Online businesses beware – time to look at the P2B Regulation

The Platform to Business Regulation[1] (the Regulation) came into force on 12 July 2020.  The Regulation applies to businesses such as e-marketplaces and other online platforms, search engines, social media sites, price comparison sites and App stores and imposes a number of obligations on these platform providers. These obligations are designed to promote fairness and transparency in the dealings that platform operators have with businesses who use their platforms to sell goods and services to consumers.

What is in many ways remarkable about the Regulation is that it is imposing obligations on the relationships between businesses that are usually reserved for the relationships between a business and consumers. The Regulation provides for business to business contracts to be drafted in plain and intelligible language and for those contracts to be made available to business users of the platform at all times.

Other provisions relate to the basis for and procedure to be followed when restricting or suspending the provision of services to a business user, the period of notice that must be given when making changes to terms and conditions and a right for the business user to terminate where terms and conditions are being changed. The Regulation also imposes obligations on the platform provider which are aimed at preventing, or at least being transparent about, any differential treatment that it adopts between the platform providers own goods or users (or those which it controls) and the goods and services of the business user. This extends to search engine rankings and the platform provider is obliged to set out the main parameters used to rank search results and the relative importance of those parameters in determining the ranking of results.

Who does the Regulation apply to?

The Regulation will apply to the providers of Online Intermediation Services (OIS). An OIS provider is an online business that brings together or facilitates transactions between traders and consumers.  These include online market places, App stores, hotel and travel booking platforms, price comparison websites and social media providers which are used by business.  Examples of such websites or market places include Amazon and Booking.com and social media services like Facebook, Twitter and LinkedIn (insofar as they are used by business) and they will in practice catch a large number of businesses many of which will not previously have considered themselves as an OIS provider.

The Regulation does not apply to businesses that do not aim to initiate direct transactions with consumers (i.e. online payment services or online advertising tools and exchanges such as PayPal).  Peer to peer networks that do not interface with consumers are also exempt.

Will Brexit have an impact on the Regulation?

The Regulation is directly applicable in the UK and under the transition arrangements between the UK and the EU automatically came into force on 12 July 2020. After the transition period ends on 31 December 2020, the UK will have the chance to repeal this Regulation.  However we consider that in light of the overwhelming number of tasks the UK government is likely to face once the transition period ends, it is not likely that the Regulation will be repealed, at least not in the short term.

Why is it necessary?

There are several reasons why the Regulation has been implemented. The main reason is to address the significant imbalance between the negotiating positions of some OIS providers and their business users. The Regulation recognises that consumers are increasingly using OIS and that a competitive, fair, and transparent online ecosystem where companies behave responsibly is essential for consumer welfare.

Pre-Regulation the imbalance between many OIS providers and their business users allowed OIS providers to engage in unfair trading practices that can cause significant economic harm to the traders that use their platforms, who tend to be small or medium sized enterprises. Examples of these unfair practices include the OIS provider promoting its own brand goods and services over those of the traders (e.g. by enhancing search results or increasing the rankings of their own products). These unfair practices also occurred through the exclusive retention of data generated by a trader’s use of the OIS and engaging in pricing practices which may harm a trader.

The Regulation therefore aims to provide more enforcement of these unfair practices which have a significant impact on smaller trader sales’ and to increase the tools available to a trader or regulator to prevent such unfair practices.

What is the Regulation and what are the key provisions?

The Regulation sets out a regulatory framework and regulates the relationship between platform providers and traders who use it to market goods or services to consumers.  In short, the Regulation requires that terms and conditions be reviewed and updated, a minimum notice requirement is inserted into terms and conditions, there are fair and transparent policies in place regarding ancillary goods and services and differential treatment, information is transparent as to how rankings on the marketplace work and operate, and complaint handling and mediation services must be implemented.

The Regulation also seeks to promote greater transparency around the terms and conditions for use of a platform.  This will also apply where a platform uses rankings and the OIS provider must set out, in their terms and conditions, the main parameters to determine ranking and the reasons for their relevant importance.  Furthermore the standard terms and conditions for the online platform must be in plain and intelligible language, be transparent and also be easily accessible.  They must include sufficient information on when the OIS provider can suspend restrict or terminate the trader’s use of a service, when the trader can terminate their relationship with the OIS provider and the additional distribution channels and potential affiliate programs through which a traders’ goods or services will be marketed by the OIS provider.  There must also be a provision to only enable the modification of these terms and conditions with advance notice; this notice will be at least 15 days (but may be more depending on the nature of the proposed changes) and changes cannot be made retrospectively.

The Regulation also seeks to ensure that there are controls on when an OIS provider can terminate or suspend a trader.  The Regulation sets out that before an OIS provider terminates a trader they must give the trader statement of reasons for that decision to terminate, give at least 30 days prior warning in most cases of termination (subject to certain exemptions) and preserve the data associated with a trader’s account so that they can be reinstated if the trader’s account was closed in error or unlawfully.

OIS providers must also set out in their terms and conditions how traders can access their data or data generated through the provision of this service and the terms and conditions must also describe any access fee the OIS provider charges for the trader’s data after the expiry of the agreement between the OIS provider and the trader.

Under the Regulations, larger OIS providers must offer a variety of means of dispute resolution.  These include setting up an internal complaint handling system, publicising details of how well the system is operating (i.e. the number of complaints, the subject matter, the time taken to process complaints and the decision taken) and providing traders with the option of mediation.

What should an affected OIS provider do?

In light of the Regulation coming into force, OIS providers should ensure their platform terms and conditions for traders are compliant with the new Regulation and these new updated terms and conditions should be issued to all existing traders in accordance with the notice requirements set out in the Regulation.

Larger OIS providers must also set out internal complaint handling processes in order to comply with the terms of the Regulation and they will need to ensure that they have clear and identifiable parameters for ranking goods and services and consider how these will be effectively disclosed between the need for transparency requirements. OIS providers which offer their own goods and services as well as third party goods and services should ensure that they have clear processes in place for the way in which their own goods and services are treated relative to third party goods and services.

If you have any queries about this topic, please contact Nick Phillips or any member of the Information Technology team.

[1] REGULATION (EU) 2019/1150 OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL of 20 June 2019 on promoting fairness and transparency for business users of online intermediation services.

 

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