20 June 2016

No ‘online platform’ EU regulation (for now), but general e-commerce rules will apply

This article was written by Marta Ottanelli (associate)

The importance of online platforms

Online platforms such as eBay, Amazon, Google, Facebook, Uber and YouTube have radically changed the (digital) economy and play a major role in our daily lives. Online platforms have increased consumer choice, improved efficiency and competitiveness of the industry, by reducing costs and promoting business opportunities. They also help enhance civil participation in the society. Online platforms have played a key role in innovation and growth and they are now among the biggest companies in the world. Without online platforms, a successful and effective EU Digital Single Market would be unthinkable.

Europe has the highest percentage of individuals using the internet worldwide (over 77% of the population). As a result it performs strongly in key digital market indicators, such as percentage of e-commerce in total retail sales, social media usage or the overall size of the app economy. Europeans are good at inventing new technologies and digital concepts, but they struggle to exploit them commercially. Only 4% of the total market capitalisation of the largest online platforms currently represents Europe. In recognition of this, the European Union (EU) aims to establish an optimal environment to create, attract, retain and grow new European online platform innovators, within a regulatory framework that fosters competition, and protects the rights and interests of consumers and other users. However the fast changing nature of the digital world and e-commerce in particular, also poses new policy and regulatory challenges to legislators and enforcers in the EU.

Latest European Commission developments

The Communication on Online Platforms and the Digital Single Market (the Communication), published on 25 May, identifies key issues concerning the role of online platforms in the EU. It presents the European Commission’s (the Commission) position on both the innovation opportunities and the regulatory challenges presented by online platforms and sets out the Commission’s approach for supporting their future development in Europe. The accompanying Staff Working Document provides a factual overview of the main characteristics of online platforms and their social and economic contribution to Europe.

To date, the EU has not agreed on a precise and generally accepted definition of online platforms. The term currently refers to different businesses which carry out a wide range of activities such as online advertising (e.g. Facebook, Google AdWords), marketplaces (e.g. Amazon, eBay, Booking.com), search engines (e.g. Google, Bing), social media (e.g. Facebook, Twitter, LinkedIn) and creative content outlets, application distribution platforms (e.g. Apple App Store, Google Play), communications services (e.g. WhatsApp, Skype, Snapchat), payment systems (e.g. Paypal, Apple Pay) and platforms for the collaborative economy (e.g. AirBnB, Uber). Online platforms share some key features, such as the use of information and communication technologies to facilitate interactions between their users, the collection and use of data about these interactions. Network effects make the use of the platform with the most users the most valuable to other users. The Communication considers the full spectrum of online platforms.

Online platforms are currently subject to existing EU rules in areas such as competition, consumer protection, protection of personal data and single market freedoms. In its Communication, the Commission advocates a Digital Single Market where online platforms are not hampered by burdensome regulation. It therefore intends to intervene only when the existing legal framework is unable to adequately address specific concerns, by providing a flexible and future-proof solution to protect all users, i.e. consumers and online platforms’ commercial partners.

Where regulatory intervention may be deemed necessary, the Commission prefers an EU-level (rather than national) approach to avoid inconsistent outcomes among the Member States. Fragmentation among national regulators would create uncertainty for economic operators, make scaling-up more difficult for start-ups, limit the availability of digital services and generate confusion for users and businesses.

The Communication outlines the Commission’s guiding principles for future policy concerning online platforms, namely: (i) a level playing field for comparable digital services, (ii) responsible behaviour of online platforms to protect core values, (iii) transparency and fairness for maintaining users trust and safeguarding innovation, and (iv) open and non-discriminatory markets in a data-driven economy.

The Commission states it will further encourage efforts by the industry and stakeholders for principle-based self- and co-regulatory measures to ensure a flexible and up-to-date approach.[1] It also calls on all public authorities and interested parties, and in particular Member States and the European Parliament, to support the Commission’s approach by fully embracing the EU digital future while preserving European common values.

Ongoing Digital Single Market initiatives relating to online platforms

The Communication outlines key initiatives the Commission is currently undertaking to tackle previously identified issues in e-commerce that are relevant to online platforms.

First, the Commission is assessing the need to propose amendments to existing consumer protection rules. Indeed, together with the Communication, the Commission has presented a legislative proposal revising the Regulation on Consumer Protection Cooperation to facilitate a more efficient enforcement of EU consumer law in cross-border situations; it has also adopted a revised version of the guidance on the Unfair Commercial Practices Directive. Moreover, the recently published European Agenda for the Collaborative Economy provides guidance on how EU law should be applied to the collaborative economy (which includes online platforms such as AirBnB and Uber).

Second, as part of the revision of EU telecommunication rules, the Commission is considering proposing a degree of deregulation and making Over-The-Top (OTT) providers subject to the E-Privacy Directive.[2] Within the framework of the “free flow of data” initiative, scheduled for the end of 2016, the Commission will also consider whether to facilitate switching and portability of data among different online platforms and cloud computing services and will examine potential barriers to a single EU data market. The Commission will also promote interoperability initiatives: it will issue principles and guidance on eID interoperability (relating to electronic Identity Cards or Identity Management solutions) by 2017 at the latest.

Third, in autumn 2016 the Commission will adopt a new copyright package with the aim to achieve a fairer allocation of value generated by the online distribution of copyright-protected content by online platforms.[3] The current intermediary liability regime established in the E-Commerce Directive will remain in place for the moment, but the Commission intends to modernise the intellectual property rights enforcement system.[4] On this latter point, the Commission seems particularly keen to engage with platforms to set up and apply voluntary cooperation mechanisms.

Lastly, by spring 2017 the Commission intends to engage closely with stakeholders and public authorities to assess whether current competition laws can sufficiently tackle allegedly “unfair” practices reported by a number of online platforms’ suppliers or if further regulatory intervention may be needed. The Commission’s ongoing investigations of Google’s web search practices and dominance of the Android platform will likely influence the Commission’s approach.

National developments in the EU

Member States are also pushing forward their own digital strategies. For example, the Italian Parliament is discussing a bill on net neutrality and on the collaborative economy. The French digital commerce bill, drafted with direct participation of the French public and currently debated in Parliament, also touches on online platform issues. Meanwhile the UK Parliament recently conducted a study of online platforms, publishing its findings in a report released in April (which advised against platform-specific regulation). These national legislative initiatives aim to ensure that consumers benefit from innovation and competition in the e-commerce sector, while protecting their rights.

National competition authorities in the EU are also contributing to the debate on online platform regulation by either investigating specific online platforms, or conducting sector inquiries and public consultations. For example, in March 2016 the Spanish competition authority released the preliminary results of its consultation on the collaborative economy. In May 2016, the French competition authority launched an inquiry into the use of data in online advertising after recently completing a joint study with the German competition authority on competition law and data in the digital economy. The German authority is investigating potential competition law infringements by Facebook and Amazon, using a task force it established in early 2015 that focuses on antitrust enforcement challenges in the digital economy. In early June 2016 the German task force released a working paper on dominance of online platforms.

National courts are also playing their part in shaping the regulatory framework for online platforms: the minicab service app Uber, for example, has been subject to court proceedings in France, Germany, Italy, Spain and other EU and non-EU countries for alleged violations of passenger transport and labour laws, and unfair competition practices. In October 2015, Uber won a High Court case allowing it to continue operating in the UK. The European Court of Justice will in the coming months provide its views on the legality of Uber’s app under EU law, when it decides separate preliminary ruling requests made by three Member States (Spain, Belgium and France). Uber has in turn made formal complaints to the Commission about its treatment by regulators in Spain, France and Germany. In the meantime, Uber has adapted its business model to keep operating despite the legal challenges it currently faces.

Closing remarks

Online platform businesses have become among the most valuable, innovative and influential companies in the world and their role in the EU (and indeed global) digital economy and society will continue to grow. Through its recent Communication and Staff Working Paper, and its Digital Single Market strategy more generally, the Commission is seeking to encourage innovation by, and effective competition between, online platforms while also protecting consumers’ rights and privacy. Any regulatory intervention concerning online platforms should however be proportionate, consistent across the EU, and sufficiently flexible to accommodate the rapid pace of innovation and technological change in e-commerce business models. Excessive or inflexible regulation would undermine the positive contribution of online platforms to the EU digital economy.

Companies interested in this sector should consider participating in Digital Single Market public consultations that most affect their business; while also staying informed about national developments in the Member States where they conduct business.

[1] The Commission has published its best practice principles.

[2] The review of EU telecommunication rules should be completed in 2016. The ongoing public consultation on the evaluation and review of the E-Privacy Directive also touches on the role of OTT providers. Stakeholders can submit responses until 5 July 2016.

[3] Copyright issues have also been discussed in relation to geo-blocking practices. Moreover, the Commission has presented a legislative proposal to harmonise certain aspects of contracts for the supply of digital content.

[4] The Commission carried out a public consultation on the topic at the beginning of 2016. The indicative roadmap of the review is available here.

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