New Fairness Rules for Online Platforms?

Nowadays nearly all of us are users of online platforms and e-commerce solutions - whether to promote our businesses and reach new audiences or even just to simplify our personal lives.

Whilst consumer protection laws have long regulated traditional online shopping sites, the concept of online platforms and marketplaces and comparison sites remains a grey area, the European Commission recently issued a proposal to regulate fairness and transparency for users of online platforms and marketplaces.

We often work with online platforms and marketplaces especially in the fashion sector. In this article, we thought we would share our practical experience with you by setting out the key points of the European Commission’s proposal - including the things you should look out for whether you are operating an online platform, are a brand selling products through an online marketplace, or if you are an end-user or consumer.

Background

In the proposal for a “Regulation of the European Parliament and of the Council on promoting fairness and transparency for business users of online intermediation services”, European law makers have endorsed new rules aimed at stopping unfair practices by tech giants.

The platform-to-business regulation, or P2B, aims to reverse the stifling of competition caused by online platforms and other online marketplaces and comparison platforms such as Google, Facebook and Amazon. The rules have been created to take power back from them, promoting fairness and transparency between platforms and companies that sell through them. 

 What are the new rules?

The rules, proposed last April, have been finalised after multiple rounds of discussion between the European Parliament, the Council of the EU, and the European Commission. The new wording of the rules were approved by the Parliament’s Internal Market and Consumer Protection Committee in February and now need to be formally approved by the European Parliament and the Council of Ministers.

 All companies that offer online intermediation services are involved. This includes e-commerce marketplaces used by third parties, app stores, social networks for companies, search engines and price comparison sites. Much like the extra-territorial scope of the GDPR, any sites that display EU businesses on their platforms, with goods or services targeted at consumers within the EU will be affected. Where these platforms have their own headquarters established - within or out with the EU - doesn’t matter. 

The scope of the proposed Regulation could be huge. Instagram, Facebook, Skyscanner, Yahoo!, DuckDuckGo, Seznam.cz and 7,000 other online firms could all be affected.

In 2017 Google received a $2.7 Billion (!) EU antitrust fine for reportedly supporting its own cost comparison shopping service. Regulators have suspicions that Amazon may be using merchants’ data unlawfully to copy their products, and then ranking them higher on their site. The proposed Regulation aims to stop these sorts of practices and make online platforms fairer - especially for small businesses. 

Clear, fair terms

Under the proposed Regulation, the new rules will require online platforms to provide clear, transparent and accessible information to any companies using their platform. They need clear general terms and conditions and any changes to these conditions must come with a 15-day notice for users (Draft Article 3). Any suspensions or removals of accounts must come with a 30-day notice and be communicated and justified. For some platform operators, this is going to require an overhaul and review of their current processes.

User companies must have the opportunity to challenge any suspension decisions that they find unfair. Platforms must keep records of the data associated with these user accounts in case quick recovery is needed for any closure errors (Draft Article 4). Specific examples have been set out for the only times that the 30 day notice will not apply These include the case of illegal or inappropriate content being displayed or fraud (Draft Recital 23). 

Transparent ranking

A range of platforms using ranking structures, such as Airbnb, Apple, and Booking.com will need to reveal if and how they give preferential treatment to the goods or services that they display.

They must explain how rankings on search results are organised and be open about the policies that affect business’ abilities to sell through platforms (Draft Article 5).

This means that internal services need to be organised to handle any complaints from vendors that believed there had been unfair treatment. To monitor this, the creation of an EU Observatory of the Online Platform Economy has been proposed. 

The Austrian minister for digital and economic affairs said last August that the new rules were a “crucial stepping stone towards the completion of the digital single market”. Some platforms monopolise market power in online intermediation services and this makes it extremely difficult for smaller enterprises to get their foot in the door. The P2B Regulation wants to change this - which is good news for start-ups and new actors in this space. 

National practice

Member States are being encouraged to develop their own codes of conduct governing platform-user relationships.

This sort of initiative has already been seen in France. A “good practices” charter for SMEs has been drawn up and large e-commerce platforms have agreed to a voluntary approach to better manage relationships with their vendors, and share these sorts of good practices with other e-commerce platforms to encourage cooperation. The Charter does not attempt to change existing contractual terms, rather to improve the relations that they govern. Parties plan to meet to publish an annual report and to create a monitoring committee to ensure the Charter is implemented. The Charter is due to be signed late March and the list of signatories will be made public.

The international reaction

Critics, however, are skeptical of this proposal. Some feel that while the rules might appear to lessen anticompetitive practices of big tech, the language of the rules means that companies well-known for abusing their market dominance can still get away with it. 

There is also concern that the the proposal doesn’t get to the heart of the problem - the fact that tech giants are able to manipulate how sellers interact with their buyers so as to satisfy their own self-interests. The rules focus on transparency in the hope that this will discourage companies from questionable practices but approaches like this in the past have failed.

The European Parliament has been honest about the hurry to create these rules. Christel Schaldemose, a Danish member of the European Parliament said that the main aim of the rules was to emphasize fair competition and include specific enforcement measures. Whilst supporting these rules and the transparency that is created, Schaldemose admitted that they “couldn’t wait another year or two before making online platforms more transparent and much fairer”.

What do you think about the proposed Regulation? Does it go far enough, or is there more to be done? As always, if you have any thoughts or questions about this or any other legal matters, please don’t hesitate to get in touch!

Article by Lily Morrison @ Gerrish Legal, March 2019