Digital age blog series - #2 Is your online platform compliant with EU regulations?

This blog post is the second part of our digital law series in which we highlight the main changes in the digital age from a Tech & IP law perspective. This article elaborates on online platforms and their obligations in today's digital market.

Digital disruption has created new business models where the so called “business users” relay on the use of intermediation services to place their products and services in the (digital) market. Intermediary service providers (ISPs), most known as online platforms, are increasingly popping up and have taken a predominant position in today’s economy. The reason for their increased success is their ability to connect socially and economically different groups of users, facilitate consumers’ choice, enhance economy efficiency and promote competition.

At the same time online platforms display some features, including network effects, increasing return to scale and centrality of data, which can potentially lead to a power imbalance, between online platforms and business user. This is ultimately reflected in the terms and conditions “imposed” by online platforms to its business users, which in turn may ultimately affect consumers as well.

The need to address these imbalances in the online world has justified the adoption of the so-called Platform2Business Regulation – “the first-ever regulation in the world that addresses the challenges of business relations within the online platform economy[1] which made its way in July 2020 (the P2B Regulation).

Less heavily lobbied and debated than the more (in)famous Digital Service Act and Digital Market Act, it certainly provided the European Commission a first taste of regulating big tech players operating in the marketplace sector, online software application services and online social media services with the aim to improve fairness and transparency for EU-established “business users” who use “online intermediation services”.

What are the implications of the P2B Regulation?

The P2B Regulation introduces specific requirements online platforms need to comply with, in respect of:

  • transparency and completeness of terms and conditions (e.g. by imposing online platforms to provide certain information in their standard terms in a plain and intelligible language or imposing a 15 day minimum notice period for changes to the T&Cs, with the right for business users to terminate the contract if they do not agree to the proposed changes. Online platforms are also required to include information regarding the effects of the terms and conditions on business users’ IP, etc.);
  • transparency on restrictions, suspensions and/or termination of the services (e.g. by imposing online platforms to provide a detailed statement of reasons for any decision to suspend or terminate a business user’s account);
  • transparency on access to data (e.g. by imposing online platforms to include information on any access to data provided for or generated by use of the platform).
  • transparency of ranking parameters (e.g. by requiring online platforms to provide the parameters used in platforms’ rankings and differentiated treatments, except when these parameters contain trade secrets.
  • effectiveness of complaint handling systems (e.g. by imposing online platforms to set up a free and effective internal complaint-handling system);
  • effectiveness of out-of-court dispute resolution systems (mediation) (e.g. by imposing online platforms to facilitate mediation for unresolved issues).
What are the consequences of non-compliance?

Non-compliant terms and conditions will be considered null and void, while enforcement measures are left up to the EU Member States. Business users can raise complaints through the online platform’s complaints procedure or refer any unresolved issue to mediation. Alternatively, business users may pursue legal action directly against the online platform. The P2B Regulation also provides for the possibility for representative bodies of business users to take enforcement action against platforms to stop or prevent infringement of the P2B Regulation.

Who is affected by the P2B Regulation?

On a first read of the provisions, no doubts on the major targets affected: these are e-commerce marketplaces (Amazon Marketplace), software applications services (Google Play Store), and social media services (Twitter) and tourism and hospitality platforms (e.g. Booking.com, TripAdvisor, etc.). Noteworthy, the P2B Regulation explicitly excludes online payment services and online advertising tools and advertising exchanges from the scope of application. Pure B2B intermediation services (not offered to consumers) and peer-to-peer intermediation services (not involving business users) between B2B business are not subject to the P2B Regulation.

There are some doubts on whether cloud and hosting providers are also affected by the P2B Regulation, mostly because of the broad definition of “intermediary services” provided under Article 2(2) of the Regulation:

‘online intermediation services’ means services which meet all of the following requirements:

  1. they constitute a service normally provided for remuneration, at a distance, by electronic means and at the individual request of a recipient of services;
  2. they allow business users to offer goods or services to consumers, with a view to facilitating the initiating of direct transactions between those business users and consumers, irrespective of where those transactions are ultimately concluded;
  3. they are provided to business users on the basis of contractual relationships between the provider of those services and business users which offer goods or services to consumers.

While it is clear that cloud and hosting providers will fall under the definition in a) and c), it cannot be confirmed the same for point b) above, where the intention to facilitate the transaction between business users and consumers may create a grey area. For instance, if an IaaS (Infrastructure as a Service) or PaaS (Platform as a Service) are used by business users to host SaaS services or apps offered to EU consumers (“with the view to facilitating the initiating of direct transactions”), will this be captured by the P2B Regulation? Up to now, it seems like cloud and hosting service providers are excluded as they are considered purpose-neutral and dependent on the customer’s choice. Yet, it remains to be seen whether this will still be the case in the future, considering the evolving business models in the platform economy and a growing appetite of the EU legislator for far-reaching tech regulations (see recent EU legislative proposals, including the Digital Service Act which we will discuss in our next blogpost.)

Finally, the P2B Regulation has extra territorial effect which means that it applies even if the parties have chosen a non-EU governing law for their contractual relationship.

Looking ahead

The European Commission has scheduled a preliminary review in June 2022, to see how the P2B Regulation has worked so far and how it has affected contractual negotiations and its ultimate enforcement. This may imply considerations for future changes in the P2B Regulation to address new challenges or regulatory gaps.

Hence, we recommend starting reviewing terms and conditions as a starting point to make sure these are future proof.

For any specific concerns about compliance with the P2B Regulation or if you wish to discuss anything covered in this article, don't hesitate to contact us.

Aida Kaloci, Associate

Olivier Van Raemdonck, Partner

[1] European Commission Statement. EU negotiators agree to set up new European rules to improve fairness of online platforms' trading practices, Press release 2017.