From July 12, 2020, Regulation (EU) No. 2019/1150 of June 20, 2019 promoting fairness and transparency for business users of online intermediation services (“Regulation”) will apply, introducing significant changes in the e-commerce domain.
This targeted set of mandatory rules established at the Union level aims first and foremost to ensure that undertakings can trust online intermediation services with which they enter into commercial relationships. Indeed, in the present context, business users are increasingly dependent on these services in order to reach consumers, which results in imbalanced bargaining power for online intermediation services against business users.
Therefore, the Regulation has the purpose of preventing online intermediaries from behaving unilaterally in a way that might be unfair and harmful to businesses users and, indirectly, to consumers of their services.
Against this backdrop, the Regulation sets out rules on transparency, fairness, and effective redress possibilities that apply to online intermediation services and online search engines used by business users and corporate website users, respectively, in their businesses.
The paragraphs below outline some of the main points regarding the scope of the Regulation, as well as the major changes provided thereby.
- The scope of the Regulation
The Regulation applies to online intermediation services allowing business users – on the basis of contractual relationships – to offer goods or services to consumers, with an eye to facilitating the initiation of direct transactions between them and consumers, regardless of whether the transactions between business users and consumers initiated through such services involve any monetary payment or whether they are concluded in part offline.[1] Just by way of example, online e-commerce marketplaces and online software applications services (such as application stores) fully fall within the scope of the Regulation, but that scope is quite broad and thus may encompass a number of less traditional intermediation services. Some specific provisions apply to online search engines.
The providers of online intermediation services and online search engines are subject to the provisions of the Regulation irrespective of their places of establishment or residence, provided that the business users or corporate website users (i) are established in the European Union and (ii) offer goods or services to consumers located in the European Union, at least for part of the transaction.
The Regulation does not apply to online payment services or to online advertising tools or online advertising exchanges, which do not aim to facilitate the initiation of direct transactions and do not involve contractual relationships with consumers.
- New benchmark for transparency and fairness
To foster a fair, predictable, sustainable, and trusted online business environment within the internal market, the Regulation addresses different aspects of the relationship between online intermediation services and business users, such as (i) the terms and conditions governing their relationships; (ii) the parameters according to which their offers are ranked; (iii) differentiated treatment; and (iv) access to data. Some provisions under points (ii) and (iii) also apply to online search engines.
- Terms and conditions
The European legislature points out that providers of online intermediation services tend to use pre-formulated terms and conditions, which often are unilaterally modified by providers. Furthermore, contractual information is often hard to find, or even incomplete, and the language used is complex and unintelligible, resulting in failure to give business users a reasonable degree of predictability regarding the most important aspects of the contractual relationship. To deal with these common practices, the Regulation requires the terms and conditions: (a) to be drafted in plain and intelligible language; (b) to be easily available to business users at all stages of the commercial relationship; (c) to set out the grounds for decisions to suspend or terminate or impose any other kind of restriction upon the provision of the service; (d) to include information on any additional distribution channels and potential affiliate programs through which providers might market goods and services offered by business users; (e) to include general information regarding the effects of the terms and conditions on the business users’ intellectual property rights. Moreover, the provider must ensure that the identity of the business user providing the goods or services on the online intermediation service is clearly visible.
In addition, both in the case of unilateral restrictions, suspension, or termination of the service by the provider and in the case of unilateral changes to the terms and conditions, a provider of online intermediation service is required to notify business users of that decision with prior notice (30 days and 15 days, respectively) on a “durable medium,”[2] stating the reasons for the decision.
Finally, the Regulation expressly states that the terms and conditions are null and void in case of non-compliance with the provisions indicated sub (a) – (e) above, as well as with those on unilateral changes to the terms and conditions.
- Ranking parameters
According to Article 2 of the Regulation, “ranking” means the relative prominence of the offers of business users or relevance given to search results as presented, organized, or communicated by providers of, respectively, online intermediation services and online search engines. Ranking wields strong impact on consumer choice, and consequently it affects the commercial success of business user and corporate website user services; therefore, such users must receive all information needed to understand how the ranking mechanism works and to compare it with the ranking practices of other providers.
In this respect, the Regulation requires the terms and conditions of online intermediation services to set out the main parameters[3] determining the ranking of offers and the reasons for their importance relative to other parameters. In addition, a provider of an online search engine must provide an easy-to-read, publicly available, and up-to-date description of the ranking parameters concerned, drafted in plain and intelligible language, on its online search engine.
As a further requirement, when the main parameters concerned include the possibility to influence ranking as a result of direct or indirect remuneration paid by business users or corporate website users to the respective provider, that circumstance must be disclosed to users, along with information on the effects of such remuneration on ranking. Nevertheless, this obligation does not entail the disclosure of the algorithms used for the ranking mechanism.
- Differentiated treatment
Pursuant to the Regulation, a provider of online intermediation services must include in its terms and conditions a description concerning any differentiated treatment; an analogous description must be provided on an online search engine platform. The description concerned must include information on any differentiated treatment relating inter alia to (a) the provider’s possible access to any personal data or other data, or both, which business users, corporate website users, or consumers provide for the use of the services or which are generated through the provision of the services; (b) the ranking parameters or other settings applied by the provider; (c) any direct or indirect remuneration charged for the use of the services; (d) access to the services or to functionalities or technical interfaces directly connected or ancillary to utilizing the services.
- Access to data
Pursuant to the Regulation, a provider of online intermediation services must include in its terms and conditions a description of the technical and contractual right to access (or of the absence of such right), to any personal data, other data, or both that business users or consumers provide for the use of the services or that are generated through the provision of the services.
Inter alia, the description concerned must include information on (a) whether the provider has access to such data and whether such data is provided to third parties; (b) whether the business user has access to the data provided by the same business user or generated through the provision of the services to that business user and to consumers thereof; (c) whether a business user has access to data, including in aggregated form, provided by or generated through the provision of the services to all of the business users and consumers thereof.
- Effective redress possibilities
The Regulation also introduces specific provisions for a complaint-handling system and a mediation tool to ensure business users have access to immediate, suitable, and effective possibilities of redress against a provider of online intermediation services when the latter’s unilateral actions result in a dispute.
The internal complaint-handling system should be easily accessible and free of charge for business users. It must ensure that complaints are handled within a reasonable timeframe and must be based on the principles of transparency and equal treatment applied in equivalent situations. Furthermore, business users may lodge complaints directly with a provider in connection to specific issues, and the provider is required basically to (a) duly consider the complaints lodged; (b) process complaints swiftly and effectively; and (c) inform the complainant of the outcome of the process.
As to the mediation tool, providers of online intermediation services must identify in their terms and conditions at least two public or private mediators they are willing to engage. Such mediators must meet several requirements listed in the Regulation, and under certain conditions they can provide their mediation services from locations outside the European Union.
- Conclusion
The requirements set forth by the Regulation will significantly affect several aspects of the business of both online intermediation services and online search engines, and those issues should be addressed by the interested providers before July 2020.
Inter alia, the terms and conditions governing the relationships between online intermediation services and business users will have to be carefully reviewed in order to include certain specific information; further, the providers of such services will have to duly implement ad hoc internal complaint-handling systems and mediation tools, in accordance with the provisions of the Regulation. Moreover, the information flow between providers and business users will have to be rethought. For instance, in order to implement the communication requirements introduced by the Regulation in connection with unilateral changes to terms and conditions and restriction, suspension, or termination of the intermediation service, the provider needs to send such communications on a “durable medium” (e.g., by e-mail) with prior notice; a simple post or banner on the home page of the online intermediation service as per the current practice of many providers would not suffice.
[1] See Recital 11, Regulation 2019/1150.
[2] Meaning a medium allowing business users to store information so that it is accessible for future reference for a period of time adequate for the purposes of the information, as well as the unchanged reproduction of such information (see Article 2, Regulation 2019/1150).
[3] Recital 24 of Regulation 2019/1150 explains that the notion of a main parameter “should be understood to refer to any general criteria, processes, specific signals incorporated into algorithms or other adjustment or demotion mechanisms used in connection with the ranking.”
