On April 26, the Commission published a proposal for a Regulation on promoting fairness and transparency on platforms. This proposal follows the 2015 EU Digital Single Market Strategy promise to look into platforms and a Communication on Online Platforms the Commission published in 2016. While these documents did not promise an overarching law on platforms (covering both the B2C and B2B situations), they signalled the Commission’s willingness to look at a set of targeted issues and introduce legislation if and where necessary. The present proposal aims to improve transparency in B2B relations involving platforms on one side and businesses which otherwise provide services to other businesses and consumers through such platforms on the other. The main idea is that platforms act as “gatekeepers” of the online world, effectively bringing dependency for many businesses. The present proposal brings extra requirements for clarity and transparency in situations where platforms could abuse their dominance. It seems that the choice of transparency (rather than blacklisting certain practices) as the Commission’s main tool is meant to fulfil proportionality and subsidiarity criteria, leaving further action to Member States and/or competition and marketing laws. The Proposal is not meant to be full harmonisation.
The regulation would apply to online intermediaries and search engines (hereafter “platforms”) providing services to business users with a place of establishment in the EU and offering goods and services to EU consumers. It is irrelevant for the purposes of the Proposal if platforms themselves have a place of business or residence in the EU, as long as business users they offer services to have such a place and target EU consumers.
An intermediation service, which is in the Proposal placed under transparency and fairness obligations, is defined as a) an information society service (ISS) within the meaning of the E-Commerce Directive, b) that facilitates direct transactions between business users and consumers and c) which are provided to business users on the basis of an underlying relationship between online platforms and others (businesses and consumers). A provider can either be a natural or a legal person. Online search engines are defined simply as digital services allowing users to perform search. The definition of ISSs seems very broad as these are, in reality, all electronic services provided at distance and with remuneration (the latter not necessarily in the form of a payment). Additionally, the majority of ISSs do facilitate B2C transactions.
The obligations to be introduced can be summarised as follows:
- Article 3 requires that platforms increase transparency of their unilaterally drafted terms and conditions, and in particular any modifications made to them.
- Article 4 requires that any suspension and termination of platform services be accompanied by a statement of reasons.
- Article 5 brings potentially the most significant changes. Online platforms would be required to set out in their terms and conditions the main parameters determining ranking and the reasons for their relative importance. Additionally, where businesses have an opportunity to pay to influence ranking, such possibility would also have to be disclosed. Online platforms are not required to disclose any trade secrets as defined in EU Trade Secrets Directive.
- Article 6 obliges intermediaries to disclose in their terms and conditions any preferences given to goods and services they themselves (or businesses they control) offer. This covers situations where platforms offer and promote their own prducts, as was the case with Google comparative shopping.
- Article 7 requires the disclosure (description) in terms and conditions of any use of data that business users and consumers disclose to platforms.
- Article 8 requires that platforms that prohibit provision of same good and services through other means than through platforms to disclose such restrictions. This covers situations where platforms demand exclusivity from their business customers.
- Article 9 introduces an internal system for complaint-handling.
- Articles 10-11 introduce the possibility of using mediation.
- Article 12 allows organisations with a legitimate interest representing business users and public bodies in Member States to take action to stop or prohibit non-compliance. Organisations in question need to be non-profit.
While transparency requirements in some of the articles seem superficially reasonable, I see two major problems with the proposal.
The first is its extent. While there is some agreement as to what constitutes a search engine,1 the same cannot be said of intermediaries. Even if one assumes that most intermediaries that fall under the E-commerce Directive would also fall under the Proposal, there is still scope for questioning the reasonableness of such proposal.
The second problem is the potentially very wide scope of Article 5. Ranking criteria are not determined on a whim but are a result of algorithms which are a business asset and a trade secret. While the proposed Article does not require disclosure of anything that the Trade Secrets Directive itself does not consider a trade secret,2 it seems to be impossible to release meaningful information on search ranking criteria without also releasing trade secrets.
It remains to be seen whether the proposal will move smoothly through the legislative procedure. This seems very unlikely, as heavy lobbying is expected from a variety of platforms. This brings into question the meaningfulness of the Commission’s exercise. Under the circumstances, a more vigorous application of competition law would have probably achieved the same result.
- Although no full agreement. Is Facebook (also) a search engine? Instagram? ↩
- Secret and not generally known, with a commercial value and subject to controller’s reasonable steps to keep it secret. ↩