5 Nov 2018
Parliamentary Committee to Vote Next Month on EU Regulatory Proposal Targeting Platforms and Online Search Engines
The proposed P2B Regulation comes amidst increased scrutiny of the activities of platforms and online search engines in the EU. In particular, the use by platforms of data that is generated by transactions of businesses using the platforms’ services has been a focal point of the EU competition authorities and EU lawmakers alike.
For example, in September 2018, the European Commissioner for Competition, Mrs. Vestager, announced that the Commission is currently in the preliminary phase of investigating Amazon’s alleged use of data collected from the transactions of its business users to improve its own services (e.g., by collecting data from such transactions to figure out what consumers are buying in order to promote its own products).
In addition, the IMCO’s Rapporteur (i.e., chief draftsperson), Member of Parliament Mrs Schaldemose, proposed amendments to the P2B Regulation aimed at avoiding situations where platforms might provide data generated by the transactions of its business users to third-parties owned or controlled by the platform itself which compete with those same business users.
According to a recent Eurbarometer survey, 42% of small and medium-sized companies in the EU use online platforms to offer their goods and services. The European Commission further reports that another study shows that 50% of businesses operating on such platforms experience some problems and where such problems concern contractual relations between the business and the platform, 38% of the problems remain unsolved and 26% are solved with difficulties.
It may come as a relief to Hong Kong’s online community with operations in the EU, selling to EU consumers, that the P2B Regulation is intended to solve such problems, by increasing transparency in contractual relations and providing for effective redress for businesses using platforms and online search engines.
The Explanatory Memorandum text preceding the draft P2B Regulation recognises that businesses are often dependent on online platforms, which may unfairly incentivise such platforms to engage in potentially harmful trading practices. With respect to online search engines, the text further recognises that the ranking of a business in online search results is crucial to direct traffic to the business, but online search engines can, at present, unilaterally decide on how businesses are ranked.
The Explanatory Memorandum further notes that EU competition laws may not be adequate to address these potentially harmful trading practices since they will not always be found to infringe Articles 101 or 102 of the Treaty on the Functioning of the European Union. These Articles, respectively, prohibit any agreements between two or more independent companies that restrict competition, and prohibit firms that hold a dominant position on a given market to abuse that position.
In addition, EU consumer protection laws are not fully adequate since the Directives on Unfair Commercial Practices and Unfair Terms in Consumer Contracts address business to consumer transactions (as opposed to business to business relations). It further notes that while the EU Directive on Misleading and Comparative Advertising covers some business to business relations, it only concerns advertising practices and not trading practices.
The proposed P2B Regulation, as currently drafted, broadly covers a set of safeguards, which includes the following: (i) requirements that the terms and conditions of platforms and search engines be clear, easily available and lay out objective grounds for the suspension or termination of contracts with businesses; (ii) requirements for platforms and online search engines to set out in their terms and conditions a description of the main parameters determining the ranking of businesses; (iii) the requirement for platforms to include in their terms and conditions a description of any differentiated treatment they give to, on the one hand, goods or services offered by businesses using the platform, and on the other hand, goods and services offered by the platform itself or any business which that platform controls; (iv) the requirement that platforms not be allowed to disclose to third parties (including those owned or controlled by the platform itself), for commercial purposes, the data generated by the transactions of businesses without the consent of those businesses; (v) the requirement for platforms to provide internal complaints handling systems and a requirement to publish reports on complaints received; and (vi) the right for businesses and representative organisations or associations to initiate judicial proceedings against platforms and online search engines for non-compliance with the P2B Regulation.
Hong Kong businesses with links to EU establishments should also bear in mind that the P2B Regulation only affords rights to those businesses which have the EU as their place of establishment or residence.
On the other hand, the P2B Regulation applies to platforms, 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 P2B Regulation has not yet been adopted and may still be amended during the legislative procedure involving the European Parliament and Council of Member States’ ministers. The proposal is said to be a positive step in an EU effort to safeguard a fair, predictable, sustainable and trusted business environment in the online economy.