Proposal for an EU platform to business (P2B)-regulation

Position

COM(2018) 238 final of 26 April 2018

Proposal for an EU regulation on fairness and transparency for business users of online intermediation services (Platform-to-Business; P2B regulation)

Federation of German Industries e.V. (BDI)

Version: 18 July 2018

Platform-to-business regulation

List of contents Core demands .................................................................................................... 3 Introduction: increasing relevance of digital platforms................... 4 Detailed comments .......................................................................................... 5 1. Scope (article 1) .......................................................................................... 5 2. Transparency provisions for terms and conditions (article 3) 6 3. Suspension and termination (article 4) ............................................ 7 4. Ranking (article 5)...................................................................................... 7 5. Differentiated treatment (article 6) ...................................................... 9 6. Access to data (article 7) ........................................................................ 9 7. Restrictions on other contractual conditions (article 8) ......... 10 8. Internal complaint-handling system (articles 9 to 11)............... 10 9. Collective redress (article 12) ............................................................. 11 10. Implementation period (article 15) .................................................... 12 About BDI ........................................................................................................... 13 Colophon............................................................................................................ 13

Platform-to-business regulation

Core demands 

BDI welcomes the European Commission’s objective of optimising fairness and transparency in online platforms, online intermediation services and search engines. Insofar as market distortions exist, they must be addressed. However, self-regulation measures by companies – alongside ex-post control through competition law – should continue to be the means of choice.

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The preference for application of relevant provisions of competition law over the P2B regulation must be clearly emphasised in the draft regulation.

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A P2B regulation must be limited to platforms in the P2B2C relationship. The current emergence of platforms and online marketplaces in the pure B2B sphere must not be stopped in its tracks.

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Contractual freedom and private autonomy apply for all companies.

The principles of free competition must not be undermined, also in the digital economy.

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All notification and documentation obligations must be reduced to an absolute minimum.

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Under no circumstances should the information obligation regarding access to information be extended to a right of access to data and must be limited to determinant factors for contractual relations.

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The notification obligation when business terms and conditions are amended should relate exclusively to essential changes regarding the content of the contractual relationship.

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The explainability of the ranking must be given. However, the understandable wish for transparency must also be reconciled with the legitimate interests of companies in protection of their trade and business secrets. Obligations to disclose algorithms or mechanisms for data analysis should be clearly rejected.

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There is no obvious need for collective legal enforcement instruments which are uniform across Europe in order to prevent or proscribe infringements by suppliers of online intermediation services against provisions of the regulation. In any event, possible abusive excesses of a collective redress system must be avoided.

Introduction: increasing relevance of digital platforms

On many markets, digitalisation is leading to fundamental changes in the conditions of competition. In this regard, digital platforms play a central role. Online marketplaces, search engines, social media as well as comparison and evaluation platforms are an integral component of the digital transformation of our societal and economic system. Platforms are also increasingly providing services which are in competition with traditional players (in the transport, hotel and travel sectors, for instance) and in individual cases are subject to different and lighter regulation. Platforms have become a dominant business model of the digital economy. Five of the ten most valuable start-ups in the world and seven of the ten most highly regarded start-ups in the world are successful with this model.1 Their platforms have hitherto been active overwhelmingly in the B2C sphere. With its proposal for a regulation, the European Commission wants to improve fairness and transparency for business users of online intermediation services.

The public debate on the role of platforms has been under way at national and European level for some time. Questions surrounding a dominant market position are also leading to a discussion about whether online platforms should be subject to special rules (ex ante) or whether existing, classical competition law (ex post) is also adequate for digital markets and their modes of operation or needs to be adapted. Criticising companies for being very successful thanks to attractive service offers goes against the grain of market principles. Yet successful companies should also ask themselves critical questions about how they see themselves, about non-discriminatory competition and about possible abuse of their (data-based) economic power.

BDI welcomes the European Commission’s objective of optimising fairness and transparency in online platforms, online intermediation services and search engines. Insofar as market distortions exist, they must be addressed.

However, self-regulation measures by companies – alongside ex-post control through competition law – should continue to be the means of choice. The relationship of the P2B regulation to antitrust law needs to be clarified in this respect. European business models which are in the process of developing should not be complicated through new regulatory stipulations.

1

Netzoekonom (2016). Der Plattform-Index. URL: https://netzoekonom.de/2016/08/06/derplattform-index/. www.bdi.eu

Bundesverband der Deutschen Industrie e.V. Mitgliedsverband BUSINESSEUROPE

Hausanschrift Breite Straße 29 10178 Berlin Postanschrift 11053 Berlin Ansprechpartner Stefanie Ellen Stündel T: +3227921015 F: +3227921038 Internet www.bdi.eu E-Mail S.Stuendel@bdi.eu

Detailed comments 1. Scope (article 1) The European Commission sees a need for regulation of the framework conditions for online intermediaries and online search engines, and with its proposal wants to improve the fairness and transparency of these services, in particular in the relationship between platform and business user (article 1).

In so doing, the European Commission’s proposal for a regulation targets online intermediation services which provide an Internet presence to business users so that they can offer private customers products and services. Thus, priority should be given to regulating the platform-to-business-to-consumer (P2B2C) relationship. In particular, the Commission has in its sights online marketplaces (including collaborative ones), app stores and social media services. Furthermore, online search engines shall also be covered by the regulation. The European Commission expressly states that advertising and online payment instruments are not affected.

The limitation of the scope to P2B2C is broadly welcome. Because platform services which are offered as industrial platforms in the pure B2B sphere are usually sector-specific to a high degree. As a result, there are also markedly smaller information imbalances in the area of industrial platforms and pure B2B platforms so that there is currently no need for regulation. The European Commission therefore rightly finds in its explanatory memorandum (see page 1) no need for action, since relevant issues can be addressed through contracts. It should therefore also be made clear in article 1 of the proposal for a regulation that the regulation does not apply for pure B2B platforms.

All notification and documentation obligations must be reduced to an absolute minimum. Because all requirements must also be met by small platforms and young start-ups. Often, however, administrative hurdles hit young operators in this early market phase very hard since those obligations tie up disproportionate capacities compared to the actual business. In particular start-ups can meet such obligations only with great efforts – unlike their large competitors. Hence, it would be sensible to remove such young platforms and start-ups completely from the scope.

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2. Transparency provisions for terms and conditions (article 3) BDI welcomes the provision that the terms and conditions of online intermediation services for business users must be formulated clearly and unambiguously as well as readily available in all phases of the business relationship. This principle also constitutes the foundation for a fair business relationship, because both parties should be agreed on the contractual architecture of the relationship. The transparency idea in article 3.1(a) should therefore be understood more as an incentive for fair business terms and conditions which are anyway built on the foundation that both contracting parties are agreed on the contractual architecture of this relationship. It is also welcome that the grounds for the decision to suspend or terminate provision of the service to a business user in whole or in part have to be specified.

However, it is unclear what grounds would be deemed “objective”.

Even if concentration effects and imbalances in market power can occur specifically in the platform economy and many smaller companies complain – rightly or wrongly – about unfair clauses, BDI warns against simply treating SMEs like consumers. Because a small company is also subject to the rights and obligations of a merchant within the meaning of the Commercial Code.

The legislator should not allow itself to be tempted to circumvent these fundamental market principles in the digital economy. This could lead to unwanted market distortions. Because market power disparities also exist in other areas of the economy which can take very diverse forms. But this is an expression of competition. For this reason, commercial providers of products which use an online platform must not be better placed than commercial providers which offer their products in a different way.

Under article 3.3, business users would be notified of modifications to terms and conditions at least 15 days before they enter into force. Nevertheless, it is important that the notification obligation relates to essential modifications to the content of the contractual relationship. However, derogations from this principle should be provided. For instance, the 15-day period should not apply for urgently needed modifications, e.g. modifications which serve to protect consumer interests. Neither should modifications to contractual terms and conditions which do not affect the business user directly and fall within the ambit of entrepreneurial freedom, for instance in case of the enlargement of the product portfolio, be covered by this principle.

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3. Suspension and termination (article 4) Under article 4 of the proposal, the provider of an online intermediation service which suspends or terminates its services for a business user would have to provide the user with a statement of reasons for the decision without undue delay as well as the objective grounds for the decision. The underlying purpose of this provision is assessed positively. However, the requirement of objectiveness should be deleted. A simple statement of reasons must sufficient. It is important not to place disproportionately high requirements on the duty to explain which encroach into contractual freedom in an unacceptable way. It must be possible to give notice of termination. Hence, a simple statement of reasons relating to the individual case must be enough here.

4. Ranking (article 5) Under article 5 of the proposal, the parameters determining the ranking would have to be disclosed. In principle, the explainability of the ranking of a platform, a search service or online intermediation service is sensible in order to create fair market conditions. In particular if it involves information about how the business user can improve its performance on the platform, for instance if the time to load a web page or the quality of a photo is decisive for selecting the ranking. But the understandable wish for transparency must also be reconciled with the legitimate interests of companies in protection of their business and company secrets. Explainability of the ranking serves the information interest of the business user and by extension also of the consumer in the P2B2C relationship. But this must not lead to trade secrets such as algorithms or the platform service’s central modes of operation having to be disclosed. The European Commission therefore in article 5.4 rightly excludes an obligation to disclose parameters inasmuch trade secrets within the meaning of article 2.1 of directive (EU) 2016/943 are concerned.

To make it easy to understand how the ranking functions, the aim should therefore be ensure basic explainability. Disclosure obligations which go beyond this should be rejected and would be incompatible with the principle of proportionality.

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In particular, the obligation in article 5.1 in relation to setting out the relative importance of the main parameters as opposed to other parameters therefore seems to go too far. Conversely, this would lead to all parameters having to be disclosed and their effect compared. In the last analysis, this would mean that online intermediation services would have to disclose internal company information and trade secrets. This obligation would seriously harm company interests. This cannot be what the legislator wants and goes beyond the objective of increasing transparency. Lastly, a supermarket chain would not have to disclose the reasons for the specific place chosen for a product in a display. The consumer can also be expected to seek out information and – to stay with the supermarket example – will also look at the very bottom shelf to see what products are there. Nobody would require a supermarket to disclose the market criteria it applies when making its choices. There is no reason why a different yardstick should be used in the digital world.

It is right that there is an obligation to provide information on whether the business user can influence the ranking by making payments. Nevertheless, the Commission also wants to include indirect remuneration without clarifying what this means. A clarification would be desirable here or, ideally, deletion of the requirement.

Further, there is also a certain danger of fragmentation regarding the choice of parameters within the EU single market. It is positive that the online intermediation service provider can decide for itself which parameters it deems to be important. However, should the choice of parameters be challenged judicially before a national court via the collective redress mechanism envisaged in article 12, this could lead to courts ruling differently on the parameters chosen. The criterion chosen could be sufficient for a court in France but not for a court in Germany. Fragmentation in interpretation of the legislative proposal must be avoided.

Information about how the business user can positively influence the ranking is not only good and right but also improves both the performance of the business user on the platform and the service offer of the platform itself. But the choice of parameters should not be grounds for collective action within the meaning of article 12 because there would otherwise be a danger of a proliferation of requirements in relation to the choice of parameters and ultimately fragmentation in the EU single market through different court rulings.

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5. Differentiated treatment (article 6) According to the European Commission’s explanatory memorandum, article 6 comprises an obligation for providers of online intermediation services to include in their terms and conditions a description of any differentiated treatment of goods and services which are offered by providers of online intermediation services themselves or by business users which that provider controls. With a view to the objective of the proposal, this provision is also positive. Nevertheless, article 6 should not be extended into a nondiscrimination principle. Because differentiated treatment is a part of the contractual freedom of each and every company and an expression of private autonomy. The foundations of private autonomy apply for all companies, be they online intermediation services or large search engines.

6. Access to data (article 7) Article 7.1 establishes the obligation on the online intermediation service provider to disclose in their terms and conditions whether and to what extent the business user has contractual access to data and, if so, what the technical requirements are. Moreover, under article 7.2, the online intermediation service provider should disclose whether it has access to data which has been made available by the business user or consumer, whether the business user has access to these data and, if so, under what conditions. Here, too, the principle of an obligation to inform the business user about the conditions for access or absence of access to data which the online intermediation service provider generates is welcome. It is self-evident in a business relationship that both parties should be clear about the conditions under which they conduct that relationship. However, the provision must not lead to the online platform requiring the business user to submit a detailed list of all data or types of data through which it then indirectly discloses its trade secrets.

Rather, the information involved should relate only to such data categories as are directly important for the business user in meeting its contractual obligations vis-à-vis the final customer. Lastly, the online service provider is also in a contractual relationship with the data subject and must comply with its own data protection provisions vis-à-vis the business user and also vis-àvis the final customer. Further, it is difficult to understand what purpose the classification into data categories serves and what exactly is meant by categories.

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7. Restrictions on other contractual conditions (article 8) Article 8 comprises an obligation whereby online intermediation service providers should set out in their terms and conditions the reasons why it can restrict the possibilities for the business user to offer the consumer ways of acquiring goods or services under different conditions through means other than the online intermediation service. The recitals state that the most important economic, commercial or legal considerations for the restriction should be listed. This provision therefore revolves in particular around socalled best-price clauses which have already in the past been the object of several competition law rulings. The preference for application of relevant provisions of competition law over the P2B regulation must be clearly emphasised in the draft regulation. This is lacking. Furthermore, without this explicit preference, article 8.2 could be understood to mean that constellations of behaviour which are permissible under national law – and also compatible with EU law – can trigger an information obligation under paragraph 1. In any event, paragraph 2 falls short here since it does not address such constellations.

8. Internal complaint-handling system (articles 9 to 11) Internal complaint-handling systems are clearly preferable to a judicial process and more effective in terms of costs and time, in the interest of both sides. Internal dispute settlement should therefore be preferred. However, the additional bureaucratic effort for the platform in question must be kept to an absolute minimum. In particular, the requirement of an annual review of the functioning of complaint-handling management is too far-reaching. An annual analysis requires a considerable effort in terms of staff deployment, administration and time without this effort being justified by any real added value. This provision should therefore be deleted. Even though small enterprises (with fewer than 50 employees and a maximum turnover of 10 million Euro) are exempted from the provisions, medium-sized enterprises would still be affected.

Mediation is also essentially preferable to settlement in a court. Nevertheless, it must be made clear that mediation is voluntary and that the complainant cannot activate all dispute settlement possibilities at the same time. It is not clear from the proposal for a regulation whether mediation is voluntary or obligatory. It should also be clarified that the complaint-handling systems can only be triggered progressively. The internal complaint-handling procedure (article 9) must be tried first before mediation (article 10) is explored in a second step. www.bdi.eu

The provision that platform operators should bear a reasonable proportion of at least half of the costs would be disproportionate, at least in the case of obligatory mediation. This would mean that platform operators would always bear at least half of the costs, even in the case of completely groundless disputes, and would therefore be completely exposed to the cost risk of baseless and repeated complaints. Here, the outcome should be left open and costs divided as a function of the circumstances of the individual case – as generally happens in out-of-court dispute settlement.

9. Collective redress (article 12) There is no obvious need for collective legal enforcement instruments which are uniform across Europe in order to prevent or proscribe infringements by suppliers of online intermediation services against provisions of the regulation. But this would be a precondition of article 114 TFEU. Genuine obstacles within the single market which render Europe-wide harmonisation of national civil procedural law on the introduction of collective legal enforcement instruments would have to obtain. This has not hitherto been demonstrated by the Commission and cannot be substantiated on the basis of the regulation’s regulatory content. It is not obvious that the existing legal enforcement instruments in the Member States are insufficient such as to require action to stop non-compliance by the provider.

In any event, it is absolutely essential to avoid the abusive excesses of a collective redress system. Even though this only entails an application to stop or prohibit non-compliance, it should still be ensured that the right of action is framed as narrowly as possible in order to prevent abuse. In any event, the “legitimate interest in representing business users or in representing corporate website users” should be further restricted. In order not to encourage a litigation industry, the “legitimate interest” should exclude from the outset institutions which have oriented their business model on complaints. These necessary restrictions are missing from the proposal for a regulation. In addition, the organisations or associations with the right to lodge complaints should be designated in advance by the Member States and listed in a publicly accessible register. The Member States should regularly review whether the organisations or associations continue to meet the necessary preconditions for the right to lodge complaints.

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10. Implementation period (article 15) The six-month implementation period envisaged in the proposal for a regulation is too short. Provision should be made for a period of at least 18 months so that smaller platform operators also have sufficient time to prepare for and adjust to the requirements.

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About BDI The Federation of German Industries (BDI) communicates German industries’ interests to the political authorities concerned. She offers strong support for companies in global competition. The BDI has access to a widespread network both within Germany and Europe, to all the important markets and to international organizations. The BDI accompanies the capturing of international markets politically. Also, she offers information and politico-economic guidance on all issues relevant to industries. The BDI is the leading organization of German industries and related service providers. She represents 39 inter-trade organizations and more than 100.000 companies with their approximately 8 million employees. Membership is optional. 15 federal representations are advocating industries’ interests on a regional level.

Colophon Federation of German Industries e.V. (BDI) Breite Straße 29, 10178 Berlin www.bdi.eu T: +49 30 2028-0 Contact Stefanie Ellen Stündel Senior Manager T: +32 2792 1015 s.stuendel@bdi.eu BDI-Dokumentennummer: D 0950

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