On 26 April 2018, the European Commission (the “Commission“) published a long awaited draft regulation on promoting fairness and transparency in online platforms, introducing some new rules for the operators of platforms (including price comparison websites) which are designed to improve transparency and fairness (the “Regulation“).
We take a look at why the Commission is concerned about online platforms and how these concerns are being addressed.
Competition law and digital markets
Online platforms have long been the focus of competition authority scrutiny and enforcement activity (including, most recently, the Commission’s fine of €2.4bn on Google for abuse of dominance in connection with comparison shopping services).
However, there is concern that existing competition enforcement tools are not up to the job of responding appropriately to consumer issues in tech markets. Authorities such as the Commission are in the process of trying to better understand digital markets and emerging technologies (including Fintech) and to make sure that they are able to adequately address perceived concerns, using both regulatory and enforcement tools. For example, the UK Competition and Markets Authority announced in April a wider review of its competition enforcement powers, including whether it has the right tools to tackle the digital economy, with topics such as the use of Big Data and the use of algorithms being high on the agenda, and with the creation of a digital, data and technology team anticipated later this year for the specific purpose of considering issues in digital and online commerce.
Competition and consumer issues in the platform space
Online platforms are described by the Commission as “key enablers of digital trade”, with an estimated 60% of private consumption of goods and services related to the digital economy taking place through online intermediation.
Authorities are concerned that the two-sided nature of online platforms (so called “network effects”), the advantages that they hold by virtue of their access to vast amounts of customer data (“Big Data”) and increasing consolidation in this space, has the potential to lead to poorer outcomes for consumers. Certain “potentially harmful trading practices” by platform operators in particular are singled out by the Commission, which include a lack of transparency in ranking criteria, asymmetric access to Big Data, the use of “most favoured nation” (MFN) pricing clauses, sudden changes to contract terms and the seemingly arbitrary removal of products/listings by platform operators. Although these trading practices affect B2B arrangements, the Commission is concerned that they have the potential to impact consumers.
In assessing the impact of trading practices more generally, the Commission may be more concerned where businesses are dependent on certain online services to access customers and where platform operators act as both a platform for online vendors and a seller in their own right.
The Regulation seeks to tackle these issues by introducing:
- transparency requirements: ensuring that the terms and conditions for business users of platforms are clear and transparent. This includes setting out in advance the possible reasons why a business may be delisted from a platform. In addition, platform operators must formulate and publish general policies on (i) access to Big Data; (ii) how they treat their own goods or services compared to those offered by competing businesses on the platform; and (iii) the use of MFN clauses.
Finally, both platform providers and search engines must set out the general criteria that determine how goods and services are ranked in search results.
- more effective dispute resolution mechanisms: ensuring a better forum for businesses to air their grievances and resolve disputes.
These proposals will no doubt be welcome by business users of platforms. However, they are unlikely to cause tech “giants” to lose much sleep.
One of the key takeaways from ongoing activity in this space is the recognition that antitrust enforcement is not the only tool available to tackle consumer issues. By way of example, there has been a focus recently on the competition impact of access to Big Data, which has been subject to scrutiny by both national competition authorities and the Commission (including in its review of recent consolidations in the tech space, (think Apple/Shazam, Microsoft/Linked-In and Facebook’s 2014 acquisition of WhatsApp)). However, the Commission has recently recognised the power of the upcoming General Data Protection Regulation to empower consumers, and enable firms to innovate. In this regard, regulation sits alongside competition law and works in tandem, ultimately with the same goal — to drive better outcomes for consumers.