Why does the EU need to set rules increasing fairness and transparency for online platforms?
Online platforms provide entrepreneurs with vast opportunities for fast and efficient access to EU consumer markets, which is why they have become the go-to place for millions of businesses, big and small, in sectors ranging from online retailing, professional services and app development, to transport and hospitality. In addition, online search engines and platforms generate the vast majority of internet traffic for big businesses as well as small and medium-sized enterprises (SMEs).
However, the intermediary role of these online platforms sometimes allows them to engage in unfair trading practices that can cause significant economic harm to the businesses that use them. Some 46% of business users surveyed in a Commission study noted problems in their relationships with such platforms, with 21% experiencing these problems often. Additionally, 75% of heavy users (i.e. users generating more than 50% of their turnover via online platform intermediaries) are far more likely to experience problems, with 33% of them experiencing them often.
Moreover, the online visibility of small businesses can depend on their position in search results, whether on online platform intermediaries or in the results of general online searches. 66% of EU SMEs surveyed in the same study explain that their position in search results has a significant impact on their sales.
What are the benefits of the new Regulation for the economy at large?
The Regulation will be the first regulatory attempt in the world to establish a fair, trusted and innovation-driven ecosystem in the online platform economy and will contribute to a more innovative and competitive EU Digital Single Market, ultimately giving a significant boost to growth and jobs.
It is essential that businesses have a more predictable relationship with online platforms and access to effective and straight-forward means to address potential problems. This will encourage them to use online platforms as a means to grow their business. At the same time, clearer rules at EU level should provide platforms with a predictable regulatory environment and enable them to scale up in a less fragmented Digital Single Market.
How consumers will benefit from the new rules? What will be the benefits for consumers?
Overall, consumers will benefit from the positive effects of the new rules. By improving trust, predictability and legal certainty in the online business environment, the use of online intermediation platforms is expected to lead to an increase in the number of businesses active on them. This is likely to expand consumer choice and services, increasing the online business competition and leading to better quality and lower prices of goods and services for the consumer.
Consumers will also enjoy specific advantages. For instance, the identity of the business offering the goods and services will be more visible. They will also be aware in case general search results are influenced by a payment, for example one that was made by a website owner. This will help consumers make more informed choices.
Which online platform intermediaries are in the scope of the Regulation?
The Regulation covers online platform intermediaries and general online search engines that provide their services to businesses established in the EU and that offer goods or services to consumers located in the EU. Consumers may, for example, directly subscribe to an online service on a platform (e.g. download an app), they may be redirected to the website of an airline, or use a platform to locate a nearby restaurant or shop (e.g. by using Google's My Business).
Such online platform intermediaries include third-party e-commerce market places (e.g. Amazon Marketplace, eBay, Fnac Marketplace, etc.), app stores (e.g. Google Play, Apple App Store, Microsoft Store etc.), social media for business (e.g. Facebook pages, Instagram used by makers/artists etc.) and price comparison tools (e.g. Skyscanner, Google Shopping etc.).
The Regulation excludes online advertising, payment services, search engine optimisation and services that connect hardware and applications that do not intermediate direct transactions between businesses and consumers, as well as intermediaries that operate between businesses only (e.g. online advertising exchanges). It also excludes online retailers, such as grocery stores (super markets) and retailers of brands (e.g. Nike.com), to extent that 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.
What kind of online search engines are covered by the new rules?
Online search engines that facilitate web searches based on a query on a subject and provide results in various formats corresponding with the search request (e.g. Google Search, Seznam.cz, Yahoo!, DuckDuckGo, Bing etc.) are covered by the new Regulation.
How the new rules will facilitate the way businesses operate with online platforms?
The EU has taken a co-regulatory approach requiring online platform intermediaries and online search engines to comply with legal obligations and encourages them to take voluntary complimentary steps. The Regulation shall ensure that businesses using online intermediation services and general online search engines have greater legal certainty and clarity with respect to the rules governing their relationships with these platforms and how to resolve potential disputes.
Firstly, online platform intermediaries are required to make their standard terms and conditions more transparent, easily available and announce changes well in advance. This will mean that businesses are better informed as the terms and conditions must state the reasons of suspending or terminating a business' account and include a description of:
- what supplementary goods and services online platform intermediaries propose to consumers alongside a business user's offer and which supplementary goods and services a business user can offer,
- through what additional distribution channels an online platform intermediary will offer a business user's goods or services,
- the type of data that will be shared with business users by the online intermediation service (i.e. data which businesses or consumers provide when using the online intermediation services), and
- why business users may be restricted by the online intermediation platform from offering goods and services on different conditions through other intermediation platforms (so called ‘most favoured nation' clauses).
Secondly, online intermediation platforms should not prevent the business user from making its identity visible.
Thirdly, online intermediation platforms and search engines will have to inform businesses how they treat and rank goods or services offered by themselves or by businesses they control compared to third party businesses, either in the terms and conditions or in a publicly available document. Businesses should also be informed how online platforms can influence their ranking position, for example, through the payment of additional commissions. Online search engines will also need to inform consumers in case the ranking result has been influenced by any agreement with the website user.
Fourthly, should an online platform intermediary decide to restrict, suspend or terminate a business' account, including the delisting of individual goods or services or effectively removing them from search results, it is required to provide a statement of reasons to the business concerned, give 30 days prior warning in most cases of termination and preserve the data associated with business users' account, so this can be reinstated if a business users' account was closed in error.
Fifthly, the Regulation also provides effective and quick means to resolve disputes between businesses and online platform intermediaries. In particular:
- All, except for the smallest platforms, must set up an internal complaint handling system. The platforms shall be required to report to the general public on its functioning (e.g. number of complaints, their subject matter, time taken to process complaints and the decision taken)
- Platforms will have to provide businesses with more options to resolve a potential problem by naming specialised mediators they agree to engage with in their terms and conditions. This will help resolve more issues out of court, saving businesses time and money.
Finally, there is a new option for organisations and associations representing business users' interest to take action before competent national courts to stop or prohibit non-compliance by online intermediation services and search engines with the Regulation.
How will the rules make it easier for businesses to solve disputes with online intermediation services?
Online intermediation platforms will be required to set up an internal complaint handling system. This will allow businesses to lodge complaints directly with the platform for example, as a result of an action or decision taken by them or as a result of a technological problem. Platforms will need to respond to complaints appropriately and communicate the outcome to businesses.
In addition, online intermediation platforms will have to name mediators in their terms and conditions, to whom they can turn to, to voluntarily attempt to settle disputes out of court.
There is also the new option for organisations and associations representing business users' interest to take action before competent national courts to stop or prohibit non-compliance with the Regulation described above.
Why are small enterprises with less than 50 staff members and generating less than €10 million turnover exempted from the obligation to set up internal complaint-handling mechanisms, or from the obligation to name mediators?
The internal complaint-handling system entails higher compliance costs. In order to ensure that no disproportionate regulatory burden is imposed on platform businesses during the start-up and scale-up phases of their development, small enterprises (according to the EU definition for Small and Medium Enterprises) have been exempted from the obligation to set up internal complaint-handling mechanisms or to name mediators.
How will Member States make sure that online platforms and general search engines respect the Regulation?
Member States shall need to take measures that are sufficiently dissuasive to ensure that the online intermediation platforms and search engines comply with the requirements in the Regulation. Moreover, as mentioned above, associations or organisations representing businesses can take action in national courts in order to stop or prohibit non-compliance with one or more of the requirements of the Regulation.
How does this Regulation relate to national laws?
The instrument chosen is a directly applicable Regulation, preventing Member States from setting additional rules in the areas explicitly covered by the new rules. The Regulation constitutes a maximum harmonisation tool, which applies exclusively in relation to the transparency and redress obligations, which it establishes. The Regulation only applies to the contractual relationships between platforms and businesses and excludes commercial practices laws pertaining to general business-to-business relations. Member States' fairness standards that are independent from contractual relationships would therefore continue to apply. In this way, the fairness standards of the Member States and this Regulation will be to a large extent complementary. Additionally, the Commission will closely cooperate with Member States to ensure that the enforcement of the proposed Regulation is proportionate and limited to the platforms in scope. Finally, the EU Observatory on the Online Platform Economy will evaluate whether more specific, sectoral rules will be needed.
How are the new Regulation and competition rules complementary?
Competition law at EU or national level does not necessarily address the type and breadth of platform-to-business issues targeted by the Regulation.
The types of practices covered by the Regulation do not necessarily have an anticompetitive object or effect under Article 101 of the Treaty on the Functioning of the European Union (TFEU) nor do they require the platform to be dominant in the relevant market to apply (Article 102 TFEU). Therefore, the Regulation complements competition law but does not replace it. Competition law remains fully applicable.
How will the EU ensure that the proposed Regulation remains fit for purpose?
In April 2018 the Commission established the EU Observatory of the online platform economy, which is composed of a group of independent experts in the field of the online platform economy and a dedicated team of Commission officials. The Observatory has already taken up its work and will provide the Commission with advice and expertise on the evolution of the online platform economy.
It will monitor market trends, opportunities, and the evolution of potentially harmful practices as well as the development of national policy and regulatory approaches. Its work will focus on issues such as algorithmic decision-making and ranking, data access and use, remuneration of material displayed online, business-to-business commercial relations in online advertising, and alleged discriminatory practices of service providers towards users and restrictions on users to offer different conditions on other distribution channels. It will also inform the Commission on the impact and effectiveness of industry codes of conduct to facilitate the application of the Regulation.
This monitoring exercise will inform public policy makers about the opportunities and challenges arising from the online platform economy and specifically inform the review of the proposed Regulation three years after its entry into force.
- Press Release: Digital Single Market: EU negotiators agree on new standards to improve online platforms trading practices