The Big Story: EU advances overhaul of content moderation rules
Early Saturday morning, the European Union reached an agreement on a final version of landmark legislation to govern online intermediaries hosting user content in the EU. The legislation, known as the Digital Services Act (DSA), will build on existing EU law and create new obligations for companies—including startups—that will require additional staff, development of new tools, and attention toward compliance in order to serve users in the EU. For startups, the law stands to heighten barriers to serving EU users and will bring new administrative costs, potentially disproportionate obligations, and diminished options for effective marketing through targeted advertisements.
The DSA builds on the EU’s eCommerce Directive—a turn of the century law that has underpinned how user content is handled within the bloc—by harmonizing rules at an EU (rather than member state) level and by creating many new obligations, rules, and processes that companies hosting user-content must follow. It would, among other things, require services to have an EU representative, engage with requests from governments and “trusted flaggers,” about removing problematic content, build mechanisms for users to notify companies about potentially problematic content, vet sellers on marketplaces, and publish regular transparency reports. The largest companies—those with over 45 million monthly active users in the EU, which the law calls Very Large Online Platforms—will have additional obligations for transparency, researcher access, and regulatory oversight.
In addition to new obligations around content moderation, the DSA is likely to also impact startups through a ban on targeted advertising to minors or based upon certain information, including, e.g., sexual orientation, race, or ethnicity. The agreed-upon text is not yet public, but one possibility is that services must be certain a user is not a minor to serve such ads. This could amount to a ban in effect on targeted advertising, which are one of the most effective low-cost tools that resource constrained startups leverage to acquire customers and break into new markets (like the EU). Reducing the availability and increasing the price of a presently cost-effective advertising tool is likely to harm startups.
Negotiations over the text of the DSA are complete, and final details that remained to be ironed out through ‘technical meetings’ this week also appear to be complete since remaining scheduled meetings have been canceled. Final votes to adopt the DSA—largely a formality—will happen in early summer, after which Very Large Online Platforms will face a timeline of just a few months to come into compliance, but smaller companies will have about a year-and-a-half to comply.
Policy Roundup:
Engine launches the Startup Trail game. This week Engine launched a new online video game—developed with Copia Gaming and Leveraged Play—that gives players the opportunity to witness first-hand the difficulties of running a startup. Playing the Startup Trail, you act as a founder who has to make the tough decisions about how to invest limited time and resources all while navigating policy issues that impact those choices. Interested? Play the game here.
Coalition sends letter urging swift movement on Trans-Atlantic Data Privacy Framework. This week, Engine and over 20 other organizations across every sector of the economy sent a letter urging both U.S. and EU officials to move quickly towards finalizing the recently announced framework to restore transatlantic data flows by supplementing the Privacy Shield Program. That program was earlier invalidated by a ruling of the EU’s highest court over privacy concerns the new agreement seeks to remedy, and it had been overwhelmingly relied upon by startups and small businesses serving users in the bloc. As we recently explained in a blog post, it is likely to be months before the new agreement can be relied upon as a legal mechanism for data transfer, and startups are looking forward to a clear standard that they can rely on for data transfers between the U.S. and Europe.
Challenge to EU’s Article 17 dismissed, upholding copyright directive with caveats. This week, the EU Court of Justice (CJEU) issued a ruling upholding Article 17 of the Copyright Directive, dismissing a 2019 case brought by Poland urging officials to annul provisions that the country “argued would infringe upon freedoms of expression and information.” Adopted in 2019, Article 17 changes the way EU countries hold certain online platforms liable for allegedly infringing user-generated content. And as we’ve noted in the past, Article 17 could amount to a de facto requirement that startups use costly, error-prone tools to monitor user-generated posts. This week’s ruling endeavors to provide safeguards for Internet users to protect fundamental rights of EU citizens, and it will require some countries in the EU to change their laws related to Article 17—which will dictate what filtering obligations startups face going forward.
Broadband infrastructure delays on the horizon. Newly confirmed National Telecommunications and Information Administration (NTIA) Director Alan Davidson announced last week that May 16 is the day states can officially start requesting broadband development funds from the $42.5 billion grant program to support Internet infrastructure in underserved U.S. communities that passed as part of the Infrastructure Bill passed late last year, though further delays are expected. Currently, the Federal Communications Commission (FCC) has yet to build out a more accurate mapping system to determine where to improve the broadband service. As we’ve long mentioned, broadband adoption is critical for startups, and both the FCC and the NTIA need to prioritize carrying out a broadband development plan to support a thriving startup ecosystem.
U.S.-UK trade talks continued in Scotland. On Wednesday, U.S. Trade Representative Katherine Tai met with Secretary of State for International Trade Anne-Marie Trevelyan in Scotland for the officials’ second round of discussions on trade between the two countries. The officials’ discussion included priorities important to startups, like digital trade issues and lowering barriers to trade for small companies, which could stand to open opportunities for U.S. startups. The talks will continue in Boston in June.
Small and micro entities are obtaining more U.S. patents each year. Wednesday marked World IP Day, and Engine published an explanation on how the U.S. patent office charges reduced fees to small and micro entities—small businesses and companies that have fewer resources and are new to the patent system. And looking at data about these fees shows an increasing number of patents are issued to U.S.-based small and micro entities each year. The reduced fees can help alleviate the financial burden startups can face in seeking patents, but there is more policymakers can do, e.g., to expand pro bono support for under-resourced patent and trademark applicants and to align the overall fee structure to improve patent quality.
Startup Roundup:
#StartupsEverywhere: Atlanta, Georgia. Brandon Winfield is the Founder & CEO of Atlanta-based iAccess Innovations. After facing his own challenges finding spaces that would be accessible to his mobility range, he decided to build a space where people with disabilities could share their accessibility experiences in public businesses and spaces. We spoke to Brandon about his journey building his company, the challenges of moderating user content as a small platform, and his company’s work to train other businesses on disability etiquette and inclusion.
