“Online platforms” cover a wide range of activities and include marketplaces, search engines, social media, app stores and digital payment systems amongst others. Despite the variety of existing platforms, the Commission has identified a number of common features. Aside from relying on information and communication technologies, online platforms generally use innovative business models centred on the collection, processing and use of large amounts of data, which is central to their value creation. They commonly operate in multisided markets, i.e. with at least two distinct categories of user groups, which typically rely on network effects, where the value of the offering increases with the number of users.
In its Communication on online platforms(1) published on 25 May 2016 (alongside an update of EU audiovisual rules), the European Commission states that a number of globally competitive online platforms originated in the EU (e.g. SkyScanner or BlaBlaCar), however these currently only represent 4% of the total market capitalisation of the largest online platforms.
The Commission recognises their growing importance in the digital economy and sets out its proposals aimed at both creating “the right environment” to foster growth and innovation in the EU platform economy and achieving a balanced regulatory framework addressing the issues it has identified. This follows a wide-ranging public consultation conducted as part of its review of the role of online platforms, which was announced in its May 2015 strategy for a Digital Single Market.(2)
The central themes to emerge from these proposals are the need to break down barriers to the growth of online platforms, including cross-border growth – in particular through harmonisation and standardisation – and to take a problem-driven approach to regulation, which involves the assessment of whether existing frameworks are still appropriate. The Commission identifies four key principles to guide its approach to online platforms, under each of which it proposes a number of measures analysed in further detail below.
Four key principles for platform development in the EU
The Commission promises to take these into account in tackling issues identified with online platforms.
Creating a level playing field for comparable digital services
The Commission recognises that new online platform-based business models have challenged traditional businesses and boosted innovation. However, it notes that new entrants are not subject to the same rules as traditional telecommunications services, which puts the incumbent at a disadvantage. The Commission considers that as a general principle, comparable digital services should be subject to the same or similar services. With this in mind it will consider the need for simplifying, modernising and lightening existing regulations and to avoid imposing a disproportionate burden on businesses – both old and new – in particular in its ongoing review of EU telecoms rules and of the ePrivacy Directive.
Ensuring intermediaries act responsibly (maintaining for the time being the liability exemption)
The Commission does not wish to discourage innovation and investment in online platforms and received broad support for the existing liability principles in the public consultation. As a result it will maintain the current liability regime for intermediaries set out in the e-Commerce Directive, in particular the exemption from liability for illegal content and activities of which intermediaries have neither control nor knowledge.
However, the Commission proposes a number of sector-specific measures to address specific issues identified, including:
- Requiring video-sharing platforms to put in place measures to protect minors from harmful content and reduce online hate speech (with an updated Audio-Visual Media Services Directive).
- Ensuring fairer sharing of revenue derived from copyright-protected materials between distributors and rights holders, which it is proposing to do through specific copyright regulation to be adopted in the autumn of 2016.
- Exploring the need for guidance on the extent of the intermediaries’ exemption from liability in cases where online platforms adopt voluntary measures and the need for formal notice-and-action procedures in light of existing rules and voluntary initiatives.
Although the Commission encourages EU-wide self-regulation to address the above issues, it will also keep under review the need for additional measures to support voluntary measures and/or ensure the fundamental rights of users are not infringed. No details of what these might be are currently available.
Fostering trust, transparency and innovation in online platforms
The Commission is proposing measures to address issues relating to both consumers and suppliers/businesses (“B2B”). Taking each in turn -
The Commission has identified a number of consumer concerns which it has turned into objectives for online platforms. In particular, the Commission notes the need to increase transparency in relation to the use, collection and sharing of user data and to the way information is “filtered, shaped or personalised”(3) when ultimately presented to consumers (especially where it influences purchasing decisions), and the need to ensure online ratings are free from bias or manipulation.
The Commission notes that a number of these issues are addressed in the existing EU data protection framework, and particularly in measures recently adopted in April 2016. However, it suggests that better cross-border enforcement of EU consumer law will further address such problems and has also revised its guidance on the Unfair Commercial Practices Directive.
It is unclear how these objectives sit in relation to existing measures and whether, by voluntary measures or not, online platforms will be expected to go beyond the existing framework. The Commission reserves the right to assess the need for additional rules on consumer protection in 2017 – details of which have not been disclosed at this stage – as part of its ongoing “fitness check” of EU market and consumer rules.
The Commission also wants to promote interoperability in respect of electronic identification (eID) and encourage online platforms to recognise different kinds of secure eID. It will issue guidance in 2017.
The public consultation highlighted a number of issues in respect of relations between online platforms and suppliers, including: (i) platforms imposing unfair terms and conditions; (ii) platforms refusing or restricting market access; (iii) the dual role sometimes played by platforms, as both facilitating market access to, and competing with, suppliers; (iv) the use of ‘parity’ clauses; and (v) a general lack of transparency (e.g. on tariffs and use of data) from online platforms.
While the Commission recognises that such measures fall more naturally within the remit of EU competition law, which in its view has the flexibility to apply in a range of markets, it is leaving open the need for regulatory and non-regulatory measures to improve B2B relations. To this end it will conduct a fact-finding exercise to determine, by spring 2017, whether this is required.
Keeping markets open to promote a data-driven economy
The Commission considers that data portability and the development of common standards and interoperability, which also facilitate switching, are key to the creation of an EU digital single market.
The Commission expresses a clear preference for open platform models, despite recognising that some efficiencies may be generated from competition between “closed platform ecosystems”. That said, it reserves the right to consider how best to achieve switching and portability of data by the end of 2016, in addition to considering barriers to a single data market arising from data ownership, usability and/or access.
The Commission’s objective is to avoid stifling innovation and investment in online platforms with excessive regulatory burdens. As a result, it is proposing to take a problem-driven approach to any regulation to address clearly identified issues. That said, a closer read of its proposals reveals a number of placeholders for possible future action – including regulatory – and most notably in respect of relations between online platforms and both consumers and suppliers. The timeline for most of these runs to the end of this year and the next. Accordingly, it should be possible at that time for businesses to assess whether the Commission has truly remained faithful to its aim of achieving a “balanced” regulatory framework to promote the development of EU platforms, and in particular whether the plethora of initiatives stemming from the Digital Single Market strategy, does not risk crowding on EU platforms. It also seems inevitable, given the emphasis on data, that the Commission will eventually follow initiatives currently at Member State level which consider how competition law applies to the role and value of data.(4)