Obligation to Protect and Promote the Interests of Their Clients

The first duty imposed upon real estate agent by the Code of Ethics is “to protect and promote the interests of their clients.”A similar obligation is imposed upon intermediaries in most jurisdictions, although it can take different forms. This obligation is sometimes defined in even stricter terms, as the obligation to put the client’s interest above those of everyone else, including the agent’s.

For a start, fairness requires intermediaries to be specifically obliged to provide the intermediation service. Real estate agents “shall not offer for sale/lease or advertise property without authority.” An agent cannot intermediate without the consent of the intermediated party. As platforms need scale, they have the incentive to include in their ecosystem goods from a large number of suppliers in a market, even if they do not give their consent. The link wars were described in the first part of this book: Google included newspapers’ headlines and snippets in the Google News service without the consent of newspapers and without any compensation. Platforms should not be allowed to act as interlopers, intermediating against the will of the intermediated parties.

The fairness requirement goes further. Real estate agents have a duty to “submit offers and counter-offers objectively and as quickly as possible.” This is the main consequence of the obligation to promote the interests of their clients. Agents facilitate transactions by passing the offers of sellers and buyers to each other. Speed is certainly not a problem for digital platforms. As transactions are automated with the use of algorithms, the intermediation service is provided on-demand and in real-time if so requested by the customer.

Automation, by contrast, might pose a challenge to the objective display of the underlying services. Supply has to be standardized in order to be automatically sorted, ranked, and displayed to interested users. Platforms should not distort the display of the underlying service. It should not be manipulated either by making it more attractive to the potential user or by diminishing its attractiveness to favor other options.

The following example illustrates the kind of conflicts that platforms face as intermediaries. When Netflix was launched, it sent movies in DVD format to customers by post. Inventory was an issue, as customers tended to order the same recent hits. The solution was to nudge customers towards older movies. One of Netflix’s founders explained it in as follows: “If we could show customers what they wanted to watch, they’d be happier with the service. And if we could also show them what we wanted them to watch? Win-win. Put it simply: even if we were ordering twenty times more new releases than any Blockbuster (an enormously expensive gambit), we wouldn’t be able to satisfy all demand, all the time. And new releases were expensive. To keep our customer happy and our costs reasonable, we needed to direct users to less in-demand movies that we knew they’d like - and probably like even better than new releases.”3 Are customers well served when they are directed to older movies rather than blockbusters?

The parties in a transaction usually have opposing interests: one party wants to sell at a high price and the other wants to buy at a low price. When intermediaries work for one party, it is easier to identify, protect, and promote the interest of such party. When intermediaries work as “dual agents” - that is, for both parties in a transaction - conflicts of interest are structural.

Most digital platforms usually work for both parties in a transaction. While it might be that only one party is paying for the service, this does not mean that the other party is not a customer benefiting from a service. In fact, most platforms also disclose terms and conditions on their websites for the parties benefiting from the service at no charge. This is the case of Google and its search engine, Facebook, Uber, etc. Platforms have to serve the interests of all parties.

The position of the platforms is particularly prone to conflicts of interest, as they not only act as dual agents, but do so for millions and even billions of individuals at the same time. There are potential conflicts of interest between platforms and intermediated parties and between parties on each side of the transaction: competing service providers, and final users competing to benefit from a service.

Intermediation services must be provided in an objective form in order to serve the customers’ interest, in all the sides of the multi-sided market. To bias intermediation would go against the interest of the intermediated parties if there is no objective reason to justify the manipulation of the ranking, matching, and so on.

As transactions are automated by algorithms and undertaken on a massive scale, it is not simple to identify potential biases in the provision of the intermediation service. This basic issue is often ignored in the public debate. The use of mathematical algorithms is sometimes presented as a guarantee of objectivity in the management of the transaction. However, at this stage it is clear that algorithms are not neutral and objective tools, but mere instruments for the execution of company policies. Algorithms can be built with a bias in favor of one of the intermediated parties.4 This is particularly the case when the platform vertically integrates.5 It has been argued that algorithms might be built on an implicit bias with unintended discriminatory consequences.6 The regulation of algorithms will be analyzed in Chapter 24.

Intermediation bias is the key issue in the regulation of intermediaries. Not all traditional intermediaries are subject to the same standard. For instance, US financial regulation drawsa distinction between intermediaries under fiduciary obligations (financial advisors) and intermediaries under suitability obligations (brokers). Fiduciary obligations impose a duty on a company to defend the best interests of its customer over its own interest. Suitability obligations merely require the intermediary to have a reasonable basis to believe that the proposed product is suitable for a specific customer, as having knowledge about the investment profile of the customer.

Not all digital platforms should be subjected to the same intermediation standard. Even if platforms are intermediaries, not all platforms provide the same intermediation service. Search services are different from social media platforms and from matchmakers. Let us analyze some of the proposals.

The principle of “platform neutrality” was proposed by the French Digital Council (Conseil National du Numérique), an advisory body of the French Government set up in 2011. In its first report in 2013, the Council identified the central role of platforms in the digital transformation. It initiated the first organized and systematic analysis of online platforms before introducing regulation. In 2013 a ten-member working group held four workshops and a series of meetings were organized with economic and legal experts to develop a proposal for the regulation of online platforms. The result was an opinion published in 2014 under the title “Platform Neutrality. Building an open and sustainable digital environment.”7 The position of the Council was further refined in a report published in 2015.8

“Platform neutrality” has been inspired by the “net neutrality” obligation imposed upon telecommunication carriers when they provide access to internet services. Platform services would be provided to all, with no discrimination, at reasonable conditions, as a common carrier service.

The first digital platform regulation we have identified, that of computer distribution systems in aviation, imposes on platforms the obligation to “load and process data [...] with equal care and timeliness” and “use a neutral display,”9 as described in Chapter 12.

Nevertheless, intermediation services can hardly be provided under strict equal terms. For example, the Code of Ethics for real estate agents includes no such requirement. Matching a specific supplier with a specific buyer of the service entails an unavoidable ranking of the best matching option, excluding other matches. This is why the “platform neutrality” proposal evolved into fairness and transparency in platforms to business relations.

The difficulty of imposing strict neutrality has created confusion. It has been common to look for alternatives in other legal frameworks, such as competition law, other regimes in economic law, and regimes protecting civil rights.10 Competition law has obvious limitations for defining the standard of objectivity in the provision of intermediation services, as it only applies to platforms in a dominant position. It also has a greatly reduced scope, which is the protection of the competitive process. Specific figures such as that of “economic dependence” originate in German law,11 and provide an alternative legal basis, but are limited to those countries, limited in scope, and not focused on the nature of the intermediation service itself. The same can be said about unfair competition practices that are declared illegal in some European countries.

Privacy is also relevant to ensure fairness. Real estate agents have a duty to “preserve confidential information.” Information about a specific transaction can benefit a third party, and sharing that information can damage the client’s position. Intermediaries acquire a privileged position in the market, as intermediation in a high number of transactions gives them better information about market conditions.

The situation is no different when transactions are facilitated by digital platforms. Platforms must preserve the confidentiality of the information provided by the client. Clients should at least be aware of the protection granted (or not granted) to their data. Intermediaries are not protecting the best interest of their clients if they share confidential information or, worse, if they actually sell it to third parties.

The issue is particularly relevant because data obtained from clients is often personal data under the protection of privacy legislation. The General Data Protection Regulation (GDPR) of the European Union12 is becoming the global standard for personal data protection. The principle of “privacy by design” imposes upon platforms the obligation to protect personal data as a key feature of the application.

The legal basis for defining the standard in the provision of the intermediation service should not be in some legal framework defined for some alien purpose, but in the specific set of rules defined for the provision of the specific intermediation service, inspired by the centuries-long tradition of regulating intermediation services.

We argue that the basic standard should be to provide the intermediation service for the benefit of the customers. Then, certain services could be subject to suitability obligations, being obliged to make recommendations that suit the best interests of their users. This should be the case, for instance, with matchmakers. Only in exceptional circumstances should platforms be placed under fiduciary obligations.

Digital intermediaries are required to provide their services for the benefit of their customers. A platform promoting behavioral addiction to the service does not seem to be promoting the customers’ interests.'3 A platform surveilling customers and selling customers’ data without informing them is not promoting the customers’ interests.14 A platform imposing arbitrary restrictions to developers to include an app in the app store is not protecting the customers’ interests.

 
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