Online platforms are key enablers of digital commerce. More than a million EU enterprises currently trade through them in order to reach their customers, and it is estimated that around 60% of private consumption and 30% of public consumption of goods and services related to the total digital economy, are transacted via online intermediaries. That is according to the latest draft proposal published by the European Commission at the end of April.
The proposal for a regulation of the European Parliament and of the European Council, concerns promoting fairness and transparency for business users of online intermediation services. Driven by its core principle of creating a level playing field for comparable digital services, the language used in the draft EU Regulation, relating to key aspects of the contractual relationship between online platforms, is characteristically moderate: just as one would expect from an EC document.
Its argument runs that while offering great potential in terms of efficient access to (cross-border) markets, European businesses cannot fully exploit the potential of the online platform economy ‘due to a number of potentially harmful trading practices and a lack of effective redress mechanisms in the Union.' This does not fit comfortable with the other EC policy principles: ensuring that online platforms behave responsibly to protect core values; fostering trust, transparency and ensuring fairness; and keeping markets open and non-discriminatory to foster a data-driven economy.
Originally developed for app stores, the EC decided to extend the scope of the draft regulation to include other categories of intermediary, such as search engines and hotel booking services. No individual company is named and the proposal's objectives are set in abstract. But the EC's focus is nevertheless clear: the proposal outlines plans to target platforms like those deployed by Amazon, the App Store offered by Apple, and the hotel booking service offered by booking.com - as well as search engines, most especially Google which is, by far, the dominant player. In targeting app stores, search engines, and e-commerce sites, the new regulations would arguably force tech giants to adopt more ethical digital business practices which are more in line with its guiding principles.
In referring to their online intermediation activities, the proposal points out that they ‘usually benefit from important data-driven direct and indirect network effects, which tend to result in only a limited number of successful platforms per intermediated segment of the economy.' In plain language, the big tech companies benefit disproportionately compared to the smaller players.
The proposal is therefore an attempt to allow the small businesses that rely on such platforms for their business, to take active steps in dealing with unfair business practices by creating a "fair, transparent and predictable business environment for smaller businesses and traders."
So what exactly has the EC proposed in its draft regulation? In summary, it would impose transparency obligations for business users - the owners of 'online intermediation services' - and introduce collective redress for failure to comply. Under the draft proposal, developers and small businesses would be able collectively to sue online intermediation services - platforms such as Google, Apple and Amazon - if they fall short of the tighter competition standards.
In terms of transparency, the new rules would necessitate intermediaries which have in excess 50 staff to have internal complaint departments. Businesses would also be encouraged to hire independent mediators who could handle out-of-court settlements. The costs for setting up these systems would be borne by the tech companies themselves. In response, they suggest that this new system would inevitably create a significant administrative burden and the further possibility of extended and expensive legal action.
Another aspect of transparency comes with terms and conditions. These must be clear, transparent and easily available. When changes are made to them, they must also adhere to a minimum notice period. There must also be a full and clear explanation of the reasons why a professional user has been suspended, demoted or delisted from their platform. This means that Google and other search engines will have to provide businesses with a reasonably comprehensible analysis of how their ranking algorithms work in practice and perhaps explain the thornier issue about companies being able to pay in order to generate higher rankings.
The collective redress would apply to issues such as the changing of these terms and conditions without any explanation or the demoting of a business' search engine ranking without giving a clear reason - should they fail to deal with the complaints in-house or through a system of mediation. Previously, such collective redress has only been available to consumers.
Inevitably, there has been strong reaction from some of the parties being targeted. The proposals have attracted criticism from major industry groups, such as the Computer & Communication Industry Association. Among its members are a trio of big names: Amazon, Google and eBay. They argue that existing platforms already have adequate mechanisms in place to resolve such complaints.
Furthermore, they suggest that the EU has a political rather than an economic objective by trying to step in order to protect the underdog: the tech giants and their working practices are not always easy to unfold. The recent scandal surrounding Facebook and its involvement with Cambridge Analytica is a very good example of how easy it can be for things to spiral out of control when consumers become complacent and automatically accept usage without the right questions being asked on a regular basis.
There is, of course, the question of whether these draft legislations can ultimately be relied upon to have real substance in practice. For now, that remains to be seen. The lengthy EU bureaucratic process may take several years before it is implemented as law. The EU Parliament has to approve the plans after which each EU government will also have to validate them. Although this takes time, subject to the rules being approved, businesses may be allowed to be represented in court by industry groups or non-profit organisations.
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