The P2B regulation
Fairness and transparency on platforms
Platform-based business models have revolutionised commerce. Digital retailing is indispensable for effectively addressing customers and boosting the attractiveness of one’s own services. Platforms make a substantial contribution to making business transactions available online. SMEs in particular are dependent on such platforms. Skilful product placements and rankings help increase sales. However, platforms also harbour the risk of blocking business models. As the interface between enterprises offering products or services and their customers, platform operators have substantial market power.
This dependence has been recognized by the European legislator, which has adopted the Regulation (EU) 2019/1150 on promoting fairness and transparency for business users of online intermediation services. This regulation – known as the platform-to-business or P2B regulation – applies directly in EU Member States from 12 July 2020. New boundaries are thereby set for the somewhat non-transparent business policy of platform operators. Platform operators now face a considerable need for adjustment.
Who is affected?
The P2B regulation applies to online intermediation services and online search engines via which commercial platform users offer products to their consumer customers. It does not matter whether a contract is entered into via the platform itself, via a linked company website or offline. In addition to the traditional marketplaces and app stores, the Regulation also covers social networks as well as all reservation and price comparison portals (uniformly designated below as ‘platforms’).
By contrast, pure business-to-business platforms and peer-to-peer intermediation in which no commercial providers are involved are not covered by the P2B Regulation. Online payment and advertising services are not included either.
What is it about?
The P2B regulation will require platform operators to be more transparent and fair. This will affect, among other things:
- Terms and Conditions, and obligations to supply information:
Similarly to the German transparency requirement of section 307(1) 2nd sentence German Civil Code, T&Cs must be written in a clear and understandable way and be readily available, otherwise they are void. The T&Cs must also clearly determine the reasons for which platform access may be suspended, restricted or terminated. In future, platform operators must be precise on this point; generic wording will no longer meet the requirements of the P2B regulation. In particular, the requirement to indicate and justify restrictions imposed by platform operators on platform users concerning other distribution channels will also be relevant in practice. That concerns in particular what are known as best-price clauses. Platform operators must also specify in their T&Cs whether and to what extent, where appropriate, proprietary products or products from companies associated with the platform are preferred. Finally, the P2B regulation contains a set of duties to supply information; for example, timely information is to be supplied about changes in T&Cs as well as the restriction of platform access.
- The disclosure of ranking parameters:
The ranking of products and/or the placement and/or the prominence within search results has substantial influence on the options of the consumers and thus also on the business success of the platform users offering products or services. A substantial new feature of the P2B regulation therefore concerns the obligation of the platform operators to disclose the ranking parameters in their T&Cs. Therefore in future it must be clear from the T&Cs which criteria are used to list products and how these criteria are weighted. If platform users can influence the ranking in return for fees, this is also to be disclosed. In addition to direct payments, indirect fees are also covered, such as the use of auxiliary services or premium features. The detailed functioning of the ranking methods — including the algorithms — does not need to be disclosed.
- Dispute resolution out of court:
Provisions on duties to supply information, on complaint management and on mediation are intended to promote dispute resolution out of court. Platform operators must in particular set up a free internal system for complaints by commercial platform users. This internal complaint management procedure should provide the opportunity for resolving disagreements between platform users and platform operators quickly and efficiently in such a way as to provide options for remedy – for instance by downgrading a ranking. Platform operators also have to list in their T&Cs at least two mediators with whom they are willing to cooperate in the event of disputes. However, it is not compulsory to conduct mediation. Exceptions also exist for small business with fewer than 50 employees and annual turnover and an annual balance sheet total of less than €10 million.
The regulation creates more transparency overall in the operation of platforms. Unfair business practices – such as unannounced changes in T&Cs, the sudden deletion of trader accounts and unjustified downgrading in search result lists, non-transparent ranking and hidden most-favoured-nation clauses – will be stemmed. Although unfair practices are not forbidden as such, the disclosure requirements imposed by the P2B regulation do lead to significantly more legal certainty on the part of commercial platform users. It remains to be seen how effective out-of-court dispute resolution procedures will turn out in practice.
In any case, platform operators should check their platforms now for adaptation requirements and make any necessary changes.
Any questions? Please contact: Kristin Kohser and Susann Jahn
Practice Groups: Digital Business and Commerce & Trade