will need to put in
place systems and processes to ensure user safety.

Notably, the Bill goes beyond the EU’s proposed Digital
Services Act by introducing duties of care in relation to harmful
(but not necessarily illegal) content.

What’s Next?

All companies falling within the scope of the Bill will need to
balance their content duties with the duty to safeguard freedom of
expression and democratically important content; increased
censorship is a key concern of campaigners. After being reviewed by
a parliamentary committee, the Bill will be debated by MPs before
being approved. See more in our client alert.

4. Germany Declares Operation of Illegal Online Marketplaces to
Be Criminal Offences

In June 2021, the German parliament adopted a draft law dubbed the Anti-Darknet
Act. The Act targets operators of illegal online trading platforms
and their server infrastructure providers with criminal penalties
of up to 10 years of imprisonment. These online platforms for
drugs, weapons, stolen credit cards, counterfeit currency and more
made headlines when police investigations took down DarkMarket (in
2021), Wall Street Market, Dream Market (both in 2019), Hansa and
AlphaBay (both in 2017).

Crucially, the new draft law only applies if the trading
platform is operated with the purpose of enabling or facilitating
an enumerated list of criminal offences. Similarly, the
infrastructure provider must intend or know that the infrastructure
will be used for this purpose. This protects legitimate online
trading platforms, which could covertly be used by criminals.

Legislators expect that the new rules will make it significantly
easier to prosecute operators of illegal platforms because law
enforcement agencies will no longer have to prove knowledge of a
specific illegal act committed via the platform.

What’s Next?

The new law will now enter into force before the end of 2021.
Once in force, the new rules may also provide a new tool for
companies susceptible to brand piracy or counterfeit products. Such
companies could strengthen their fact-finding investigations with
the help of the police, as the enumerated list of criminal offences
covered by the new law not only includes capital offences,
drug-trafficking and child pornography but also (computer) fraud,
hacking-related offences and infringements of trademarks,
geographical indications and registered designs.

5. New Rules and Uncertainty Under the German IT Security Act

In response to increasing threats of hacker attacks against
critical infrastructure systems in the financial, energy, and other
key sectors, the German IT Security Act 2.0 took effect in May

The new rules expand the circle of enterprises subject to
specific IT security regulation to include, among others, municipal
waste management and certain “special public interest”
companies. They also raise the bar of security requirements:
Affected companies now have to register with the German Federal
Office for Information Security (BSI). Operators of critical
infrastructure must implement state of the art “attack
detection systems”. Future government decisions may prohibit
the use of “critical components” of untrustworthy
suppliers in such infrastructures. IT security requirements are
particularly severe for 5G networks: Critical components used in
such networks require prior certification by a recognised body,
while 5G network operators face periodic security reviews.

The tougher stance against IT security threats is backed up by
an increased maximum fine for violations of IT security obligations
of ?20 million (previously ?100,000) and by significantly expanded
competencies of the BSI to ensure network security and consumer
protection on IT security issues.

What’s Next?

Key requirements for applying the new provisions, such as the
specification of critical components or criteria to determine
“special public interest” companies, remain subject to
secondary legislation and thus uncertain. In addition, the German
government has published draft legislation further extending the group
of critical infrastructure operators regulated by IT Security Act

6. UK’s Product Security and Telecommunications
Infrastructure Bill

New UK legislation will impose minimum security standards on
manufacturers, importers and distributors of smart devices to
protect against cyber-attacks. The Product Security and Telecommunications
Infrastructure Bill
aims to boost the security standards of the
UK’s telecoms networks by placing new legal duties on
communication providers to improve their security practices. It
will also introduce new powers for the UK government to impose
controls on communications providers’ use of goods, services or
facilities supplied by high-risk vendors. Alongside enforcing the
new legislation, Ofcom will be given the responsibility of
monitoring and assessing telecoms providers’ security.
Companies that fall short of the new duties or fail to follow
directions on the use of high-risk vendors could face heavy fines
of up to 10% of turnover or, in the case of a
continuing contravention, £100,000 per

What’s Next?

Given that the Bill is undergoing its second reading in the UK
House of Lords, the key thing to look out for now is the secondary
legislation, which will set out the specific security requirements
that communications providers must meet. The UK government’s announcement confirms an intention to engage
with providers on the technical details of the secondary
legislation before it’s finalised later in 2021, so companies
should keep an eye out for upcoming opportunities to discuss their
concerns regarding the impact of these rules on their

7. eBay’s New Portal: Power to the Regulator

We have reported before that both the EU (via the
Digital Services Act and Digital Markets Act) and the UK (though
the establishment of its Digital Markets Unit) are moving towards
greater regulation of so-called “Big Tech” companies.

In what could be seen as an instance of a company trying to get
ahead of the type of the new European legislation, in May 2021 the
global online marketplace eBay announced the successful pilot of
its Regulatory Portal. This new mechanism permits
selected, trusted authorities efficiently to report listings for
illegal or unsafe items to be taken down from eBay – without the
need to ask eBay’s permission. The online portal complements
both eBay’s existing customer reporting facility and eBay’s
own efforts to remove such illegal or unsafe listings. The portal
is in a beta phase and will apparently later incorporate
functionalities such as seller communication. The UK’s Ofcom
and Office for Product and Safety Standards are a few of the 50+
approved regulators with access to the portal. Dangerous and
counterfeit goods are the obvious targets of such measures.

The portal’s innovation may partly be driven by the
anticipation of increased digital regulation. The EU’s proposed
Digital Services Act also suggests a similar
concept of “trusted flaggers”. Online platforms might be
required to set up mechanisms to ensure that reports of illegal
content by trusted flagger entities (as appointed by Member States)
are prioritised and processed without delay.

8. German Autonomous Driving Act Is Only the Next Step to
Self-Driving Cars for Everyone

In May 2021, Germany adopted new legislation that moves towards
allowing full access to public roads for autonomous vehicles. This
is only a next step, because the new legislation (titled “Act
on Autonomous Driving”) only permits autonomous vehicles of
SAE level 4 – i.e., those that are restricted to operate
in certain defined conditions (e.g., “people
movers” on pre-defined routes or short-range transportation of
goods). Local road authorities must approve these conditions based
on individual applications.

However, despite the still-limited roll-out of autonomous
vehicles, the new law also lays the groundwork for further steps
towards actual autonomy. Instead of drivers, autonomous vehicles
will have “technical supervisors” who must be ready to
interfere if necessary, which will further limit autonomy, at least
for now. Owners of autonomous vehicles must make sure to store
certain log data, e.g., in case of irregularities in the
operation of the vehicle. Third parties have a claim to access this
data in case of accidents with an involvement of the autonomous
vehicle. The law also regulates over-the-air updates that activate
dormant autonomous driving functionalities.

What’s Next?

The new rules are expected to enter into force during summer
2021. However, further legislation will be necessary to allow for
fully autonomous mobility on German roads. Also, the new law does
not yet regulate the question of who will be liable in case of
accidents caused by autonomous vehicles.

9. Algorithms: Potential Harms

Following the publication of its research paper on harms to
competition and consumers caused by algorithms in January 2021, the
UK Competition and Markets Authority (CMA) ran a
consultation requesting input on the paper from market
participants. On 7 June 2021, the CMA released a summary of the 27
responses received, which indicated the areas of key concern for
respondents, and highlighted a number of suggestions as to the
CMA’s role and enforcement powers.

Key Concerns

  • Recommender Systems: Some respondents
    appeared to be particularly concerned about recommender systems and
    their strong influence over consumers, and suggested that the CMA
    and Ofcom should interrogate recommender systems
    within the remit of the Digital Regulation Cooperation Forum.
  • Ranking Systems: Large platforms
    using ranking systems to restrict access to customers was also a
    key issue identified by respondents. It is a practice that
    respondents felt would reduce incentive for service
    to compete for user attention and loyalty.
  • Personalised Pricing: The use of
    algorithms to establish personalised pricing for consumers was also
    identified as a potentially problematic practice. Respondents felt
    that “dominant, technologically advanced firms”
    would be best placed to reap the rewards
    of such
    practices, causing concerns from a competition perspective.

Regulation and Suggestions for the CMA

  • Existing Legislation: Respondents
    generally felt that many algorithmic harms could be dealt with
    under existing legislation. To the extent that the existing
    legislation is ambiguous as to its application to algorithms, the
    CMA could issue clarifying guidance on the area. Where specific
    harms cannot be addressed by existing legislation, respondents
    voiced the need for further consultations to gauge expected market
    standards and practices before delving into legislating.
  • Disclosure of Information:
    Respondents suggested that the CMA could require companies to
    regularly publish statistics on their algorithms, bias levels and
    false positive and false negative rates. The CMA could also have
    pre-emptive powers, granting access to an algorithmic system
    development project’s documentation for auditing, or mandate an
    “ethical audit” as part of the development process.
  • Guidance: Respondents have called for
    guidance from the CMA on a range of areas, for example, how to show
    that bias had been found and mitigated against; provision of a
    clear “safe” list of acceptable algorithmic systems and
    uses and a “no go” list of unfair or anti-competitive use
    cases; how harms would be assessed and enforced; and guidance on
    how to show that guidance had been followed!

What’s Next?

The responses are intended to inform the CMA’s
“Analysing Algorithms Program”, which was launched
alongside the publication of the paper. Given the commercial value
and prevalent use of algorithms, businesses will no doubt be
watching this space for further consultations, guidance and papers
published as part of this program in the CMA’s crackdown on
algorithmic harms.

10. Settling Smart Contracts: Digital Dispute Resolution

New rules allowing for anonymity and the speedy resolution of
disputes related to novel digital technology were published by the
UK Jurisdiction Taskforce of Lawtech in April 2021. The Digital Dispute Resolution Rules are optional
rules that can be used for, and incorporated into, on-chain
(i.e., occurring on a blockchain) digital relationships
and smart contracts. The purpose of the rules is to
facilitate the swift and cost-effective resolution of
commercial disputes, involving cryptoassets, smart contracts,
blockchain and other technologies
, using arbitration, or
expert determination for expert issues.

Contracting parties can agree to incorporate the rules, usually
by including them in a contract or by agreeing to arbitrate under
the rules once a dispute arises. This will avoid the need for
costly litigation and help parties resolve the matter outside of
court. The outcome of any automatic dispute resolution process will
be legally binding on the parties.

The rules also contain provisions to allow parties to retain
anonymity once they have provided evidence of their identity to a
tribunal. This recognises a key motivation of digital assets users.
The guidance published alongside the rules suggests and allows for
modifications; parties will therefore be able to tailor a dispute
resolution solution to their needs. The taskforce will review the
rules and their applications next year.

11. Looking Ahead

  • In July 2021, the German Federal Court of Justice is expected
    to hand down its judgement regarding the legal parameters for
    social networks to delete content and to block accounts in case of
    alleged hate speech.
  • Also in July 2021, the German Federal Court of Justice is
    expected to hand down its judgement in several cases where it is
    expected to clarify the legal requirements around transparency of
    influencer marketing.
  • According to a response to a written MEP question, the EU
    Commission is preparing draft legislation for 2022 to govern (and
    potentially restrict) end-to-end encryption in digital
    communications services such as WhatsApp or Signal, also in light
    of non-harmonised Member State legislation on this topic.

12. Updates to Topics Covered in Q1, 2021

Over the past few weeks, there have been a few developments on
things that we wrote about in our Q1, 2021 tracker of Key European Digital
Regulation & Compliance Developments.

  • As expected, the EU Commission published its draft for a new AI Regulation and a revamped Machinery Regulation on 25 April 2021. Both
    proposals are closely interlinked in their attempt to regulate
    emerging technologies. Public consultations are open until early
    August 2021. For details on the AI Proposal, see our separate Update.
  • In late May 2021, the German implementation of Article 17 of
    the revised EU Copyright Directive was adopted and promulgated. It
    will now enter into force on 1 August 2021. See our separate Update for details. Also, the EU
    Commission published its guidelines on the proper interpretation of
    Article 17.
  • The revised German anti-hate-speech bill, the Network
    Enforcement Act (NetzDG), was adopted in late May 2021 and the
    respective amendments entered into force on 28 June 2021. The new
    rules expand NetzDG’s scope to video sharing platforms, give
    users a right to object against enforcement decisions and tighten
    the screws on transparency obligations.
  • The German implementation of the European Electronic
    Communications Act was adopted in May 2021 and is expected to be
    promulgated shortly. It will enter into force in December 2021,
    almost one year after expiration of the implementation deadline.
    Other Member States are still working on their implementation as
    well (e.g., France, Italy and Spain).

We are grateful to the following members of MoFo’s European
Digital Regulatory Compliance team for their contributions: Jannis
Werner, Dominik Arncken, Theresa Oehm, and Alexander Eisenfeld,
Mercedes Samavi, and trainee solicitors Georgia-Louise Kinsella and
Georgia Wright.

Because of the generality of this update, the information
provided herein may not be applicable in all situations and should
not be acted upon without specific legal advice based on particular

© Morrison & Foerster LLP. All rights reserved

European Digital Compliance: Key Digital Regulation & Compliance Developments – Technology Source link European Digital Compliance: Key Digital Regulation & Compliance Developments – Technology

Stacee R. Grigg

Next Post

Pratt & Whitney Canada Advances Sustainable Hybrid-Electric Propulsion Technology, Contributing to Canada's Green Recovery Plan

Fri Jul 16 , 2021
LONGUEUIL, Quebec, July 15, 2021 /CNW/ — Pratt & Whitney Canada (P&WC), a company unit of Pratt & Whitney, a division of Raytheon Systems Corp. (NYSE: RTX), right now announced plans to advance its hybrid-electric propulsion technologies and flight demonstrator plan as element of a $163M CAD expense, supported by […]

You May Like