Changing the landscape of online platform-vendor relations

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There is no doubt among retailers selling their products online that platforms such as social media, marketplaces, price comparison websites and the like are in demand higher than ever. One of the factors distinguishing them from other e-commerce options is the fact that they have the power and potential to bring together vendors and consumers who would otherwise be unlikely to commence dealing with each other. Moreover, online platforms often provide a significant amount of support to vendors and consumers making the trading process easier. Thus, while the idea of buying and selling through platforms has certain benefits, their market power has been growing steadily. In consequence, the EU legislator has decided to introduce legislation harmonising standards across the EU. In this article we summarise and explain the most prominent changes by a new regulation “on promoting fairness and transparency for business users of online intermediation services” (the ‘platform to business” or “P2B Regulation”). The new law will come into effect on 12th July 2020.

1. Scope

Article 1 of the P2B Regulation provides that the Regulation will apply to online intermediation services and online search engines (“platforms”) provided to business users and corporate website users. These are defined as services that aim to facilitate direct transactions between vendors and consumers based on a contractual relationship between the platform and the vendor where the vendor offers goods and services to the consumer or end user. 

What is included:

  • Online marketplaces
  • Social Media Platforms
  • Online software application services such as App Stores
  • Online social media services
  • Price Comparison Websites

What is not included:

  • Peer to peer online intermediation services (without the presence of consumers)
  • Online advertising tools
  • Other advertising services that do not involve a contract with consumers 
  • Ad blocking software
  • Online payment systems

The Regulation will apply to companies that target EU based customers irrespectively of where they have their place of establishment, as long as they offer goods or services to consumers located in the EU. It is worth mentioning that certain support services facilitating transactions between consumers and vendors also fall within the scope of the P2B Regulation. The Regulation looks at key areas such as unfair contract clauses and practices in a similar way to previous B2C laws but here it is a business partner (the vendor) that will enjoy additional protection. The purpose of the P2B Regulation is to create a framework for transparency and minimum rights.

2. Terms and conditions

Pursuant to art. 3 of the P2B Regulation, providers of platforms must ensure that their terms and conditions:

  • Are drafted in plain and intelligible language;
  • Are easily available to business users at all stages of their commercial relationship, including the pre-contractual stage;
  • Clearly set out the grounds for suspension or termination of the platform services as well as full details of any other restrictions that apply to their services;
  • Include adequate information on additional distribution channels and potential affiliate programs;
  • Include clear information about the ownership and control of IPRs of business users (use of logos etc.)

Moreover, platforms are obliged to formally notify, on a durable medium to the business users (most likely vendors) any potential changes to the terms and conditions. Such notice needs to be given at least 15 days in advance. A longer notice period should be granted where it is necessary to allow vendors to make technical or commercial alterations in order to allow them to comply with the changes. There are certain exemptions to the notification requirement. Finally, the changes of the terms and conditions should not have a retroactive effect on the vendors (as per art. 8(a) of the P2B Regulation).

3. Restriction, Suspension and/or Termination

Article 4 of the P2B Regulation sets out a number of provisions relating to restricting, suspending and terminating online intermediation services provided to vendors/business users. Most importantly, it should be noted that where the platform wants to restrict or suspend services, it will need to provide the business user with an advance statement of reasons for that decision.

Conversely, where the provider of the intermediation services wishes to terminate the services, it will need to give the business user (the vendor) a statement of reasons at least 30 days prior to the termination taking its effect. It should be noted that such the 30-day notice period is subject to certain exemptions. Where the 30-day notice period does not apply, the platform is still required to provide the business user, without undue delay, with a statement of reasons. Moreover, where the platform decides to restrict, suspend or terminate the vendor must be given the opportunity to clarify the facts and circumstances via a formal complaint-handling process.

4. Ranking

Under article 5 of the P2B Regulation, platforms have a legal obligation to set out, in their terms and conditions, the main parameters used to determine ranking, and also the reasons underlying the relative importance of such parameters. 

In cases where the ranking is affected by remuneration, the platform has to provide a clear description of the options it offers and how such remuneration will affect the ranking. A description should be made publicly available clearly setting out how the ranking system works. The description should be in plain, intelligible language. It is important to mention that platforms need to keep the description continuously updated. However, it should be emphasised that the platforms are not required to disclose algorithms or any other information that would enable the manipulation of search results.

5. Identification of Competing in house offerings 

The last provision which requires careful attention is article 7 of the P2B Regulation. Where the platform offers its own products and services that compete with those of its vendors, more transparency will be required. This is to avoid prioritization of “in-house offering” that may disadvantage other vendors. The EU was concerned that such behavior could otherwise at times result in unfair competition or restrict customer choice. The P2B Regulation aims to add more transparency to this aspect. 

From July, platforms will be obliged to follow new rules to make the differences between in house offerings and those of vendors better understood. The main economic, commercial and legal considerations for such differentiated treatment must be referred to in the description, which should be included in the terms and conditions. The wording of the law is not as clear as it could be and it remains to be seen how it will be applied. Vendors concerned about competing in house products sold by their platform partners may wish to take advice on these new rules to secure more transparency for their product offering.

6. Conclusion

As showed in the paragraphs above the P2B Regulation introduces numerous changes which significantly affect the relationship between platforms and vendors. It could be argued that the legislative changes implemented by the Regulation will help promote transparency and fairness in such relationships. Some would argue that they may contribute to decreasing the bargaining power held by online platforms and their significant role in forging not only the market itself but also consumer preferences. Conversely, even though the Regulation provides a sound level of harmonisation and new guidance, there is still scope for clarification to be provided by national and European courts particularly when it comes to the new rules on differentiation.

Given that the Regulation comes into direct effect on 12th July 2020, platforms will likely revisit their terms and conditions with vendors and business users in order to fully comply with the provisions of the P2B Regulation. Equally, vendors should be aware of their new rights and ensure that their product is presented and sold in a transparent manner as required by the new P2B Regulation.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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