New European rules to protect businesses against Online platforms
Nowadays, companies offer their goods and services en masse over the internet. So-called ‘online intermediation services’ (hereinafter: ‘Online platforms’) such as Booking.com and Bol.com have responded by facilitating this step for smaller providers. Currently, more than one million companies in the EU reach their customers through Online platforms. Online platforms have thus become crucial to the success of an increasing number of companies (hereinafter: ‘Business users’).
The network effects of Online platforms (the fact that a platform such as Facebook is only interesting if many people are active on it) lead to only a limited number of Online platforms that are successful and thus dominate the market. As a result, Online platforms have a strong bargaining position vis-à-vis Business users. In practice, Online platforms often unilaterally impose their terms and conditions on other companies. This can be detrimental to the interests of Business users and ultimately also to consumers.
Online platforms can hinder Business users from reaching their customers. For example, by:
- simply changing the general terms and conditions without prior notice;
- withdrawing accounts without clear justification;
- a lack of transparency regarding the ranking of goods and services offered by companies;
- a lack of transparency regarding the favouring of their own services or products; and
- unclear conditions for the access and use of consumer (personal) data collected by Online platforms.
If an Online platform such as Booking.com suddenly decides not to allow a hotel owner to advertise via the platform anymore, this can have major consequences for that hotel owner. In order to combat these (potentially) harmful commercial practices, a new EU Regulation (‘the Regulation’) has been adopted to promote fairness and transparency for Business users of online intermediation services. The Regulation creates a number of obligations for Online platforms in order to strengthen the position of Business users vis-à-vis Online platforms.
The Regulation will apply as from 12 July 2020.
The Regulation creates new obligations for Online platforms and online search engines that:
- offer their services to Business users who;
- are established in the EU and;
- offer their goods or services to consumers in the EU.
An Online platform is defined as:
- parties providing an information society service;
- allowing Business users to offer goods or services to consumers by which they facilitate these transactions; and
- this service is provided to Business users on the basis of a contractual relationship with the Online platform.
The location of the Online platforms is therefore not relevant. Excluded from the Regulation are parties whose purpose is not to bring together offers between businesses and consumers, such as online payment services. According to the European legislator, such parties are generally subordinate to an online transaction between a business and a consumer.
Relationship to consumer and competition law
More legislation is in place to protect the weaker party in a contractual relationship. However, these are often private individuals such as employees or consumers. In the case of online sales, consumers are already protected in various ways. For example, consumers are always entitled to a 14-days return period.
This Regulation protects Business users, which is less common. However, the EU is also trying to protect consumers indirectly. After all, consumers benefit from a level playing field and, as a result, healthy competition between businesses. The Regulation therefore does not apply if Business users do not sell to consumers.
The Regulation also resembles competition law that imposes rules on companies in order to ensure a level playing field and healthy competition in the market. For example, a dominant undertaking may not impose unfair conditions on customers or suppliers or treat them unequal in similar situations. Competition authorities have also intervened against Online platforms in the past. This Regulation regulates similar situations as regards online trading specifically, and elaborates on this in more specific obligations for Online platforms, such as the obligation to be more transparent about the general terms and conditions used or the operation of algorithms.
General terms and conditions of Online platforms
Under the new Regulations, Online platforms will be obliged to draw up their general terms and conditions in clear and unambiguous language and to make and keep them easily accessible. The general terms and conditions must contain at least the following information:
- the reasons that may lead to the suspension or termination of a Business user’s account;
- the reasons that may lead to other restrictions in the provision of the services to Business users by Online platforms;
- the additional channels through which the Online platforms may market the goods and services offered by Business users and;
- the effect of the general terms and conditions on the (control of) the intellectual property rights of Business users.
The general terms and conditions must also contain the conditions under which a Business user can terminate the agreement with the Online platform and to what extent the Business user will still have access to data generated by the Business user after termination of the agreement. In addition, the Online platform should point out the internal complaint handling procedure that needs to be set up.
If an Online platform wishes to change its general terms and conditions, Business users should be informed of this in advance. In principle, Business users must be given at a least a 15 days’ notice period before the intended changes can enter into force.
If the Business user offers new goods or services on the Online platform after it has been informed of the changes in the general terms and conditions, the Business user thereby waives the notice period.
If the Business user has to make technical or commercial modifications to comply with the changes of the general terms and conditions, a notice period longer than 15 days must be applied. In this situation the Business user cannot waive the notice period.
Online platforms use different parameters to determine the order in which products or services are presented to consumers. Examples of parameters are the price and characteristics of the product, consumer preferences and so on. Online platforms must indicate in their general terms and conditions, in understandable language, the most important parameters and the relative importance of each parameter that determines the ranking of the goods and/or services on their platform.
It must also be indicated whether and in what way the products or services offered by the Online platform itself are treated differently from the services or products of Business users. Think for example of Bol.com, which offers its own books, but also books from partners. As soon as the Regulation comes into force, Bol.com is obliged to indicate in the general terms and conditions to what extent, for example, it shows its own books on the website in a more advantageous manner than those of its partners.
If Online platforms impose restrictions on Business users when offering the same goods and services as those offered by the Online platform itself, they must state the reasons.
Online platforms must also indicate whether and to what extent the Business user and the Online platform itself have access to (personal) data of consumers and other generated data. After all, this data represents value. In this respect, it is important for Online platforms to keep in mind the obligations of the General Data Protection Regulation (hereinafter: ‘GDPR’). Pursuant to the information obligation from the GDPR, consumers must be properly informed in advance about the sharing of personal data with third parties. Moreover, there must be a valid GDPR basis for sharing this personal data.
Restriction or termination of the agreement
If the Online platform decides to limit the agreement with the Business user, as a result of which fewer services of the Online platform may be used by the Business user or even to terminate the agreement completely, the Online platform must provide sufficient justification for such a decision.
If the services are not restricted but terminated completely, this justification must be provided at least 30 days prior to the termination, unless a legal obligation opposes to this or the Online platform can prove that the Business user has repeatedly violated the terms and conditions.
Finally, the Business user must in all cases be given the opportunity to challenge this decision through a mandatory internal complaint procedure.
Internal complaint procedure
Online platforms should set up an internal complaint procedure that is free of charge and easily accessible to Business users. The complaints must dealt with within a reasonable period of time. Through the internal complaint procedure, Business users should be able to complain about, for example, non-compliance by the Online platform with the obligations of the Regulation.
Online platforms are obliged to handle each complaint separately. Small Online platforms do not have to set up an internal complaint procedure because of the costs involved in setting up and running such a system. They must, however, comply with the other obligations laid down in this Regulation. An Online platform is considered to be small if it employs fewer than 50 people and its annual turnover does not exceed EUR 10 million.
Want to know more?
Do you offer products or services via an Online platform and do you want to know what your rights are? Or do you need help in setting up an internal complaint handling procedure? Then please contact us.