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The Data Act: Unlocking New Opportunities for Startups

During a plenary vote at the European Parliament on March 14th, the EU lawmakers adopted their version of the Data Act with an overwhelming majority.

The European Commission's proposed Data Act is a highly anticipated legislative initiative aimed at regulating non-personal or industrial data within the European Union (EU). The Act is based on the idea that sharing non-personal data can create a positive cycle within the data economy, which can result in substantial advantages for startups. Greater capacity to generate economic value and to respond to consumer needs right from the outset are a few examples of the benefits the Data Act is expected to bring about.

The Data Act initiative aims to eliminate barriers to data access. It establishes common rules for sharing data from connected products and services, and facilitates data transfers among companies, individuals, and the public sector. It enables customers to easily switch between cloud data-processing service providers, and provides users of connected devices access to data that is often solely collected by manufacturers.

Thierry Breton, the Commissioner for Internal Market, has shed light on the anticipated positive impact the Data Act will bring about. He believes the legislation will unlock a vast trove of industrial data within Europe and help establish a more innovative and prosperous digital economy. Breton emphasized that the Data Act's implementation will ensure that industrial data is shared, stored, and processed in full compliance with European regulations. “So far, only a small part of industrial data is used and the potential for growth and innovation is enormous.” Said Breton. “It [the Data Act] will form the cornerstone of a strong, innovative and sovereign European digital economy.”

While the Data Act is indeed an ambitious goal that startup associations share, there are concerns that several provisions, in their current form, present significant technical and legal challenges. These concerns are centered on the fact that these provisions could create legal uncertainty in how data should be handled and potentially have a negative impact on the quantity and quality of data that startups can gather and process. In order to ensure that the Data Act fosters innovation and growth, startup communities have provided thorough recommendations balancing the incentives and costs involved in the value chain of dataset creation and maintenance. They are recommending that policymakers apply a "litmus test" to the Data Act to assess whether it will attract more entrepreneurs to create and develop their data-intensive startups within the EU.

One of their recommendations is to provide clarity and proportionality on product definition. The startup community believes that the Data Act should remain to exclude products that are primarily designed to display, play, record, or transmit content, such as personal computers, servers, tablets, smartphones, cameras, webcams, sound recording systems, and text scanners. These products require human input to produce various forms of content, such as text documents, sound files, video files, games, and digital maps. The Commission's initiative, as it stands, will offer legal clarity to startups and investors and foster innovation within the EU.

Another recommendation is to provide data sharing obligations in line with the technical and financial realities of startups. The startup community suggests policymakers clarify key concepts to limit the legal burden for startups. For instance, the vast majority of datasets are mixed, containing personal and non-personal data. Policymakers are encouraged to take into account the complexity of designating what is personal or non-personal and applying the respective legal requirements accordingly.

So, although there are several concerns that need further contemplation, it is clear that startups stand to benefit from simplified data access and transfers. To ensure success, policy makers are expected to focus on fine-tuning the data-sharing environment, narrowing the scope of the legislation, and providing clear definitions. Doing so will provide startups with the necessary legal certainty and flexibility to compete and innovate, while also achieving the EU's goal of stimulating a competitive data market, fostering data-driven innovation, and making data more accessible for everyone.

If you're interested to learn more about how the EU is working to protect personal information in the digital space, be sure to check out our blog post on the Digital Services Act. It provides a brief overview of the legislation aimed at ensuring online safety and privacy for all users within the EU.