P2B Regulation Should Fix only What’s Broken

January 29, 2019

Paul MacDonnell, Executive Director, Global Digital Foundation

The European Commission’s proposed Platform to Business (P2B) regulation will likely ensure that digital platforms treat Europe’s online retailers fairly. But the EU Trilogue participants—the European Parliament, Commission, and Council—who are about to discuss the proposal should look again at three problematic provisions. These are: first, the blanket requirement to keep content up during a 30-day notice period before an account is suspended that could force platforms to display manifestly inappropriate material; second, a poorly-defined requirement for “transparency” in how rankings are decided that could encourage manipulation of rankings to the detriment of consumers; and finally, a provision to ban price parity clauses which could cost consumers and threaten the viability of new startup platforms.

Digital platforms are a good thing. They enable billions of sellers and consumers to find each other at nearly no cost. They take care of payments and delivery. And they build consumers’ trust by enforcing terms of service and by encouraging publicly-available customer feedback. The result is the leading economic innovation of our time—in 2017, worldwide e-commerce retail sales reached $2.3 trillion. Success creates its own challenges. Millions of people, often working as small or sole traders, depend upon platforms for their livelihood. Just like their online customers businesses need certainty. The certainty that, in their dealings with digital platforms, they will be treated fairly. The proposed Regulation is, mostly, a step in the right direction.

In summary the regulation requires the following. That platforms give businesses sufficient notice of actions to be taken against them. That they give reasons for suspension and termination of business accounts. That they take the minimum necessary action against businesses who breach their terms of service. That they provide details to businesses of how they are ranked. That they inform businesses if they treat competitors differently. That they provide details of how they use data generated by the business. That they get permission before sharing a business’ data with a third party. That they will not use price parity (Most Favoured Nation) clauses, that is provisions to prevent a business from listing the same product at a lower price on another website. And, finally, that they will provide mechanisms for business to seek redress against adverse decisions.

It is difficult to argue with provisions that give businesses a way of redressing decisions that may be unfair. The power of a platform to, effectively, close down a business cannot be unfettered. While there is no reason to believe that such abuse of power is a systemic  problem, there is a need for certainty and clarity. Businesses should not have to rely on the good faith, however abundant, of platforms alone.

Three of the provisions, however, may have unfortunate consequences for the platform economy not just in Europe but beyond. First is the requirement for platforms to keep content up during the 30-day period. In some cases content will be manifestly inappropriate, likely causing distress to consumers, threatening economic harm, and damaging the reputation of the platform. For example, content on app stores that uses malware, phishing, or other attempts by developers to hurt consumers that violate the major platforms’ policies will continue to be downloaded despite the fact that the platform will have identified the violation. Then there’s the obvious problem of pornography about which nothing more needs to be said. The Regulation should not delay action against this kind of activity.

Next is the vaguely-worded requirement to provide businesses with information about how they are ranked. Ranking systems are intended to provide objective criteria for consumers to choose products and retailers. While businesses should have a channel for redress if they believe that that rankings are treating them unfairly, providing details of ranking parameters is not the way to achieve this. The result of providing details of ranking parameters is likely to encourage manipulation and gaming of the ranking system itself, to the detriment of consumers. One needs only to remember the early days of email when our inboxes were polluted by spam, something we no longer have to think about. We also know that spammers and ‘bad hat’ Search Engine Optimization experts will take advantage of any clues to how ranking algorithms operate to push their bad results up the results page. Negotiators should be careful that they do not force so much transparency onto the platforms that rankings can be abused in this way.

Finally, the proposal to ban price parity clauses is premature in an industry that, despite its size, is still very new. Price parity clauses are designed to ensure that businesses do not use the platform simply as an advertisement to draw consumers directly to their own website where the advertised product will be offered at a discount. Price parity clauses reflect the fact that digital platforms are, in essence, co-created by the platform owner, the business, and by the community of consumers that use the platform. Businesses do not have to list their product on the platform in the first place but it is reasonable for the platform owner to require, as a condition of listing, that they do not list their products at lower prices elsewhere. The obvious potential for businesses to game the platform business model could be damaging for platforms. In particular, this provision could not only undermine consumers’ confidence that platforms offer value for money, it could threaten the advent of new startup platforms.

Overall the proposals for P2B regulation are welcome. Business owners need to be sure that there is a bottom line in how they are treated by platforms. But on the questions of removing undesirable content, ranking parameters, and price parity, participants in the EU’s trilogue discussions need to look again.

End

Views expressed in this article are those of the author and not those of the Global Digital Foundation which does not hold corporate views.