In the context of its Digital Single Market (“DSM”) Strategy for the European Union (“EU”), the European Commission (“Commission”) published a Communication on Online Platforms and the Digital Single Market – Opportunities and Challenges for Europe (the “Communication”) on 25 May 2016.  The Communication sets out the Commission’s conclusions and proposals based on the Commission’s Consultation on the regulatory environment for platforms, online intermediaries, data and cloud computing and the collaborative economy (“Consultation”) of 24 September 2015 and a series of workshops and studies.  This note also addresses the Commission’s Communication relating to the collaborative economy published on 2 June 2016.

The Communication makes clear that the Commission will not make broad regulatory proposals encompassing all allegedly potentially problematic aspects of online platforms.  Instead, the Commission proposes a problem-driven approach, such that intervention is only triggered in specific circumstances.  As a result, the Communication provides a road map and some general principles that should guide future intervention.

This more cautious approach may reflect concerns raised by the Commission’s competition directorate, and others, about over-broad regulation in the absence of a clear problem.

I.            Online platforms: a “flexible concept”

The definition of “online platform” has been the source of much debate in the EU, with Competition Commissioner Vestager noting that Facebook, Uber, SAP, Amazon and eBay, for example, have few characteristics in common: “[s]ome of the services that we see, what they share is the word ‘platform,’ and that’s about it”.  Echoing his Commissioner, DG Laitenberger noted that “[…] there’s no single business model for platforms. Instead, there’s a whole range of models from search to app stores, from marketplaces to social-media platforms.”  Despite these words of caution, the initial Consultation proposed the following definition: “a firm operating in two (or multi)-sided markets, which uses the Internet to enable interactions between two or more distinct but interdependent groups of users so as to generate value for at least one of the groups.

In the Communication, the Commission recognises that “online platforms take various shapes and sizes and are constantly evolving” such that “there is no consensus on a single definition of online platforms as a clear-cut definition would likely be too narrow, or conversely apply to a very wide range of Internet services.”  A “one-size-fits-all” definition would not be “future-proof” in that it would not be workable in the face of rapid technological developments.  Further, as the Commission’s Staff Working Document accompanying the Communication notes, “[i]t is challenging to set out a clear-cut definition of online platforms.”

In the absence of a definition, the Communication provides a list of activities falling within the notion of an online platform: online advertising platforms, marketplaces, search engines, social media and creative content outlets, application distribution platforms, communications services, payment systems, and platforms for the collaborative economy.  This list slightly differs from the one in the Consultation.  In particular, it adds “communications services”, potentially covering a wide range of activities many of which would not usually be regarded as platforms.

The Communication lists the main characteristics – some of them very broad – of online platforms: (i) ability to create and shape new markets, to challenge traditional ones and to organise new forms of participating in or conducting business based on collecting, processing, and editing large amounts of data, (ii) they operate in multisided markets, (iii) they benefit from network effects, (iv) they rely on information and communications technologies to reach their users, and (v) they play a key role in digital value creation.

However, as the Commission itself noted in an earlier publication, not all potential online platforms share these characteristics, in particular the multi-sided model.  Despite this, the Staff Working Document also emphasises that “online platform” is “a broad label for numerous types of multi-sided business models.”  This might suggest that certain businesses where the customer pays directly for the service received are not “online platforms”.  However, there are many businesses operating in one-sided markets that the Commission would likely regard as platforms, such as audiovisual and music platforms, collaborative economy platforms and even app stores (which are listed as examples of platforms in the Communication).  It would appear that not all five characteristics mentioned above are necessary for a business to be a platform.

II.            Adoption of a principles-based approach

The Communication proposes ways to foster the development of online platforms in the EU, noting that the vast majority of platforms originate in the US and Asia.  To that end, the Communication advocates for the adoption of a “balanced regulatory framework”, based on regulatory intervention only where specific issues are identified: “any future regulatory measures proposed at EU level only address clearly identified problems relating to a specific type or activity of online platforms in line with better regulation principles.  Such problem-driven approach should begin with an evaluation of whether the existing framework is still appropriate.”  The Consultation also encourages self-regulation.

In this context, the Commission proposes four guiding principles for future intervention.

  • A level playing field for comparable digital services

The telecommunications sector is used to illustrate the necessity for comparable digital services to be subject to the same rules.  According to the Communication, the over-the-top (“OTT”) online communications service providers “increasingly compete with traditional telecommunications services,” providing “consumers [with] a functional substitute” for such services.  As a result, the Commission is assessing proposing a “targeted mix of proposals involving a degree of deregulation (taking into account certain rules that are at present only applicable to traditional electronic communications services such as for example some universal service obligations), together with the application, where necessary, of a more limited set of communications-specific rules to all relevant and comparable services including when provided by OTT players.”

  • Responsible behaviour of online platforms to protect core values

The Communication confirms that stakeholders broadly support the existing intermediary liability regime as set out in the e-Commerce Directive.  This is likely to be well-received by online intermediaries because the questions raised in the Consultation would have had significant consequences for them.  Indeed, the Consultation considered new measures to tackle illegal content online, whether additional categories of intermediaries (such as search engines or cloud providers) should be added to the e-Commerce Directive, and whether the current categories (mere conduits, caching and hosting) are sufficient.  The Consultation also explored whether a “duty of care” should be imposed on intermediaries, requiring them to exercise greater responsibility and diligence in managing their networks and systems.

The current liability regime will be maintained, with specific problems addressed through targeted instruments.

  • The proliferation of content that is harmful to minors and of hate speech will be addressed by the amended Audiovisual Media Services Directive (“AVMSD”). Indeed, the amended AVMSD requires video-sharing platforms to protect minors from harmful content and protect citizens from incitement to hatred.  Further analysis of the proposed changes to the AVMSD is provided here.
  • The allocation of revenues generated by the online distribution of copyright-protected content will be looked at in the context of the copyright package to be adopted in 2016. This issue is particularly important in view of the increasingly central role of online platforms in the distribution of such content.
  • As for the potential need for formal rules governing “notice and action” procedures, the Commission will first assess the effects of the ongoing reforms before considering launching an initiative on this issue.
  • Fostering trust, transparency and ensuring fairness

The Commission’s proposal revising the Regulation on Consumer Protection Cooperation is intended to facilitate more efficient cross-border enforcement of EU consumer rights.  In particular, national authorities will be able to check if websites geo-block consumers or offer after-sales conditions withdrawing rights for cross-border purchases, order the immediate take-down of websites hosting scams, and request information from domain registrars and banks to identify responsible traders.

The Commission also published an updated version of its Guidance on the Unfair Commercial Practices Directive (“UCPD”) clarifying the application of this Directive to online platforms.  For example, a platform that is a “trader” (i.e., a person who is acting for purposes relating to his trade, business, craft or profession and anyone acting in the name or on behalf of the trader) and promotes or sells goods, services or digital content to consumers must comply with EU consumer law.  The document also provides guidance specific to certain online platforms (e.g., marketplaces, app stores, search engines).

The Commission also intends to promote interoperability, including through issuing principles and guidance on secure electronic identifications (eID) interoperability no later than 2017.  In addition, to ensure a fair and innovation-friendly business environment, the Commission will carry out a targeted fact-finding exercise on business-to-business practices in the online environment to determine whether EU-level action is needed.

  • Openness and non-discrimination in data-driven economy

The Communication merely refers to the Free Flow of Data initiative.  This initiative will make it easier for users to switch between platforms through the development of common standards for data transfer and data portability between online platforms and cloud computing services.  The Commission will also examine ownership and usability of, and access to, data, including application programming interfaces.

III.            The Commission’s Communication on the Collaborative Economy

In its Consultation, the Commission sought to explore whether the EU regulatory environment needed to be modified to accommodate the collaborative economy (such as Uber, AirBnB).  The Commission considered whether the fragmented regulatory approach of EU Member States to these new business models resulted in uncertainty for traditional market participants, new service providers and users.  The Commission’s Communication on the Collaborative Economy provides guidance on the application of EU law to collaborative economy platforms and makes recommendations to Member States.

For the purposes of this Communication, the term “collaborative economy” “refers to business models where activities are facilitated by collaborative platforms that create an open marketplace for the temporary usage of goods or services often provided by private individuals.”  The collaborative economy involves three categories of actors: (i) service providers, (ii) users of the services and (iii) intermediaries that connect providers with users via an online platform (collaborative platform).

The Communication then identifies a number of key issues raised by the collaborative economy, including:

  • Market access requirements – The Commission considers that business authorisations or licences should only be required when strictly necessary to meet public interest objectives and that absolute bans of an activity should only be measures of last resort. The Communication calls on Member States to review their market access requirements, to reduce unnecessary regulatory burdens.  In doing so, Member States should differentiate between individuals providing services on an occasional basis and providers acting in a professional capacity.
  • Liability – Whether a collaborative platform can be liable for the information stored or illegal user generated content must be assessed on a case-by-case basis, depending on the types of services offered. For example, under the e-Commerce Directive, platforms that merely store information are not liable if they have no knowledge of the illegal nature of the content.  However, collaborative platforms would not be exempt from liability for services they offer themselves (g., payment services).  The Communication encourages collaborative platforms to take voluntary measures to fight illegal content online and increase trust.
  • Consumer protection – Member States must ensure that users of collaborative platforms are protected against unfair commercial practices. That said, the Communication advocates avoiding imposing disproportionate obligations on individuals who only provide services occasionally.

IV.            Concluding remarks

Online platforms and the collaborative economy play a key role in innovation and growth of the Digital Single Market.  While these Communications are not binding instruments or legislative proposals, they provide an assessment of the rapidly changing economic and regulatory environment in which online platforms are growing.  They also provide guidance as to how rules at the EU and national levels could enable the digital economy to flourish.

However, these Communications illustrate a more cautious attitude than reflected in the Consultation, likely resulting from the difficulty of proposing “one-size-fits-all” solutions for such varied business models.

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Photo of Kevin Coates Kevin Coates

Kevin Coates advises clients on critical antitrust matters drawing on his extensive public sector experience in the Directorate-General for Competition of the European Commission (“DG COMP”), most recently as Head of a Cartel Unit.

His practice has a particular focus on advising companies…

Kevin Coates advises clients on critical antitrust matters drawing on his extensive public sector experience in the Directorate-General for Competition of the European Commission (“DG COMP”), most recently as Head of a Cartel Unit.

His practice has a particular focus on advising companies in the electronics, technology, software and e-commerce sectors.

Mr. Coates advises on all aspects of EU, UK and international competition law, including merger control, compliance, cartels and leniency, and abuse of dominance.

Mr. Coates served as Head of a Cartel Unit at the Directorate-General for Competition (“DG Comp”) at the European Commission between 2012 and 2016. Prior to this, he held several positions within DG Comp, over nearly 20 years in total, including advising the Director General of DG Comp on policy and communications issues, and overseeing competition cases in the telecoms and media sectors. While working for the Director General he was one of the team that produced the Guidance on Enforcement Priorities under Article 102.

He was also a visiting research fellow at NYU School of Law in 2009-2010.

Prior to joining DG Comp, he served as in-house Counsel at AOL Europe where he was responsible for antitrust and regulatory issues for AOL subsidiary companies in the UK, Germany, France and the Netherlands.

Mr. Coates is the author of “Competition Law and Regulation of Technology Markets” published by Oxford University Press in 2011.

Mr. Coates is co-chair of Covington’s Internet of Things (IoT) group, and leads the firm’s Brexit Task Force.