Beyond B2C: proposed regulation on fairness and transparency in platform-to-business relations

Earlier today the Commission took further steps to advance its hotly debated initiative on platform-to-business relationships and proposed a regulation on promoting fairness and transparency for business users of online intermediation services. The declared aim of the new rules is to "create a fair, transparent and predictable business environment for smaller businesses and traders when using online platforms". This includes, in particular, businesses such as hotel owners, sellers of goods or developers of mobile applications who rely on online intermediation services to reach consumers. By proposing rules targeting this specific type of B2B relationships, the Commission - already second  time this month (cf. the proposed directive on unfair trading practices in the food chain) - departs from the usual, consumer-oriented approach to the regulation of fairness in commercial transactions and steps upon a legal minefield. 

Two approaches

Aside from the business-to-business dimension addressed, the rules proposed for the platform economy and for the food sector do not seem to have much in common. For a start, the rules tabled today would not be contained in a directive requiring implementation, but in a directly applicable regulation with elements of a co-regulatory approach. The substantive provisions of both initiatives are also fundamentally different. Rather than providing for a black or grey list of unfair trading practices, the proposed regulation on platform-to-business (un)fairness lays down obligations for providers of online intermediation services and, in certain respects, online search engines to provide business users and corporate website users, respectively, with appropriate transparency and to offer them certain redress possibilities. 

Content of the proposal

Particular attention in the instrument presented today is devoted to standard terms and conditions used by providers of online intermediation services. In this respect the proposal does not provide for a general fairness test, such as the one found in the Directive 93/13/EEC on unfair terms in consumer contracts, but rather focuses on the way T&Cs are drafted (in clear and unambiguous language - Article 3(1)(a)) and made available (easily and at all stages of the commercial relationship, including the pre-contractual stage - Article 3(1)(b)). Further provisions referring the specific terms and conditions to be determined by providers of online intermediation services are also found throughout the instrument. Only one of them, however, is mentioned as a direct follow-up to the rules on transparency and availability - one related to the suspension or termination of online intermediation services.

Indeed, pursuant to Article 3(1)(c) providers of online intermediation services shall ensure that their terms and conditions set out the "objective grounds" for decisions to suspend or terminate, in whole or in part, the provision of their online intermediation services to business users. The placement within the proposal is not insignificant considering that, pursuant to Article 3(2), "terms and conditions, or specific provisions thereof, which do not comply with the requirements of paragraph 1 shall not be binding on the business user concerned where such non-compliance is established by a competent court". Additionally, Article 4 of the proposal provides that the business users affected by suspension or termination should be provided with a "statement of reasons".

Consequences of non-compliance with other provisions related to the specifics of T&Cs such as the parameters of ranking (Article 5 - applicable also to search engines; for a consumer protection perspective see our ealier post: New Deal for Consumers: proposals on online transparency; note the differences between the addressees of the rules), conditions of differentiated treatment (Article 6) and of access to personal and other data (Article 7) as well as restrictions to offer different conditions through other means (Article 8) are not directly apparent. In this respect business users could either rely on the abovementioned rules on transparency and availability or try to address their concerns by means of internal complaint-handling systems (Article 9) or mediation (Articles 10-11). Both solutions do not seem unviable.

Furthemore, the proposal establishes a notification requirement of providers of online intermediation services regarding modification of their T&C. On the face of it, the requirement seems to be similar to the one known from regulated network markets. The proposed regulation, however, does not aim to allow business users to terminate the contract upon notice of changes in contractual conditions (cf. Article 20(4) of Directive 2002/22/EC and Article 98(3) of the proposed European Electronic Communications Code). Rather the failure to comply with requirements of proposed Article 3(3) would render the relevant modifications null and void. 

Last but not least, the proposal also opens avenues for injunctive relief (Article 12), which deserve an analysis of their own, particularly in the light of new initiatives devoted to consumer law enforcement.

Concluding thought

The basic premise regarding the role on online platforms - with regard both to professional users and the non-professional ones - seems to hold. Admittedly, one may argue that this is only true for some of the major players. Whether the extent of the issue calls for a response of the kind proposed today, and not, for example, within competition law, is only a part of controversy, however. The proposal on platform-to-business (un)fairness touches upon other highly divisive issues such as the distinction between B2B and B2C and the broader questions of Intenet governance. Even though, as for now, the future of the proposal remains uncertain, advancing the discussion on (some of) these matters would already bring value of its own. 

European Blockchain Partnership: should consumer concerns be addressed?

On the 10th of April 22 Member States entered into the European Blockchain Partnership, pledging to cooperate and share technical and regulatory expertise and experience on the use of blockchain.

For many of us, it may be hard to understand what blockchain is. It is the best described as a database that stores and distributes information with the so called distributive ledger technology (see a very good paper by Bacon et al on Blockchain Demystified). In terms of its purpose, perhaps it is easier to think about blockchain as a technology akin to the internet. It operates differently, it is decentralized, and data integrity and reliability is said to be its the greatest advantages, but we as consumers, will probably use blockchain in a similar fashion like we use now the internet.

Blockchain is successfully used in the Fintech sector for example for the operation of cryptocurrency platforms like Bitcoin. As far as I now, currently there are not many direct applications where consumers would be able to make use of the blockchain technology. However, the new technology has huge potential, and according to the plans of the EU Commission, it will overtake almost all spheres of public and private lives. Blockchain is seen an integral part of the Digital Single Market.

The intersection of blockchain and consumer protection has not been greatly explored. As every innovation it can greatly benefit consumers. Blockchain is set to be particularly advantageous in terms of certainty and reliability that it provides for transactions, however, there may be hidden dangers and all sorts of new interesting legal questions that may not yet be apparent, such as those connected to the use of smart contracts. Traditional  grounds for consumer detriment such as information deficit may also appear in the new context, with new dimensions that regulators will need to consider.

The Commission's initiative to prompt EU-wide cooperation is welcomed. However, it should also make sure that consumer interests are in the forefront of the new initiatives. Do you see any particular aspects of consumer protection that should raise special concerns?

EFSA studies to be made public in proposed General Food Law reform

On 11 April the EU Commission announced a new legislative proposal for improving transparency in scientific studies about food, by reforming the General Food Law (Regulation (EC) No 178/2002) The Proposal is based on a European Citizens’ Initiative and supported by the findings of the fitness check on general food law, as both pointed out issues relating to transparency of the studies. What is surprising is that the press release points out that the fitness check is in need of updating even though it was published in 2018. The General Food Law fitness check has been a long time coming, as it had been announced from 2013.

The Proposal suggests a targeted revision of the General Food Law. It is worth remembering that the General Food Law was introduced in response to the food crises in late 90s, such as the BSE crisis, which had a big impact on consumers’ trust to food safety. But which are they key changes included in the proposal?

All studies submitted to EFSA are to be made public, proactively and automatically, thus increasing transparency with the exclusion of confidential information. In practice, when an applicant submits a dossier for a study they will submit a confidential and a non-confidential version. The confidential version will be made public immediately and the confidential version will be assessed by EFSA and additional data may be made available to the public, if EFSA qualifies the as non-confidential.

A consultation procedure is to be established to allow stakeholders as well as the general public to have their say on submitted studies. What is important is that the consultation will include not only studies for the authorisation of new substances but also studies on the renewal of previously authorised substances. This ensures that renewal processes will not avoid the scrutiny of the public as new scientific evidence as to their effects may come to light after the initial authorisation. 

Furtermore, it includes measures on the governance of EFSA including the choice of experts for the scientific panels of EFSA to be made from a pool of candidates put forward by the Member States, thus involving them further in the process, as well as allowing EFSA to commission studies on a case to case bases in exceptional circumstances, such as when a substance is highly controversial.

This Proposal will not necessarily mean a higher standard of protection for consumers. What it means is that citizens will be able to be more involved in the law making process in this area and the legislators and will be held accountable with greater ease. That it will be possible to check the objectivity of the evidence used to inform regulation. Food law legislation can be highly divisive and one that generates great interest from civic society from environmental organisations to parent associations for issues such as GMOs or food additives. 

This signifies a new era in food law where citizens are more involved than ever before; this can be seen also in the origin of the proposal, a European Citizens’ Initiative, only one of four successful ones making this truly bottom-up regulation. Even though that particular initiative was focused on stopping glyphosate the Commission took on the comments on improving transparency to effect a lasting structural change. The Commission appears keen to push the proposal forward aiming for it to be adopted by mid-2019.

Joined cases Krüsemann - the Court disagrees with AG Tanchev

Dear readers, 

it feels like yesterday - and indeed it was just a couple of days ago! - that we were discussing the Advocate General's opinion in the joint cases concerning "wildcat" strikes at Tuifly. With incredible speed, the judgment was published today. 

The main question addressed in the opinion, and also the only question discussed in the judgment, is whether strikes of an airline's own personnel - and in particular informal strikes such as that at stake in the case before the Court - represented extraordinary circumstances within the meaning of the Passenger Rights Regulation. If you had read my previous post, you will know how much as a surprise the AG's opinion had come to me (and a few of my senior co-teachers in consumer and contract law to be honest!). 

Luckily, reading the Court's decision, it seems we will not have to change our teaching after all!

The decision, clearly excludes strikes arising from conflicts internal to the airline from the remit of "extraordinary circumstances"- including, for sound legal reasons, wildcat strikes. 

As to strikes in general, the Court observes that extraordinary circumstances have to meet two cumulative conditions: they must not be inherent to the normal exercise of the carrier's activity and they must not be within the carrier's sphere of control [para 32]. 

In the situation under consideration, according to the Court, it is clear that the strike action followed the unexpected announcement, by the company, of a restructuring plan. As the Commission had apparently submitted, the Court considers restructuring to be a normal component of the exercise of economic activity [para 38-40]. `To the extent that conciliatory actions on the side of the company were effectively able to stop the strike after a few days, the Court also considers the strike not to fall outside Tuifly's sphere of control [para 43-45].

With reference to the possibility of differentiating between "regular" and "wildcat" strikes, the Court raises one important point: namely, a differentiation based on what is legal and illegal industrial action in the country where the dispute originates would make passenger rights dependent on national law and give rise to discrepancies in consumer protection - something that the Regulation by its own nature seeks to eliminate [para 47].

Thus, the CJEU concludes, wildcat strikes following the announcement of a restructuring decision cannot fall within the notion of extraordinary circumstances outlined in the Passenger Rights Regulation. 

Sorry, AG Tanchev, better luck next time!     

Addressing financial innovation: the Action Plan on FinTech

On 8 March 2018 the EU Commission adopted the FinTech Action Plan: for a more competitive and innovative European financial sector, following a Public consultation (on which we reported here). The Action Plan aims towards a future-proof regulatory framework by creating favourable regulatory environment for the flourishing of FinTech services and products throughout the EU.  This initiative fits well with parallel efforts to create the Digital Single Market and the Capital Markets Union.

Although the use of technology in the provision of financial services and creation of financial products is ever increasing, the existing (large) discrepancies between Member States in the regulatory framework under which FinTech firms operate had not been ameliorated. Some Member States like the UK have adopted tailored approach to some, arguably most common, FinTech services and products (such as peer-to-peer lending and crowdfunding) and created a 'Regulatory Sandbox' to subject selected FinTech firms to the existing regulatory environment. The majority of Member States however does not have special  rules and regulatory/supervisory approach to these firms and their products and services are being subject to general rules designed for  'traditional' services and products. The discrepancies in regulatory approaches (from setting up a FinTech firm to offering products and services and supervising their operations) is an obstacle for the development of Single Market in this sector.

In the Action Plan the EU Commission addressed the above regulatory discrepancies in various ways. Most importantly, the Commission invites the European Supervisory Authorities to map the current authorising and licensing approaches applicable for FinTech firms in contemplation of creating a European Passporting Regime for these firms (by analogy to the regime currently applicable to bank). It also aims to review the suitability of the existing regulatory framework, including setting up an expert group to identify regulatory obstacles for FinTech (call for applications is open). Finally, the Commission will set up an EU FinTech Law where European and national authorities will receive training and education on technology enabled solutions.

While there is no doubt FinTech services and products may be hugely beneficial for consumers, making their transactions easier and enabling access to personalization of products and services (see some benefits here), FinTech carries a great deal of risk ranging from cybersecurity and data protection risks to the potential of unsuitable transactional decisions and the placement of dangerous products on the market. Although the Acton Plan does intent to facilitate a high level of consumer protection, it does not take into account the nature of consumer markets as such. As most European instruments, this initiative is heavily focused on raising the competitiveness of the EU and in providing choice for consumers. A systematic approach to consumer protection is absent. From a consumer protection point of view, the approach of the Action Plan is partial, addressing for example, the problems of informed decisions on retail investors,  and a danger from creating and marketing harmful products in some forms of speculative investments (crypto-assets).

Nevertheless, the initiative should be welcomed. Technology enabled services and products are a reality that should be addressed sooner rather than later. However, in reviewing the exiting EU regulatory framework and in creating and EU regulatory/supervisory approach, it is imperative to keep consumer interests and the true protection of consumers at the forefront of the initiatives. To this effect, perhaps it is time to conceptualize what is meant by a 'high level of consumer protection' and to follow it up systematically in addressing the protection of consumers on EU markets, including EU financial markets.

New Deal for Consumers: proposals on online transparency

In our earlier post we reported on the behavioural study on transparency of online platforms published by the Commission as part of its „New Deal for Consumers” package. We noted that it is hard not to agree with the general recommendations arising from the study (following up on the earlier documents published as part of the Fitness Check of the European consumer acquis and evaluation of the Consumer Rights Directive); however, for them to actually work in practice a number of detailed issues needed to be solved. Interestingly, several matters of relevance to online transparency addressed in the study have already found their way to the legislative proposals tabled on Tuesday. Should we praise the Commission for this pace of action? Let’s have a closer look at these elements of the “New Deal”.

Legislative package: basic facts

The legislative part of the “New Deal for Consumers” consists of the following two proposals:

• a proposed directive amending Directive 93/13/EEC (unfair terms), Directive 98/6/EC (price indication), Directive 2005/29/EC (unfair business-to-consumer commercial practices) and Directive 2011/83/EU (consumer rights) as regards better enforcement and modernisation of EU consumer protection rules (COM(2018) 185 final)
• a proposed directive on representative actions for the protection of the collective interests of consumers, and repealing Directive 2009/22/EC (injunctions) (COM(2018) 184 final) – to which a separate blog post will be devoted.

It is particularly the former proposal in which the new provisions regarding the “digital” sphere are contained  – mainly in the form of amendments to Directives 2005/29/EC (UCPD) and 2011/83/EU (CRD). 

As regards the transparency of online transactions, the proposed amendments affect two of the three dimensions of transparency addressed in the behavioural study: 1) the criteria for ranking and the presentational features of search results and 2) presenting the identity of contractual parties. By contrast, proposals on quality controls for consumer reviews and ratings appear to be missing.

Amendments to the UCPD

One of the ways in which the Commission plans to improve transparency of search results is via the amendment of No. 11 of Annex I to the UCPD. Acording to the new wording

11. Using editorial content in the media, or providing information to a consumer’s online search query, to promote a product where a trader has paid for the promotion without making that clear in the content or search results or by images or sounds clearly identifiable by the consumer (advertorial; paid placement or paid inclusion)

Search results marked as "Ads" on Google

would be qualified as one of the commercial practices considered to be unfair in all circumstances. This does not seem to effect a major change to the state of affairs as, indeed, the providers of leading search tools already identify paid results as such. It should be observed that the proposal does not contain any reference to factors other than direct payment which could have an impact of the placement of a search result such as corporate ties between the operator of a search engine and the supplier of the product or service.

Amendments to the CRD

While the adjustments made in the UCPD would apply to any provider of an online search tool, the amendments made to the CRD with respect to the ranking of offers and identity of contracting parties are essentially limited to "online marketplaces". The latter are defined in the proposed Artice 2(19) as "service providers which allow consumers to conclude online contracts with traders and consumers on the online marketplace’s online interface". This invites several comments.

First of all, while the Commission presents its definition of an online marketplace as "future-proof" this does not necessarily mean that it is free from doubts. Indeed, unlike definitions found in Directive 2011/83/EU on consumer ADR and in Regulation 524/201342 on consumer ODR, the new wording does not refer to a "website", but makes use of a more technologically neutral notion of an "online interface", defined by reference to the newly adopted Regulation 2018/302 on geo-blocking. At the same time, however, the proposed act does not seek to amend Article 7(3) of the CRD which refers to a "trading website". 

Secondly, the decisive function of an "online marketplace" consists in "allowing consumers to conclude online contracts on the online marketplace’s online interface". This seems to suggest that a service provider only qulifies as an online marketplace if the actual contract is concluded by means of the software  provided (website, mobile app), thus excluding webites which merely identify the relevant customers and suppliers.

Thirdly, the definition of an online marketplace refers to the contract concluded by consumers "with traders and consumers". This seems to put an end to a debate whether something like a "consumer-to-consumer contract" can exist. The relevant debate, however, is not limited to the question whether someone who actually sells a good or provides a service can be called a "consumer". This seemingly minor change in wording might also be difficult to reconcile with some national provisions in which a consumer status is intrinsically linked to the professional capacity of his counter-party (see, for example, Article 22[1] of the Polish Civil Code). 

The specific transparency provisions for online marketplaces are found in the proposed Article 6a of the CRD. According to this provision: 

Before a consumer is bound by a distance contract, or any corresponding offer, on an online marketplace, the online marketplace shall in addition provide the following information:

(a) the main parameters determining ranking of offers presented to the consumer as result of his search query on the online marketplace;

(b) whether the third party offering the goods, services or digital content is a trader or not, on the basis of the declaration of that third party to the online marketplace;

(c) whether consumer rights stemming from Union consumer legislation apply or not to the contract concluded; and 

(d) where the contract is concluded with a trader, which trader is responsible for ensuring the application of consumer rights stemming from Union consumer legislation in relation to the contract. This requirement is without prejudice to the responsibility that the online marketplace may have or may assume with regard to specific elements of the contract.

Concluding thought

Improving online transprency clearly belongs to the rationale of legislative proposals submitted by the Commission earlier this week. The specific proposals made promise to bring more clarity to consumers, but do not address all the identified problems. If the proposed directive was to be adopted in the current form, a further question might be asked as to the extent to which Member States could still intervene in ensure transparency of online platforms (considering the full harmonisation nature of both the UCPD and the CRD). The current wording of the proposals also leaves a range of interpretative questions open. Should these not be addressed in the legislative process, this important task will, once again, be left to the Court of Justice.