The new regulation takes effect on 12 July 2020. What should online platforms do now?
A new EU regulation to promote “fairness and transparency” for business users (traders) of online intermediation services (the “Platform to Business” or “P2B Regulation”) is due to come into force on 12 July 2020.
The P2B Regulation sets out a regulatory framework for platforms which provide ‘online intermediation services’ – essentially online marketplaces – to access consumers.
In brief, the P2B Regulation regulates the relationship between the platform provider and the traders who use it to market goods or services to consumers. It requires:
- terms and conditions to be reviewed and updated,
- minimum notice requirement for changes to T&Cs,
- fair and transparent policies regarding ancillary goods/services and differentiated treatment,
- provision of transparent information on how rankings operate, and
- implementation of complaint handling and mediation services.
The P2B similarly regulates online search engines as used by businesses offering goods or services to consumers.
This article covers:
1. Why do we need this Regulation?
2. Extra-territorial application
3. What about Brexit?
4. Which platforms are subject to the P2B Regulation?
5. Which platforms are excluded?
6. Key provisions for platforms
7. Ranking transparency guidelines
8. So what do platforms providers need to do now?
The P2B similarly regulates online search engines as used by businesses offering goods or services to consumers.
Why do we need this Regulation?
The main objectives of the P2B Regulation are to address the following:
- Differential treatment: The intermediary role of online service providers (“OSP”) sometimes allows them to engage in unfair trading practices that can cause significant economic harm to the traders that use them, which tend to be SMEs or businesses with a smaller presence than the OSP. Such trading practices include promoting the OSP’s own goods and services over those of the traders (i.e through enhanced search result positions or rankings), exclusively retaining data generated through a trader’s use of the platform or engaging in pricing practices which may harm the trader.
- Provide redress: These practices can have a significant impact on traders’ sales. At present, the tools available to a trader or regulator to prevent them are limited.
- Transparency: the P2B Regulation seeks to promote transparency around terms and conditions for use of the platform. Equally, where a platform uses rankings, the OSP must set out in their terms and conditions the main parameters determining ranking and the reasons for their relative importance.
The P2B Regulation has extraterritorial scope and will apply, irrespective of where the OSP is established, if the two following conditions are met:
- the traders are established in the EU, and
- the traders use the platform to offer goods or services to consumers located in the EU.
As an EU Regulation, the P2B will be directly applicable in all Member States as from 12 July 2020. Despite the UK leaving the EU on 31 January 2020, the UK is still subject to EU law until the end of the transition period (currently, 31 December 2020). In any event, after the transition period, because of the extra-territorial application, UK based OSPs will be subject to the P2B Regulation if their platform is used by EU-based traders to offer goods/services to EU-based consumers.
Which platforms are subject to the P2B Regulation?
The P2B Regulation applies to OSPs that bring together or facilitate transactions between traders and consumers.
This includes online market places, hotel and travel booking platforms, fare aggregators, price comparison websites, and social media providers where the consumer does not pay. Therefore, online marketplaces such as Amazon and Booking.com, app sites such as the App Store or Google Play, and social media services like Facebook, Twitter and Linkedin are all covered by the P2B Regulation.
The P2B Regulation does not apply to businesses that do not aim to initiate direct transactions with consumers; for example, online payment services or online advertising tools and exchanges.
Peer-to-peer networks that do not interface with consumers, or pure consumer peer-to-peer platforms that do not involve businesses, are also exempt. As such, while consumer-facing online travel agent platforms will be subject to the P2B Regulations, online business travel platforms will not.
Terms and Conditions (T&Cs) which do not comply with the following requirements will be null and void
- T&Cs must be in plain and intelligible language.
- T&Cs must be easily available to traders at all stages of their commercial relationship with the Platform provider, including in the pre-contractual stage.
- They must explain the circumstances in which the Platform provider can suspend, terminate or impose any kind of restriction on the trader’s use of the Platform.
- T&Cs must indicate the availability of other channels for the sale of the trader’s goods and services.
- They must also explain the effect that the T&Cs have on the trader’s ownership and control of their intellectual property (IP) rights.
- A 15 day minimum notice period must be given for changes to the T&Cs and a right for traders to terminate the contract if they do not agree to the proposed changes. Changes cannot be normally be retroactive and changes made without respecting the notice requirements will be null and void.
Other mandatory provisions in T&Cs include:
- The main parameters determining the ranking of the different goods/services offered on the Platform, and the reasons for the relative importance of those main parameters as opposed to other parameters. This must be sufficient to enable the user to obtain an adequate understanding of how the ranking mechanism works.
- Where the trader can pay to affect rankings, there must be a description of how the payment influences the rankings.
- A description of the type of ancillary goods and services offered on a Platform by the Platform provider or by third parties, and whether the trader is also allowed to offer its own ancillary goods and services through the Platform.
- A description of any differentiated treatment given to the Platform provider’s own goods and services.
- Information on the trader’s right to terminate the contract.
- Description of the means and terms for access to data provided or generated by the trader.
- Where there are exclusivity obligations which restrict the trader selling to consumers through other channels, the T&Cs must include the grounds for the restriction (and those grounds must also be made public).
- Details of the Platform provider’s internal complaint handling system.
- Details of at least two mediators that can be used to settle disputes between the Platform provider and the trader.
Restriction, suspension and termination of platform access
- The Platform provider must provide a statement of reasons before or when restricting or suspending Platform access to a trader.
- A 30-day minimum notice period to be given before terminating Platform access, to be accompanied by a statement of reasons for the termination. There are exceptions to the 30-day rule (such as when the trader has repeatedly infringed the T&Cs).
- Such reasons must include reference to the specific facts or circumstances that led to the decision and the contents of any relevant third party notifications.
Other requirements
- The Platform provider must ensure that the identity of the trader providing the goods or services through the Platform is clearly visible.
- Traders must have access to an internal complaint handling system. This will allow businesses to lodge complaints directly with the Platform provider for example, as a result of an action or decision taken by them or as a result of a technological problem. Platform providers will need to respond to complaints appropriately and communicate the outcome.
- The availability of mediators or an ongoing mediation cannot prevent traders from issuing legal proceedings against a platform.
SMEs excluded from certain obligations
- SMEs with fewer than 50 staff members and generating less than €10 million turnover are exempted from the obligation to set up internal complaint-handling mechanisms, and from the obligation to name mediators.
Ranking transparency guidelines
As set out above, the P2B Regulation requires OSPs to set out in their terms and conditions the main parameters determining ranking and the reasons for their relative importance.
The P2B Regulation provides expressly that platforms are not required to disclose algorithms or other information that, with reasonable certainty, “would result in the enabling of deception of consumers or consumer harm through the manipulation of search results”.
In order to help platforms understand the scope of this requirement, the EU Commission is currently consulting on guidelines on this transparency obligation. This is expected to identify best practice and elaborate on what is meant by ‘ranking’, ‘relative importance’, ‘main parameters, ‘adequate understanding’.
So what do platforms providers need to do now?
- Platforms should ensure that Platform Terms and Conditions for traders are compliant with the new Regulation.
- Platforms should then issue updated Platform Terms and Conditions to all existing traders in accordance with the notice requirements of the P2B Regulation.
- Platforms must set up an internal complaint handling process and identify mediators with whom they are willing to work to settle disputes with traders.
- Platforms will need to ensure that they have clear and identifiable parameters for ranking goods and services, or search results, and consider how they will make effective disclosure of these.
- The transparency requirements with regard to the use of algorithms will be a challenge for some online platforms as information about how the algorithms work is commercially sensitive. Some platforms will need to tread a careful line between compliance with the transparency requirement while at the same time not highlighting anything that a regulator could regard as an anti-competitive practice.
- Where platforms offer their own goods and services as well as third party goods and services they should ensure that they have clear processes in place for the way in which their own goods and services are treated as against third party goods and services. They should consider how they will effect proper disclosure of any advantage given to their own goods and services.
How we can help
This briefing note is for general information. Please contact us if you would like further information on how the P2B Regulations may impact your business, and for assistance with reviewing and updating your Terms and Conditions for compliance with the P2B Regulation.
