Fairness and Transparency for Business Users

The superintermediary role of platforms should have legal consequences in the relationship of the platform with the intermediated companies. This is the ambition of the European Union Regulation 2019/11508 for the promotion of fairness and transparency for business users of online intermediation services, adopted in 2019. The scope of the Regulation is to protect intermediated service providers from excesses by superintermediaries. Parallel obligations are imposed in Directive 2019/21619 on consumer protection.

Regulation 2019/1150 acknowledges that “intermediation of transactions through online intermediation services, fueled by strong data-driven indirect network effects, leads to an increased dependence of such business users, particularly micro, small and mediumsized enterprises (SMEs), on those services in order for them to reach consumers. Given that increasing dependence, the providers of those services often have superior bargaining power.”

Online intermediation services are defined as “services that allow business users to offer goods or services to consumers, with a view to facilitating the initiating of direct transactions between those business users and consumers, irrespective of where those transactions are ultimately concluded.” This category includes e-commerce marketplaces, online software applications services, such as app stores, and service marketplaces such as Airbnb. Search engines also fall under the scope of the Regulation, even if the obligations imposed on them are similar but not identical.

The point of departure of the Regulation is the acknowledgement that platforms provide intermediation services, not the underlying products. Digital platforms are considered online intermediaries. However, it has been considered necessary to adopt special rules for digital intermediaries, which we think is a recognition of the special power of platforms as superintermediaries.

The EU Regulation imposes obligations on platforms to ensure fairness in the provision of intermediation services. In their terms and conditions, platforms must define the main parameters determining the relative prominence given to intermediated goods and services, as well as the reasons for the relative importance of such parameters compared to others. If one of the parameters is the remuneration to the platform to improve the ranking of the services of the paying intermediated party, the platform is obliged to disclose it and explain how remuneration affects the algorithm. However, the Regulation does not require platforms to disclose algorithms.

The Regulation correctly identifies that algorithms are not neutral. Algorithms rank the intermediated product, whether it is a video, a ride, or an accommodation. Ranking largely determines the result of the transaction, as consumers tend to select the product proposed by the platform and are often just matched automatically, with no option to choose the service provider. Transparency must be introduced in the ranking of options, to ensure fairness for service providers. However, the Regulation does not impose obligations on the ranking other than transparency.

The EU Regulation does not prohibit differentiated treatment by digital platforms, but they are obliged to disclose this in their terms and conditions. Platforms are obliged to describe differences in ranking, remuneration, access to data, as well as any condition in the provision of the good or service that might be connected or ancillary to the intermediation service. The Regulation is particularly concerned with the vertical integration of platforms and the potential discrimination in favor of the goods and services provided by the platform in competition with the goods and services provided by third parties intermediated by the platform.

A parallel provision has been adopted to protect consumers. Directive 2019/2161 obliges search engines to inform customers about the general parameters determining the rank of the search results as well as of their importance. In particular, they must inform consumers about payments made to achieve higher rankings. More generally, consumers must be informed when prices are personalized through algorithms and profiling.

The Regulation identifies the risk of suspension or termination of the intermediation service. A statement of reasons must be provided to the intermediated party, with reference to the specific facts and circumstances that led to the decision to suspend or terminate the service. The Regulation imposes a 15-day notice period before terms and conditions for suspension and termination are modified by a platform.

The EU Regulation imposes upon platforms the obligation to justify the commercial or legal consideration that ground the potential restriction imposed upon the intermediated parties to provide the intermediated goods and services at different conditions through other means. Most Favored Nation clauses, or the prohibition to provide better rates outside the platform have been common in travel and accommodation platforms, triggering divergent responses from antitrust authorities across the world.

Finally, the EU Regulation obliges platforms to establish redress mechanisms. Platforms are obliged to establish internal complaint-handling systems and the possibility for business users to engage mediators to attempt to reach an agreement to settle the dispute out of court.

The EU regulation is a first step in the regulation of platforms. It correctly identifies that platforms are intermediaries and not the providers of the underlying service, and therefore focuses on the conflicts of interest between platforms and the intermediated service providers. The EU Regulation also correctly identifies that digital platforms have a privileged position in the relationship with service providers, which is their position derived from being superintermediaries. The transparency that is introduced has to be welcomed. However, the Regulation does not really impose obligations to ensure fairness. Not even the most basic obligation to protect and promote the interest of the user is introduced, let alone further obligations such as suitability and fiduciary duties.

The regulation of platform to business relationships will expand in the coming years. One specific scenario is the relationship between platforms and individuals providing business services, whether it is content producers for YouTube or individuals driving for Uber. Since platforms have an unbalanced power relationship with individual providers making use of the platform to reach customers, it might be sensible to protect such individuals, imposing some regulatory obligations upon the platforms. The most exploitative instructions in the algorithms could be prohibited (such as unrealistic expectations in terms of timing of the services or penalties in case an individual rejects a service), minimum payments could be imposed upon platforms, and platforms could be forced to provide insurance to such individuals in case of accident or illness. Regulation could be inspired by the traditional objectives of labor law, but without automatically extending all the restrictions of labor law to a business relationship, which is different in nature.

 
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