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Parliamentary Committee Backs Regulatory Proposal Targeting Platforms and Online Search Engines

The objective of the future P2B Regulation is to oblige online platforms to be transparent in their business practices. MEP and rapporteur (chief parliamentary negotiator) for the file, Christel Schaldemose, explained that the P2B Regulation will “make the relationship between platforms and businesses fairer and more transparent, which ultimately will be to the advantage of the consumer.

Hong Kong’s online community with operations in the EU will note that the draft P2B Regulation has the objective of increasing transparency in contractual relations and providing for effective redress for online businesses.

The inclusion of operating systems in the scope of the future P2B Regulation was one of the most contentious topics during the debate held on 6 December 2018. MEP Daniel Dalton revealed his manifest disagreement in stating that “operating systems are clearly not platforms and to lump them into a regulation designed for platforms fundamentally misunderstands what they are.” However, rapporteur Christel Schaldemose explained that the target is to avoid a situation where online platforms “abuse operating systems” as a means to circumvent obligations set out in the future Regulation. In this regard, Dalton supported the potential inclusion of Schaldemose’s suggestion for an anti-avoidance clause that would aim to tackle any circumvention of the rules by online platforms.

Thomas Boué, Director General for Policy at the Software Alliance shared Dalton’s concerns. According to Boué “it’s surprising that, without any impact assessment and real technical considerations, the European Parliament decided to include operating systems in the scope of this Regulation.

All said and done, the draft text of the P2B Regulation as approved by IMCO includes “operating systems” in its scope of application and subjects these to the same transparency rules as online platforms.

Additionally, businesses subject to the provisions of the P2B Regulation would be required to disclose information on how their ranking algorithms operate. Just as with the inclusion of operating systems in the scope of the P2B Regulation, certain MEPs did try to oppose the inclusion of a provision that requires the disclosure of ranking algorithms. Once again MEP Daniel Dalton argued against any elements that would require the disclosure of a company’s ranking algorithms. According to Dalton, such algorithms are part of “their intellectual property” and “are meant to be protected.”

With respect to the enforceability of the rules set out in the draft P2B Regulation, the EU Council and the European Parliament seem to have divergent views. Whilst the approach by the Council has been reproached for being “light-touched”, the Parliament proposes a more stringent application of the rules. The text of Article 12a on “enforcement” as proposed by the Parliament states that Member States will be responsible for handing out “penalties” for infringements of the Regulation. On this matter the Czech Republic, Estonia, Finland, Ireland, Latvia, Poland and the United Kingdom raised concerns in a note addressed to the EU Council over amendments made by the Parliament to the draft text. Signatories of the letter, as well as Greece, have concerns over the inclusion of the term “penalties” and are suggesting a less severe term such as “measures”.

The draft P2B Regulation states that online platforms and operating systems are required to provide clear terms and conditions for their intermediation services. Also, these must justify any decision to terminate business with a trading partner. A demand made by the EU Council – which is largely in line with the Commission’s proposal – lays down a 30-day termination clause. This would require online platforms and operating systems to inform a trading partner of the termination of their business relations 30 days in advance of doing so. The draft measures also call upon online platforms and operating systems to establish an effective complaints handling system, for when requirements such as this are not respected.

The representative at the Competitiveness Council of Romania explained that the completion of the P2B Regulation is one of the priorities of the upcoming Romanian EU presidency – starting in January.

EU Council representatives are expected to sit down with their European Parliament counterparts and with the Commission later in December in order to start trilogue negotiations (which are generally informal but lead to a final text) on the P2B Regulation. Before then, Parliament will have to formally adopt its mandate. The trilogue negotiations will pave the way for the Regulation to be adopted in early 2019.

With the Parliament and the Council adopting differing approaches to the P2B Regulation - for example on the disclosure of ranking algorithm methods - reaching an agreement on the file may prove to be a challenging task.

With regard to the amendments and extension of the measures to operating systems, Hong Kong businesses with links to EU establishments should recall that the draft P2B Regulation only affords rights and establishes obligations for those businesses which have the EU as their place of establishment or residence. However, Hong Kong businesses must be wary of the fact that the future P2B Regulation would apply to online platforms of businesses, search engines and operating systems, regardless of their place of establishment or residence, where such platforms are used by businesses in the EU to offer goods or services to consumers located in the EU.

The Commission proposal for a Regulation on promoting fairness and transparency for business users of online intermediation services was presented on 26 April 2018. For more details on the proposed P2B Regulation, please see Parliamentary Committee to Vote Next Month on EU Regulatory Proposal Targeting Platforms and Online Search Engines.

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