New Rules
On 13th February 2019, the European Parliament, the Council of the European Union and the European Commission agreed to set up new European rules to improve fairness of online platforms' trading practices[1]. The rules, which come under the Digital Single Market[2] strategy, are designed to promote a “fair, transparent and predictable business environment for businesses and traders when using online platforms”, with a particular onus on assisting small and medium-sized enterprises (SMEs) which rely on online marketplaces to sell their products and services.
Why are the Rules needed?
The online platform economy is extremely important to the EU – approximately one million businesses are already selling goods and services via online platforms, with a 2016 survey[3] revealing that just under half of EU SMEs use online marketplaces to sell their products and services. Digital platforms and marketplaces offer a wide range of opportunities for fast and efficient access to international consumer markets.
However, the European Commission[4] has concerns that certain structural issues lead to unfair trading practices for businesses which rely on online platforms to reach their customers, as well as undermining the “innovation potential” of such platforms. According to an impact assessment[5] published by the Commission in April last year, nearly 50% of European businesses operating on platforms had experienced problems, of which 38% related to contractual relations and remained unsolved, whilst 26% had been solved but “with difficulties”; with an estimated €1.27-2.35 billion in lost sales as a direct result.
Summary of the Rules
Unfair practices banned
- Digital platforms will no longer be able to suspend or terminate a seller's account without a clear statement of reasons and the possibility of an appeal. The platform must reinstate a seller where suspension was made in error.
- Terms and conditions must be easily available at all stages of the contractual relationship, including to prospective business users at the pre-contractual phase, and must be written in plain and intelligible language.
- Changes to terms and conditions will require at least 15 days’ prior notice, to allow sellers time to adapt to the changes, although longer notice periods will apply where a change require complex adaptions.
Greater transparency
- Marketplaces and search engines will have to disclose the main parameters they use to rank goods and services on their platforms. This is intended to help sellers understand how to optimise their presence and will drive out gaming of the ranking system.
- Parameters include “any general criteria, processes, specific signals incorporated into algorithms or other adjustment or demotion mechanisms used in connection with the ranking”, although there is no obligation to disclose trade secrets.
- Where the same entity provides the marketplace and operates as a seller on that marketplace, they must “exhaustively disclose” any advantage given to their own products over others.
- Platforms will have to also disclose the data they collect and how they use it – in particular, how such data is shared with other business partners (and where personal data is concerned, the GDPR will of course apply).
Dispute resolution
- Platforms will have to operate an internal complaint-handling system to assist business users, and publish reports on the number of complaints lodged, the subject matter of the complaints, the time period needed to process the complaints and the decision taken on the complaints.
- Sellers will have more options to resolve disputes by mediation (rather than having to take a claim to court), which should save time and money.
- Small platforms with less than 50 staff members and generating less than €10 million turnover will be exempt from the obligation to set up internal complaint-handling mechanisms and to name mediators.
Enforcement
- Business associations will be given the right to take platforms to court on behalf of their members in the event of non-compliance with the rules. This is intended to prevent the fear of retaliation against an individual seller as well as sharing the cost of such proceedings.
- Member States will also be able to appoint a public authority with enforcement powers.
Excluded businesses
The rules will not apply to online advertising, payment services, search engine optimisation and services that connect hardware and applications that do not intermediate direct transactions between businesses and consumers, nor will they apply to intermediaries that operate between businesses only (e.g. online advertising exchanges). The rules also exclude online retailers, such as super markets and retailers of brands provided such online retailers directly sell only their own products, without relying on third party sellers, and are not involved with facilitating direct transactions between those third party sellers and consumers.
Timetable
The new rules will come into effect 12 months after adoption and publication. Since they are being adopted as a Regulation (a “maximum harmonisation tool”), they will be directly applicable i.e. no national implementing laws will need to be passed by Member States.
The rules will be subject to review within 18 months to ensure they keep pace with the rapidly developing market. A dedicated Online Platform Observatory[6] has been set up by the EU to monitor the evolution of the market and the effective implementation of the rules. The Observatory will focus on issues such as algorithmic decision-making and ranking, data access and use, remuneration of material displayed online, B2B commercial relations in online advertising, and alleged discriminatory practices and restrictions on users to offer different conditions on other distribution channels.
Next steps
Whilst the rules will apply to the US tech giants such as Amazon, Apple, Ebay, Facebook, Google and Microsoft, the Commission estimates that around 7,000 online platforms will be caught across the entire online platform economy which covers categories such as search, e-commerce, app stores, price comparison and social media. Platforms should start to consider the new rules in detail and commence planning for the required changes to their business practices and operating processes including changes to their standard terms and conditions of business, FAQs, codes of conduct and other online statements.
[1] https://ec.europa.eu/digital-single-market/en/business-business-trading-practices
[2] https://ec.europa.eu/commission/priorities/digital-single-market_en
[3] http://ec.europa.eu/information_society/newsroom/image/document/2016-24/fl_439_en_16137.pdf
[4] See the Commission’s 2016 Communication on Online Platforms https://eur-lex.europa.eu/legal-content/EN/TXT/?qid=1466514160026&uri=CELEX:52016DC0288
[5] https://ec.europa.eu/digital-single-market/en/news/impact-assessment-proposal--promoting-fairness-transparency-online-platforms
[6] https://ec.europa.eu/digital-single-market/en/news/commission-decision-group-experts-observatory-online-platform-economy
