New European Regulation to improve fairness of online platforms’ trading practices

February 14, 2019

The European Parliament, the Council of the European Union and the European Commission have reached a political deal on new laws aimed at creating a fair, transparent and predictable business environment for businesses and traders when using online platforms.

The European Commission’s Communication on Online Platforms of May 2016 identified certain areas where more efforts are needed to ensure a trusting, lawful and innovation-driven ecosystem in the EU. As a result in April 2018 the European Commission proposed an EU Regulation on fairness and transparency in online platform trading as well as for the creation of an Observatory on the online platform economy. This initiative is aimed at safeguarding a fair, predictable, sustainable and trusted business environment in the online economy.

Traders selling online via marketplaces, hotels using booking platforms, or app developers are amongst those who will benefit from the new rules. The new Regulation is aimed at creating a more predictable and transparent trading environment online, and at offering new opportunities to resolve disputes and complaints.

As part of the Digital Single Market strategy, the new rules will apply to the entire online platform economy – approximately 7000 online platforms or market places operating in the EU, which include world giants as well as very small start- ups, but often having an important bargaining power vis a vis business users. Certain provisions will also apply to search engines, notably the ones concerning ranking transparency.

According to a Eurobarometer survey almost half (42%) of small and medium companies in the EU said they use online marketplaces to sell their products and services. An impact assessment carried out by the European Commission before it made its proposals showed that nearly 50% of European businesses operating on platforms experience problems. Some 38% of problems regarding contractual relationships remain unsolved, and 26% are solved but with difficulties; around €1.27-2.35 billion are lost directly in sales as a result.

The aim is that small businesses will particularly benefit immediately from:

A ban on certain unfair practices
No more sudden, unexplained account suspensions. With the new rules, digital platforms can no longer suspend or terminate a seller’s account without clear reasons, and opportunities to appeal. The platform will also have to reinstate sellers if a suspension was made in error. 

Plain and intelligible terms and advance notice for changes. Terms and conditions must be easily available and provided in plain and intelligible language. When changing these terms and conditions, at least 15 days’ prior notice needs to be given to allow companies to adapt their business to these changes. Longer notice periods apply if the changes require complex adaptations.

Greater transparency in online platforms
Transparent ranking. Marketplaces and search engines need to disclose the main parameters they use to rank goods and services on their site, to help sellers understand how to optimise their presence. The rules aim to help sellers without allowing gaming of the ranking system.

Mandatory disclosure for a range of business practices. Some online platforms not only provide the marketplace, but are also sellers on the same marketplace at the same time. According to the new transparency rules platforms must exhaustively disclose any advantage they may give to their own products over others. They must also disclose what data they collect, and how they use it – and in particular how such data is shared with other business partners they have. Where personal data is concerned, the rules of the GDPR apply.

New avenues for dispute resolution
Today sellers are often left stranded with no ways to appeal or resolve complaints when problems arise. This will change with the new rules. All platforms must set up an internal complaint-handling system to assist business users. Only the smallest platforms in terms of head count or turnover will be exempt from this obligation. Platforms will have to provide businesses with more options to resolve a potential problem through mediators. This will help resolve more issues out of court, saving businesses time and money.

Business associations will be able to take platforms to court to stop any non-compliance with the rules. This will help overcome fear of retaliation, and lower the cost of court cases for individual businesses, when the new rules are not followed. In addition, member states can appoint public authorities with enforcement powers, if they wish, and businesses can turn to those authorities.

Next steps
The new rules will apply 12 months after the Regulation’s adoption and publication, and will be subject to review within 18 months thereafter, to ensure that they keep pace with the rapidly developing market. A set of FAQs has been published.