Investing in digital innovations is one of the cornerstones of EU’s post-COVID recovery. These efforts go hand in hand with new regulations for online space, as Europe tries to limit the influence of tech giants. However, it is important to keep in mind the interest of startups as one of the key drivers of digital transformation, especially with regards to the upcoming Digital Services Act (DSA).  

The new legislation could be an opportunity to regulate the hyper-centralised, digital economy driven by user-generated content that occupies big parts of the online space, and to level the playing field for innovative tech companies.  However, if not designed the right way, the DSA might have a negative impact on the latter and their ability to operate and grow freely across Europe. The new legislation could add extra hurdle for startups, which will have to deal with complex rules regarding illegal content, regardless of their size and resources. As a result, they would not be able to focus on their core business and grow at desired pace.  

It is therefore essential that the new legislation creates a set of realistic liability rules for hosting third-party content in Europe. The new law shouldn’t force startups to monitor or finely filter all the content users upload, which is how things are now under the limited liability regime of the E-Commerce Directive.  

What legislators need to keep in mind is the principle of proportionality. This can apply to the adjusted response times to react to removing illegal content from a company’s website. The need for a truly proportional approach also relates to enforcement: small startups shouldn’t be penalised just because they don’t have the content monitoring resources of companies like Google or Facebook. Instead, they should be incentivised to act proactively, as much as their lean structures allow them to do so.    

The DSA should also impose interoperability obligations for dominant social platforms. This would require them to open up their ‘walled gardens’ and allow users of similar services to connect and interact with them. Empowering smaller tech companies to interact with these tech giants would allow them to increase their share of the market. And, it would also give people a real choice with regards to the platform they want to use.     

The DSA has a potential to become the basis of an open platform economy, protecting and promoting innovation while embracing the European values. Given Europe’s quest to achieve tech sovereignty, the EU policymakers need to make sure that the upcoming legislation doesn‘t stiffle its own progress. By preventing the innovators from operating freely and scaling up, Europe’s post-covid growth engine would be halted from the start.