Online platforms and regulation - too successful for their own good? Why the EU's proposed regulation of platforms will apply in the UK regardless of Brexit

Posted by Simon Stokes on

Online platforms have dramatically changed the digital economy in recent years – obvious examples are eBay, services offered by Google, iTunes and Facebook.  But there are plenty of other platforms too – Uber, and travel platforms for hotels, airlines, and holidays etc (eg Skyscanner).  And there are platforms in niche markets as well – recruitment, (crowd) funding, online auctions, and marketing, to name just a few.  Platforms have the unique ability to bring buyers and sellers together online, making transactions easier and quicker, expanding a supplier's geographic reach and consumer choice, and encouraging innovation and cost reduction.  Whole industries are being transformed by platforms.  There is no universal definition of what a platform is so the term is used in a wide range of contexts but central to a platform is that it is a digital infrastructure that allows two or more groups to interact – so platforms can facilitate business to consumer (B2C), business to business (B2B) and/or consumer to consumer (C2C)  interactions

Platforms – too successful for their own good?

Platforms are clearly a success story.  The UK government has noted: "Online platforms and marketplaces are good for the economy and for consumers, who benefit from lower prices and more choice."  But their success has nevertheless also raised issues with regulators and law makers in the EU, including in the UK.  Concerns have been raised that some online platforms (for example in telecommunications) are not subject to the same rules as traditional businesses (so there isn't a level playing field), other platforms may not act responsibly in stamping out IP infringement or access to harmful content, and platforms can amass vast amounts of consumer data and act unfairly towards their clients/supplier base, raising competition law issues as well.  By their very nature platforms benefit from 'network' effects where their value as a service increases the more users they have – allowing certain platforms to become dominant in their markets.

Proposed EU Regulation of platforms and Brexit

Since 2015 there has been an ongoing debate in the EU about the role of platforms and regulation has been proposed in certain areas.  Perhaps surprisingly, given that there are plenty of existing rules that apply to platforms, the European Commission is proposing a specific Regulation "on promoting fairness and transparency for business users of online intermediation services" - the proposal was published in April this year.  This will apply to business to consumer (B2C) platforms and, unusually, is designed to protect businesses trading with online platforms rather than consumers.  There is no chance the Regulation will be in force by 30 March 2019 when Brexit happens and it may well not be in force during any transition period that the UK and the EU may agree.  So it may seem premature for UK businesses to be interested in it and its probably tortuous path through the EU's legislative process.  However in its current form the Regulation will apply to platforms ("online intermediation services" – including search engines) that are based in the UK (or indeed in any other non EU state eg the USA) but which contract on the one hand with EU based businesses and on the other EU based consumers.  This "extra-territoriality" is controversial but the European Commission is insistent on it: in their view businesses and consumers in the EU need protection from the unfair activities of platforms wherever they may be located.  So this means that UK based B2C online platforms which have both business users and consumer customers in the EU will have to comply with the proposed Regulation, assuming it enters into force in its current form. 

What the Proposed Regulation requires

 The proposed Regulation will put the following obligations on online platforms:

  • their terms of business with business users will have to satisfy requirements regarding clarity, transparency and reasons for termination and can only be modified/updated on reasonable notice (which will be at least 15 days).  Failure to comply will render the terms null and void and/or non binding.  This requirement goes against the cherished UK principle of freedom of contract and is remarkable in applying to B2B contracts.
  • any suspension or termination of a business user requires the platform to provide reasons for its decision
  • where the platform applies ranking (for example promoting certain products more than others) the parameters determining the ranking must be explained (for example if ranking is influenced by direct or indirect remuneration) although the platform's trade secrets (e.g. proprietary algorithms) do not have to be disclosed
  • where the platform (or its group) itself provides goods or services through the platform, in addition to its other business users (in effect competing with them), then the platform must disclose any "differentiated treatment"
  • the platform must describe in their terms and conditions with their business users  "the technical and contractual access, or absence thereof, of business users to any personal data or other data or both which business users or consumers provide for the use of the online intermediation services concerned, or which are generated through the provision of those services" – in other words the platform must be transparent with its business users about what rights they have to access consumer or other data.
  • where the platform restricts its business users from offering different conditions where the business user uses another platform or service to offer the same goods and services to consumers, then the main economic, commercial or legal considerations for the restrictions must be disclosed by the platform – this provision seems to be seeking to address, among other things,  so-called price parity or most favoured nations clauses, where in effect the platform prohibits the business from offering goods or services under more favourable terms through other platforms
  • the platform must provide for an internal system for handling the complaints of business users
  • platforms are (in effect) required to engage in mediation to resolve disputes with their business users (assuming the internal complaints handling system noted above has not resolved it) and to bear a reasonable proportion of the costs
  • trade associations and other representative organisations representing business users as well as public bodies have the right to take action in EU courts to enforce the Regulation, in addition to the rights business users themselves have to enforce the Regulation in the courts
  • the European Commission will also encourage platforms to draw up codes of conduct to help comply with the Regulation, including specifically search engines and ranking

Implications for UK-based platforms

As can be seen the thrust of the obligations is transparency.  The proposed Regulation is light on banning certain practices outright, but the transparency obligations will require platforms to be clearer in how they contract with their business users and how they deal with ranking, data access, how they treat business users who compete with them, and the use of most favoured nations/price parity clauses, for example.  Competition regulators in particular will be keen to understand what practices platforms are engaging in, so the transparency obligations may cause platforms to think twice about conduct which may raise issues with competition authorities and their business users/customers, although such conduct may well be lawful – the costs of defending a regulatory investigation or lawsuit are significant, in both time and money, even if ultimately the platform's conduct is vindicated.  The digital economy is a priority for competition regulators at present and is likely to remain so.  Platforms will also have to engage with lawyers and other advisers (e.g. economists) to help justify their conduct where the transparency obligations require this. 

Given that in its current form the proposed Regulation will apply to UK platforms in relation to trade with the EU, then whatever happens with Brexit UK based platforms cannot ignore it.  But we can expect significant lobbying from global players such as Amazon, Google, and so on: whether the Regulation will come into effect in precisely its current form must be doubted.  In the meantime UK based platforms should be monitoring developments and working with trade associations and other interested parties to make their views on the Regulation known to the European Commission and the other EU law-making institutions.  They will also need to keep an eye on UK developments – the UK government's "Digital Charter" announced in January also appears to cover some of the same ground as the Regulation.  The UK Government has also been consulting on how platforms can help ensure tax compliance by their users, and new laws have been announced to make social media safer.  Platforms will therefore remain a key target of government intervention and regulation in both the EU and the UK.

About the Author

Leading the firm's technology practice in London, Simon specialises in information technology law, including outsourcing, cloud services, protecting software IP and licensing of market leading data analytics software.

Simon Stokes
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