Online platforms have become a crucial infrastructure for businesses. They enable small businesses to have easy access to millions of potential customers and create an unprecedented choice of products and services for them. According to a recent Eurobarometer survey on the use of online marketplaces and search engines by small and medium-sized enterprises (“SMEs”),[1] 42% of the respondents declared that they use online platforms and marketplaces to sell their products or services.[2] This survey also indicates that 82% of the respondents rely on search engines to promote and sell their products or services. In short, online platforms play a key role in the growth of the economy and help the digital transformation of small businesses.

Despite the positive role played by online platforms in the digital economy, the increasing reliance of businesses on them can create new dependencies and entail a certain imbalance of power between online platforms and their business users.[3]

These dependencies have been explored by the European Commission (“Commission”) in the last two years from an internal market perspective (i.e., achievement of the EU internal market) in the context of the Digital Single Market Strategy, where the Commission has committed to undertake a comprehensive assessment of the role of platforms and online intermediaries.

In doing so, the Commission has conducted a series of workshops and studies and a public consultation. In a Communication of May 2016 (“Online Platforms and the Digital Single Market Opportunities and Challenges for Europe”), the Commission presented the results of the public consultation in which respondents indicated that platform-to-business (“P2B”) relations could be improved and put forward examples of unfair trading practices from certain platform operators. A significant number of respondents to the consultation also considered that a mix of regulatory and non-regulatory actions are needed to resolve these issues.

Although the Commission noted in the Communication of May 2016 that competition law and internal market policy should be seen as complementary policies to ensure the effective functioning of the Digital Single Market, it raised the question whether EU-level action is required to address these issues. In the May 2017 “Mid-Term Review of the Digital Single Market Strategy”, the Commission announced that it will prepare actions to address these issues of unfair trading practices on the part of certain online platforms and that these actions, which could take the form of legislative measures, will be finalized by the end of 2017.

To prepare these actions, the Commission launched in October 2017 an Inception Impact Assessment (“IIA”) pertaining to “Fairness in Platform-to-Business Relations”, in which it explores three different packages of specific measures to address unfair trading practices of online platforms. The IIA was opened to public comment until the end of November 2017 and the Commission should publish its proposal in the first quarter of 2018.

In light of the above, online platforms and their business users should expect an evolution of the applicable legal landscape in the course of 2018.

The IIA describes the main issues identified so far by the Commission in relation to the trading practices of online platforms and envisages three alternative paths to address these issues, thereby triggering potential new legal risks for online platforms and offering new possible legal action for business users.

1. The Main Issues Identified in Relation to Trading Practices of Online Platforms

First and foremost, “online platforms” include a great variety of operators (varying from small start-ups to large global organizations) with a range of business models. The Commission considers “online platforms” as covering a “wide-ranging set of activities including online advertising platforms, marketplaces, search engines, social media and creative content outlets, application distribution platforms, communications services, payment systems, and platforms for the collaborative economy.”[4]

Therefore, a wide array of platform operators are likely to be concerned by the below findings of the Commission, although the IIA does not indicate to which type of platforms any of the proposals to remedy the issues identified should apply.

So far, the Commission has identified the following issues:

• Some online platforms’ terms and conditions of use are unilaterally and frequently modified without businesses being able to negotiate these terms and conditions;
• Removal or “delisting” of products or services on online platforms has been observed on certain platforms, and in some cases platforms have unilaterally suspended accounts without prior notice or any effective possibility to contest the platform’s decision;
• General lack of transparency, notably regarding search, ranking and advertising placements (for instance, search and ranking results may be biased);
• Some online platforms may favor their own products or services or discriminate between third-party suppliers and sellers and may tie business users to the platform’s exclusive auxiliary services (like payment services or advertising exchanges);
• To some extent, business users can lack access to and/or the ability to transmit or port certain types of data, and notably in some circumstances the contact details of their customers whom they serve via platforms and with whom they can be unable to interact outside of the platform; and
• Lack of meaningful or effective redress for all of the above issues has been detected with no, or ineffective resolution mechanism. In addition, certain factors can discourage EU businesses from filing a complaint, such as the fear of commercial retaliation or the inapplicability of EU law, as well as the impossibility of filing a suit in EU courts if the defendant is not domiciled in the EU.
• The Commission’s view is that these practices can deter businesses from using online platforms to resell their products, which in the long run can harm customers by leading to a limited choice of products and services online. Besides, such practices may also have a negative effect on the viability of online platforms in the long term.

1. The Three Alternative Paths Suggested by the Commission to Address Those Issues The Commission outlined three possible paths with varying degrees of policy intervention:
2. To secure a predictable business environment for companies using platforms and enhance the level of trust of business users, the Commission considers that it is relevant to address these issues at the EU level in view of “the intrinsic cross-border nature of online platforms.”

• Option 1: adoption of EU soft law action to encourage industry-led intervention with online platforms that would commit to introduce more fairness and transparency in their relations with their business users, as well as to promote effective redress;
• Option 2: adoption of an EU legislative instrument with various degrees of policy intervention (ranging from a high-level obligation to ensure effective redress to the introduction of a ban of specific problematic P2B or B2B commercial practices) combined with industry-led intervention (option 1);
• Option 3: adoption of an EU legislative instrument providing a targeted and detailed regulatory framework for online platforms combined with an EU-level regulator.If option 1 is chosen, EU soft law would promote industry action on transparency, fairness and effective redress. The IIA envisages various possible initiatives to be led by the industry, such as raising awareness of business users of online platforms on existing legal, commercial and technical tools to help them to address certain unfair P2B trading practices, the development of voluntary standards (including on contractual terms and conditions) and the development of trust marks, the provision of more effective internal escalation procedures to address unfair trading practices, and the introduction of general P2B fairness principles. In addition, this instrument of EU soft law could contemplate, in certain circumstances, the separation of online platforms’ intermediation activities from auxiliary services.If option 3 is chosen, a detailed regulatory framework combined with an EU-level regulator will be adopted. The legislative instrument would introduce comprehensive rules on redress mechanisms to tackle specific P2B issues, requirements for transparency and information provision, and requirements for data access and use, as well as discrimination.To conclude, the Commission seems committed to introduce an ex-ante legislative framework (or at a minimum, EU soft law action) applicable to P2B relations, which would complement the ex-post control framework of EU competition law. This approach could be seen as a recognition of the limits of EU competition law. While unfair practices implemented by platforms may theoretically be caught by the concept of abuse of dominance (in particular through exploitative abuse) and that of vertical restraints, there undoubtedly remain a number of circumstances where attempting to capture them only by EU competition law would lead to an enforcement gap.
• Setting the right boundaries between fair practices and unfair ones relies on a subjective approach and is thus of particular complexity for any legislator. Hot debates between stakeholders are very likely to continue before any measures are issued. Some of the platform operators have already voiced concerns that the IIA does not take into account the variety of platform operators and has not identified to which types of platforms the new requirements will be applicable.
• Given that these issues can involve the processing of personal data, the Commission has specified that these three options should take into account the rules arising from the General Data Protection Regulation (“GDPR”),[5] especially in view of the possible increase in transmissions of personal data between platforms and business users.
• If option 2 is chosen, an EU legislative instrument would be adopted and could be combined with industry-led action (option 1). This legislative instrument would apply in parallel with EU competition rules, which prohibit abusive practices of dominant companies. The EU legislative act would at least address the access to effective redress and could lead to the establishment of an independent dispute settlement mechanism. It could provide high-level principles of transparency and fairness to be implemented in industry codes of conduct and/or standards. In the more interventionist scenario, the legislative act could introduce a ban of specific “P2B” or “B2B” practices.
• The Commission has specified that the options proposed will be refined and adjusted during the IIA and that additional or alternative options could also be introduced in light of the comments received from stakeholders in the course of the public consultation, which is now closed.

Depending on the instrument that will be chosen by the Commission, the legal landscape applicable to online platforms could significantly evolve in the short term, thereby triggering new legal risks for platform operators and offering new possible legal action for business users.

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[1] http://ec.europa.eu/growth/smes/business-friendly-environment/sme-definition_fr.

[2] Flash Eurobarometer 439, Report on “The use of online marketplaces and search engines by SMEs”, http://ec.europa.eu/information_society/newsroom/image/document/2016-24/fl_439_en_16137.pdf.

[3] It seems that this is also the view of the French Minister of Economy, who has recently filed a lawsuit against Amazon before the Paris Commercial Court alleging unfair contractual terms imposed on its trading partners (such as unilateral modification of commercial conditions and unilateral suspension or termination of contracts with sellers). After a two-year investigation in which it received feedback from thousands of sellers in France, the Minister of Economy considers that these practices create a significant imbalance to the benefit of Amazon. If it loses the case, Amazon risks a fine of up to 10 million euros.

[4] Communication from the Commission to the European parliament, the council, the European economic and social committee and the committee of the regions related to Online Platforms and the Digital Single Market | Opportunities and Challenges for Europe, du 25 May 2016, COM(2016) 288 final.

[5] For more information on the GDPR see: https://www.orrick.com/Practices/GDPR-Readiness.