New EU Platform for Business Regulation: improving fairness of the trading practices of online platforms
What are the EU’s proposals for improving trading practices in the online economy?
On 13 February 2019, the European Parliament, Council of Europe and the European Commission reached agreement on a new set of rules aimed at minimising market disruption in the online marketplace by tackling perceived unfair business practices and a lack of transparency. The rules seek to promote a better relationship between businesses and platforms while minimising sales disruption. Advantages for customers are also expected, both in lowering the prices of goods due to minimising lost sales revenue from disruption, as well as allowing them to seek the best deals in a transparent marketplace. The proposals come under four main categories: unfair business practices; transparency; alternative dispute resolution and enforcement.
Following detailed consultation, the European Parliament, Council of Europe and the European Commission have agreed on a set of rules for online platform traders, the first in this area. The rules are intended to cover all online platform trading including online market places, hotel booking sites and app marketplaces, with some carve outs for micro businesses with less than €10 million turnover and/or 50 staff.
The European Parliament needs to approve the draft regulation. Once passed, the new rules will come into force 12 months later, so we are possibly looking at 2020 implementation at the earliest. There will be a review 18 months after the rules have come into force, with an Online Platform Observatory also set up to monitor this quickly evolving area. Keep an eye out for further publications or commentary from findings of the Online Platform Observatory to track the effectiveness of the new rules, and possible future developments.
- Focus on certain unfair business practices
The rules require that suspensions must be accompanied by clear reasons and an explanation of the method to appeal. Also, in most cases, there must be a notice period for the suspension. Terms and conditions must be in plain language and there must be at least 15 days’ notice of any changes, to allow business time to make any required changes.
- Greater transparency
This primarily relates to filtering and search results and also applies to search engines in addition to online marketplaces. Providers must disclose the parameters they use to rank results, to help sellers understand how to optimize their presence but without allowing them to game the ranking system. Additionally, if a provider is a seller in its own right on its own platform (ie in addition to hosting third party sellers) it must disclose any advantages given to its own products. They must also disclose what data they collect and how they use and share it.
- New ways for resolving disputes
These provisions seek to rebalance the negotiating positions of larger platforms and smaller businesses which use them, which do not have the resources to challenge decisions. Providers must have an internal complaints system and there must be alternative provisions, such as mediators. Due to the costs of maintaining an internal complaints system, smaller businesses are exempt from this provision.
Member states can appoint public authorities with enforcement powers, who businesses can turn to for help. Business associations will also be able to take providers to court for non-compliance with the rules.
Why is this important?
There are concerns that some large, market-defining online market places are not serving the interests of the market as a whole, in terms of the smaller businesses which sell via them and for consumers. There are concerns about inconsistent and unclear suspension at short notice, lack of clarity around how to resolve issues and reluctance of smaller businesses to take on those whose platforms they rely on.
A Eurobarometer survey found that 42% of SMEs use online marketplaces to sell goods and services. The European Commission’s impact assessment found that about 50% of business users had encountered problems, with 38% remaining unresolved and 26% resolved with difficulties. This equated to lost sales of between €1.27 and €2.35 billion.
Any practical tips?
You need to work out if your business is going to be subject to the new regulation. If so, you will then need to conduct an extensive review of your trading arrangements, from your agreements to your onboarding and other processes. In real terms, you may not have that long to do this – in particular noting the time needed to educate senior management. Getting internal agreement on smoothing off the sharper edges of some of your trading practices can take time. The sooner you get the green light to do so internally, the better.