The EU’s decision-making institutions agreed to implement the following rules under the new regulation:
- Online platforms will have to revise their terms and conditions to make them more transparent and easier to understand. Business users must be notified of changes at least 15 days in advance to give them the opportunity to adjust to the changes. A longer lead time must be granted where the necessary amendments are not straightforward.
- Online platforms selling goods or services, in addition to acting as intermediaries in the sale of third party products or services, will have to disclose how they treat and classify their own goods and services in comparison to third party products (e.g., whether they give preferential treatment to their own product offering). Business users must also be informed of how search results and rankings are influenced (e.g., whether they take into account the payment of commission).
- If ranking is influenced by an agreement between the platform and a business user (e.g., the payment of an additional commission or advertising fees), the platform must disclose this fact.
- Terms and conditions to be agreed with business users will have to detail, in particular:
- What goods and services an intermediary platform offers to consumers other than those of the business user, and what additional goods and services that business user can offer.
- The additional distribution channels through which the platform will offer the business user's goods and services.
- The type of data the platform shares with other commercial users.
- If the business user is prohibited by the intermediary platform from offering goods and services through other channels on different terms and conditions (under so-called ”most favored nation” or “MFN” clauses), the platform must provide reasons for this restriction.
- Online intermediary platforms will not be allowed to prevent their business users from making their identity known to end customers.
- If an intermediary platform wants to block or shut down a business user’s account, it will have to give prior warning (generally 30 days in advance) and provide reasons. Platforms will also have to store user data in order to be able to reactivate a user account in the event that the account is wrongly shut down.
- Intermediary platforms will have to introduce mechanisms to ensure fast and effective settlement of disputes with business users:
- The platforms will have to establish an internal complaints management system and publish data on the functioning of the system (number of complaints, time spent addressing complaints, etc.).
- In order to save time and money, the platforms will have to nominate mediators in their terms and conditions, with a view to settling disputes out of court.
- Associations and organizations representing business users will be able to take action before domestic courts to challenge non-compliant behavior by online intermediary platforms and search engines.
I. Why are new rules on online platforms necessary?
Intermediary platforms and search engines have become more and more important for individual entrepreneurs, startups, business users and consumers: companies that want to sell products and services can reach millions of customers through intermediary platforms, while consumers can use the platforms to compare prices and locate attractive offers. Their role as a B2C intermediary has in some instances provided platforms with a level of market power facilitating an opportunity to engage in opaque and unfair trading practices.
According to a Eurobarometer survey, 46 percent of business users have in the past faced problems in their relationships with online platforms. Platform providers can currently change their terms and conditions without prior notice or explanation and business users are not always informed of the reasons for terminating or suspending user accounts. In addition, business users complain that data policies and ranking parameters are not always transparent for both business users and end consumers.
In May 2016, the European Commission targeted specific sectors that required more efforts to guarantee a predictable, lawful and innovation-driven economic environment in the EU. This led the way to the Commission proposing, in April 2018, an EU regulation on fairness and transparency in online platform trading as well as the establishment of the “Observatory of the Online Platform Economy”. The EU proposed new rules based on an impact assessment encompassing data and stakeholder views gathered over a two-year study.
II. Advantages for the economy and consumers
The proposed regulation will be the first attempt globally to make online platforms more transparent and to establish a fair and innovation-driven system within the online economy by way of regulation. The regulation is also designed to strengthen competitiveness within the (online) market and to boost employment and economic growth within the digital economy.
It is intended that the new regulation will make the relationship between business users and intermediary platforms more predictable and provide business users with access to more effective tools to resolve disputes. It will also create a predictable legal framework, which will boost business users’ activities, broaden consumer choice, enhance product quality and ultimately drive competition. In addition, it will be easier for consumers to identify where search results and rankings are influenced by the payment of commission.
III. Which online platforms are covered by the new regulation?
The regulation will apply to online search engines and online B2C-platform intermediaries that provide their services to businesses in the EU and/or offer goods or services to consumers located in the EU. In particular, it will apply to e-commerce market places (such as Amazon Marketplace and eBay), app stores, social media platforms used by businesses (such as Facebook and Instagram) and price comparison sites (such as Skyscanner and Google Shopping). In addition, the regulation will apply to general search engines (such as Google and Bing).
The regulation will not apply to online advertising, payment services, search engine optimization and services that link hardware. Nor will it apply to applications that do not operate as intermediaries in direct transactions between businesses and consumers, or to intermediaries that operate business-to-businesses (B2B-platforms). Pure online retailers and online outlets of branded goods manufacturers are also excluded from the regulation due to the fact that they sell their goods directly to consumers without the involvement of third parties.
IV. Exemption of SMEs from requirement to introduce internal dispute settlement mechanism and nominate mediators
Due to the costs of establishing internal dispute settlement mechanisms, small and medium-sized enterprises (SMEs) with a turnover of less than € 10 million and fewer than 50 employees will be exempted from the obligation to introduce internal dispute settlement mechanisms and nominate mediators.
V. Maximum standard
The new rules on transparency and redress obligations will constitute a maximum standard, i.e. EU Member States will not be able to impose stricter rules while domestic rules on standards of fairness continue to apply. Similarly, existing competition rules (at both the EU and domestic level) will continue to apply as the new regulation is designed to complement such rules, increasing the effectiveness of online platforms and boosting economic growth.
VI. Enforcement of the new regulation
EU Member States will be in charge of the enforcement by taking appropriate action in order to guarantee that intermediary platforms and search engines act in accordance with the regulation (e.g., by designating a public authority responsible for enforcing the regulation). In addition, organizations and associations representing business users can take private legal action before national courts to challenge non-compliant behavior.
VII. Further improvement of current rules to keep pace with changes affecting online platforms
The regulation will come into effect 12 months from the date of its adoption and publication. After a further 18 months, the regulation will be reviewed in order to ensure that it has kept pace with the rapidly developing market. The EU has also established the “Observatory of the Online Platform Economy” to keep a watch on developments in the digital market and safeguard effective implementation of the new rules. The observatory will address issues relating to, among others, algorithmic decision-making and ranking, data access and use, remuneration for material displayed online, B2B commercial relations in online advertising, the alleged discriminatory practices of service providers with regard to users and restrictions on alternative distribution channels offering users different terms and conditions.
Client Alert 2019-054
