Author: Tim Wright
Tim Wright, Partner, Fladgate LLP (email@example.com)
On 13th February 2019, the European Parliament, the Council of the European Union and the European Commission agreed to set up new European rules to improve fairness of online platforms’ trading practices. The rules, which come under the Digital Single Market strategy, are designed to promote a “fair, transparent and predictable business environment for businesses and traders when using online platforms”, with a particular onus on assisting small and medium-sized enterprises (SMEs) which rely on online marketplaces to sell their products and services.
The online platform economy is extremely important to the EU – approximately one million businesses are already selling goods and services via online platforms, with a 2016 survey revealing that just under half of EU SMEs use online marketplaces to sell their products and services. Digital platforms and marketplaces offer a wide range of opportunities for fast and efficient access to international consumer markets.
However, the European Commission has concerns that certain structural issues lead to unfair trading practices for businesses which rely on online platforms to reach their customers, as well as undermining the “innovation potential” of such platforms. According to an impact assessment published by the Commission in April last year, nearly 50% of European businesses operating on platforms had experienced problems, of which 38% related to contractual relations and remained unsolved, whilst 26% had been solved but “with difficulties”; with an estimated €1.27-2.35 billion in lost sales as a direct result.
The rules will not apply to online advertising, payment services, search engine optimisation and services that connect hardware and applications that do not intermediate direct transactions between businesses and consumers, nor will they apply to intermediaries that operate between businesses only (e.g. online advertising exchanges). The rules also exclude online retailers, such as super markets and retailers of brands provided 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.
The new rules will come into effect 12 months after adoption and publication. Since they are being adopted as a Regulation (a “maximum harmonisation tool”), they will be directly applicable i.e. no national implementing laws will need to be passed by Member States.
The rules will be subject to review within 18 months to ensure they keep pace with the rapidly developing market. A dedicated Online Platform Observatory has been set up by the EU to monitor the evolution of the market and the effective implementation of the rules. The Observatory will focus on issues such as algorithmic decision-making and ranking, data access and use, remuneration of material displayed online, B2B commercial relations in online advertising, and alleged discriminatory practices and restrictions on users to offer different conditions on other distribution channels.
Whilst the rules will apply to the US tech giants such as Amazon, Apple, Ebay, Facebook, Google and Microsoft, the Commission estimates that around 7,000 online platforms will be caught across the entire online platform economy which covers categories such as search, e-commerce, app stores, price comparison and social media. Platforms should start to consider the new rules in detail and commence planning for the required changes to their business practices and operating processes including changes to their standard terms and conditions of business, FAQs, codes of conduct and other online statements.
 See the Commission’s 2016 Communication on Online Platforms https://eur-lex.europa.eu/legal-content/EN/TXT/?qid=1466514160026&uri=CELEX:52016DC0288