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              The new P2B Regulation - EU strengthens the rights of distributors in relation to sales platforms inter alia

              As intermediaries of goods or services, platforms often stand in the "middle" between businesses and consumers. In view of this triangular relationship, the P2B Regulation aims to ensure greater transparency for the benefit of business users (e.g. distributors). 

              Date: 27/08/2019

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              Platforms such as Amazon or Google are vital for the sales activities of many companies. Their power is considerable. In case of (seemingly) "unfair" business conduct, business users may therefore even avoid confronting platform providers since they fear negative consequences, e.g. the termination of the contractual relationship or downgrades in ranking. The so-called P2B Regulation1  fills exactly this gap. Among other things, it introduces transparency rules and information obligations for platform and search engine providers in relation to business users. As of 12 July 2020, the regulation will apply directly in every EU member state.

               

              Objectives

              As intermediaries of goods or services, platforms often stand in the "middle" between businesses and consumers. In view of this triangular relationship, the P2B Regulation aims to ensure greater transparency for the benefit of business users (e.g. distributors). This, however, does not correspond with a right to equal treatment. 

              The transparency obligation primarily concerns the General Terms and Conditions (GT&Cs) used by platform operators. GT&Cs should be drafted “in plain and intelligible language” and be easily available. They need to set out the ground for decisions to suspend or terminate or impose any other kind of restrictions upon the provision of online intermediation services to business users. (It seems as if the removal from result lists without adequate prior notice and without effective means of objection is not uncommon in practice). 

              Moreover, platform providers need to indicate the essential criteria for the ranking of results. In addition, there are information obligations relating to the question of the platform operator's preference for his own products and services, access to platform data by business customers and vice versa, and the handling of best price clauses. These objectives are accompanied by the obligation for platform operators to establish internal complaint management and mediation procedures. 

              Various antitrust authorities are currently also concerned with the business practices of major platforms such as Amazon and Google. Their focus is on both dealings with business users (in particular distributors) and the use of data (in the broadest sense) through platform operators, see, for example, the German Federal Cartel Office’s press release of 17 July 2019. Obviously, these procedures only target a fraction of all relevant platforms. In addition, the threshold for sanctions is extremely high: Only market-dominant companies (within the meaning of Art. 102 TFEU) can be obliged to adapt their business practices, if these practices are considered to be an “abuse” of the market dominant position. 

              The P2B Regulation follows a much broader approach – both in terms of the number of platforms covered as well as regarding its scope. 

               

              Addressees


              The Regulation applies to "online intermediation services" and "online search engines", Art. 1 para. 2. This not only covers popular sales platforms, such as Amazon, eBay or Google, but also other platforms from all areas of life, such as travel portals, housing search, social networks, app stores, job search or price comparisons. In the following, we also refer to the Regulations’ addressees as platform operators or providers.

              According to estimates, the Regulation will affect around 7,000 different platforms and search engine providers. 

               

              Key Aspects

              The P2B Regulation establishes a series of requirements for the design of GT&Cs and further business conduct of online intermediation services in relation to business users: 

              General concept of the platform operator's GT&Cs

              GT&Cs need to be plain, intelligible and easily accessible from the point of view of an average business user, i.e. transparent. They must set the ground for decisions to suspend, terminate or otherwise restrict the provision of the service to business users in whole or in part. The GT&Cs shall also include information on additional distribution channels and any potential affiliate programmes through which the platform operator could market the commercial user's products. The GT&Cs must also contain general information on the ownership and control of intellectual property rights of business users.

              The contractual relations shall be formed "in good faith and on the basis of bona fide dealings". In addition, there is the prohibition of retroactive changes to the GT&Cs and general specifications regarding the prerequisites for changes to the GT&Cs of Business.

              According to the P2B Regulation, a violation of the transparency requirement results, among other things, in the invalidity of the contractual clause in question. Business users may invoke this clause in the event of a dispute. Furthermore, the commercial user may claim to receive information via additional sales channels and partner programmes in order to obtain clarity about the marketing of his products and the use of his trademarks. Given the business-user-friendly outset of the Regulation, one could argue that the unilateral termination of platform services by platform operators may only take place as an ultima ratio and that other options need to be tried first.

              Attention: When designing the platform operator’s GT&Cs, it will be necessary to carefully consider how detailed the reasons are to be explained that justify exclusion. Rather generic statements such as "considerable violations of the terms of use entitle the user to suspend the service" may not comply with the requirements of the P2B Regulation. Neither does the regulation determine the level of detail with which the commercial user can request information from the platform operator, for example on the weighting factors in the (de-) ranking. Here, too, there is potential for future disputes to arise.

               

              Ranking

              Business users, especially small and medium-sized enterprises, often have little bargaining power vis-à-vis platform operators. However, the ranking of goods and services they offer on the respective platform (or the "result lists") has considerable influence on their business success. As is well known, only the first (few) offers in a search result list have a realistic chance of being noticed by the consumer.

              Platform operators are now subject to the obligation to state the main parameters determining the ranking and the reasons for their relative importance in their GT&Cs. If the platform operator itself is also active as a provider of goods or services, the operator may be inclined to engage in “unfair” self-preference. If the respective platform is market dominant, such behaviour may constitute an infringement of Art. 102 TFEU (abuse of market power). However, if market power cannot be established, the platform’s conduct generally escapes competition law scrutiny. This is where the P2B Regulation comes in with the transparency requirement, without, however, establishing an obligation for equal treatment.

               

              Obligation to state reasons

              From then on, the platform operator shall be obliged to give reasons within a fixed period regarding the downgrading of a commercial user in the ranking or in search results or the deletion from result lists. This includes the specification of concrete facts or circumstances on which the decision of the platform operator is based. The duty to state reasons may also enable the commercial user to remedy any violation of the platform operator's GT&Cs or to correct relevant facts. The main purpose of the regulation is to initiate communication within the framework of the internal complaint management procedure with the aim of reaching an amicable settlement. 

              Unfortunately, the P2B Regulation does not contain any explicit provisions on the possible legal consequences of violating the duty to state reasons. 

               

              Special topic: Dealing with data

              In the course of their business operations, many platform operators will collect large amounts of data, which may have considerable economic value (e.g. on user behaviour) and/or comprise personal data (in the sense of the GDPR). Collecting data for such purposes is also currently under critical scrutiny by the antitrust authorities in selected cases. Just think of the German Federal Cartel Office’s proceedings against Facebook (B6-22/16) or the proceedings against Amazon due to the dual role of the company as platform operator and trader. 

              However, the P2B Regulation does not grant access to individual data sets nor install a data-sharing obligation. It merely establishes a transparency requirement. Business users may demand that the platform operator explains in the GT&C whether and to what extent it grants commercial platform users access to customer data or other data generated on the platform and which of the data provided or generated by platform users it can access itself. 

               

              Dispute resolution and mediation

              The P2B Regulation obliges platform operators to set up an internal complaint management system which must be easily accessible and free of charge for business users. Processing complaints must be ensured within a reasonable timeframe, while the Regulation leaves the details on procedures and duration to the platform operators. However, the Regulation obliges platform operators to carefully examine complaints and to deal with them quickly and effectively. At least once a year, platform operators must also publish a report on the functioning and effectiveness of the internal complaint management system, including the number of complaints submitted, the main types of complaints, the average duration of the procedure and aggregated information on the outcome of the complaints. In addition, the Regulation obliges platform operators to state two or more mediators in their GT&Cs.

              However, the mediation procedure itself is voluntary.

               

              Conclusion and recommendation

              Even though the Regulation is lagging behind original expectation, it nevertheless strengthens the legal positions of commercial platform users (in particular distributors), for example with regard to changes to GT&C, the nullity of GT&C clauses or unannounced downgrades in ranking.

              Platform operators can no longer "hide" behind an opaque business policy; they are obliged to largely disclose their ranking principles and other aspects of their business conduct to business users. Conversely, traders can now better defend themselves against downgrades or other aspects of the platform providers' business practices that are perceived as "unlawful".

              It remains to be seen whether the purely voluntary dispute resolution mechanisms under the Regulation will be accepted by the relevant parties in the future. Hard claims against platform providers still need to be asserted and enforced before national courts or possibly abroad – depending on the applicable choice of law and forum clauses in the GT&Cs of platform operators.

               


              1. Regulation (EU) 2019/1150 of the European Parliament and of the Council of 20 June 2019 on promoting fairness and transparency for business users of online intermediation services, OJ L 186/57 of 11 July 2019.

              Related people

              Dr. Daisy Walzel

              • Partner // Head of Competition (Germany)

              Marco Müller-ter Jung, LL.M. (Informationsrecht)

              • Partner // Certified Information Technology Attorney