Digital Single Market: EU negotiators agree to set up new European rules to improve fairness of online platforms’ trading practices

Ansip 2019 European Union

Statement by Andrus Ansip, Vice-President of the EC in charge of Digital Single Market, on the modernization of copyright in the European Union, new rules of transparency and fairness for online platforms and prior agreement on the Digital Europe Program. © European Union , 2019 / Photo: Lukasz Kobus.

This article is brought to you in association with the European Commission.


Yesterday evening the European Parliament, the Council of the European Union and the European Commission reached a political deal on the first-ever rules aimed at creating a fair, transparent and predictable business environment for businesses and traders when using online platforms.

Traders selling online via marketplaces, hotels using booking platforms, or app developers are amongst those who will benefit from the new rules agreed today. The new Regulation will create a more predictable and transparent trading environment online, and will offer new possibilities for resolving disputes and complaints.

As part of the Digital Single Market strategy, the new rules will apply to the entire online platform economy – approximately 7000 online platforms or market places operating in the EU, –which include world giants as well as very small start- ups, but having often an important bargaining power vis a vis business users. Certain provisions will also apply to search engines, notably the ones concerning ranking transparency.

Vice-President for the Digital Single Market Andrus Ansip said: “Today’s agreement marks an important milestone of the Digital Single Market that will benefit millions of European companies relying on digital platforms to reach their customers. Our target is to outlaw some of the most unfair practices and create a benchmark for transparency, at the same time safeguarding the great advantages of online platforms both for consumers and for businesses.”

Commissioner for Internal Market, Industry, Entrepreneurship, and SMEs, Elżbieta Bieńkowska, stated: “Our new rules are especially designed with the millions of SMEs in mind, which constitute the economic backbone of the EU. Many of them do not have the bargaining muscle to enter into a dispute with a big platform, but with these new rules they have a new safety net and will no longer worry about being randomly kicked off a platform, or intransparent ranking in search results.”

Commissioner for the Digital Economy and Society, Mariya Gabriel, added: These are the first rules of this kind anywhere in the world, and they strike the right balance between stimulating innovation while protecting our European values. They will improve the relationship between businesses and platforms, making it fairer and more transparent, and ultimately leading to great advantages for the consumers. We will closely monitor the evolution of this field, not least through our Online Platform Observatory.

According to a Eurobarometer survey almost half (42%) of small and medium companies in the EU said they use online marketplaces to sell their products and services. An impact assessment carried out by the Commission ahead of its proposals showed that nearly 50% of European businesses operating on platforms experience problems. Some 38% of problems regarding contractual relations remain unsolved, and 26% are solved but with difficulties; around €1.27-2.35 billion are lost directly in sales as a result.

Small businesses will particularly benefit immediately from:

  1. A ban on certain unfair practices
  • No more sudden, unexplained account suspensions. With the new rules, digital platforms can no longer suspend or terminate a seller’s account without clear reasons, and possibilities to appeal. The platform will also have to reinstate sellers if a suspension was made in error.
  • Plain and intelligible terms and advance notice for changes. Terms and conditions must be easily available and provided in plain and intelligible language. When changing these terms and conditions, at least 15 days prior notice needs to be given to allow companies to adapt their business to these changes. Longer notice periods apply if the changes require complex adaptions.

 

  1. Greater transparency in online platforms
  • Transparent ranking. Marketplaces and search engines need to disclose the main parameters they use to rank goods and services on their site, to help sellers understand how to optimise their presence. The rules aim to help sellers without allowing gaming of the ranking system.
  • Mandatory disclosure for a range of business practices. Some online platforms not only provide the marketplace, but are also sellers on the same marketplace at the same time. According to the new transparency rules platforms must exhaustively disclose any advantage they may give to their own products over others. They must also disclose what data they collect, and how they use it – and in particular how such data is shared with other business partners they have. Where personal data is concerned, the rules of the GDPR apply.

 

  1. New avenues for dispute resolution.

Today sellers are often left stranded with no ways to appeal or resolve complaints when problems arise. This will change with the new rules.

  • All platforms must set up an internal complaint-handling system to assist business users. Only the smallest platforms in terms of head count or turnover will be exempt from this obligation.
  • Platforms will have to provide businesses with more options to resolve a potential problem through mediators. This will help resolve more issues out of court, saving businesses time and money.
  1. Enforcement
    • Business associations will be able to take platforms to court to stop any non-compliance with the rules. This will help overcome fear of retaliation, and lower the cost of court cases for individual businesses, when the new rules are not followed. In addition, Member States can appoint public authorities with enforcement powers, if they wish, and businesses can turn to those authorities.

Next Steps

The new rules will apply 12 months after its adoption and publication, and will be subject to review within 18 months thereafter, in order to ensure that they keep pace with the rapidly developing market. The EU has also set up a dedicated Online Platform Observatory to monitor the evolution of the market and the effective implementation of the rules.

Background

Platforms offer a wide range of opportunities for fast and efficient access to international consumer markets, which is why they have become the go-to place for millions of successful businesses. However, certain structural issues lead to unfair trading practices between businesses that have come to depend on online platforms to reach their customers and undermine the innovation potential of platforms.

The Commission’s Communication on Online Platforms of May 2016 identified certain areas where more efforts are needed to ensure a trusting, lawful and innovation-driven ecosystem in the EU. As a result in April 2018 theCommission made a proposal for an EU Regulation on fairness and transparency in online platform trading as well as for the creation of anObservatory on the online platform economy. This initiative delivers on the commitment made in President Juncker’s 2017 State of the Union address to safeguard a fair, predictable, sustainable and trusted business environment in the online economy.

The new rules are underpinned by an impact assessment that incorporates evidence and stakeholders’ views collected during a two-year fact-finding exercise.

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