Tag: e-commerce

The EU Digital Markets Act

The EU has recently unveiled its much-expected landmark proposal for a Digital Markets Act (DMS). Twenty years after the introduction of the eCommerce Directive, the DMA envisages a new legal basis for competition and platform management, covering everything from content moderation  to app stores, search and self-preferencing.

The DMA introduces rules for platforms that act as “gatekeepers” in the digital sector. These are platforms that have a significant impact on the internal market, serve as an important gateway for business users to reach their customers, and which enjoy, or will foreseeably enjoy, an entrenched and durable position. This can grant them the power to act as private rule-makers and to function as bottlenecks between businesses and consumers.

With an eye mainly to US big-tech, the Digital Markets Act is set to prevent gatekeepers from imposing unfair conditions on businesses and consumers and ensure the openness of important digital services. Examples of these unfair conditions that gatekeepers sometimes impose on others include prohibiting businesses from accessing their own data when operating on these platforms, or situations where users are locked into a particular service and have limited options for migrating to alternative service providers.

Gatekeeper on the historic Banco Santander, Lisbon.

The enforcement system of the DMA is of particular importance, as the proposal does not seem to leave much space to national authorities. In fact, the European Commission shall be vested with extensive investigative powers (see Articles 19-21) and shall be able to impose fines and periodic penalty payments in case of non-compliance (Articles 26-27) of the same magnitude as in antitrust cases (up to 10% of annual turnover and 5% of daily turnover for fines and periodic penalty payments respectively).

In case of systematic non-compliance that has further strengthened or extended the gatekeeper’s position, the Commission may even impose behavioral or even structural remedies on the gatekeeper, including divestiture (Article 16). Structural remedies are a last resort penalty and can be imposed only if there are no equally effective behavioral remedies. The European Commission may also issue interim measures (Article 22) and accept commitments offered by the gatekeeper (Article 23).

Together with the Digital Services Act, the DMA is oriented at providing better protection to consumers and to fundamental rights online, establishing a powerful transparency and accountability framework for online platforms and leading to fairer and more open digital markets.

Harmonised across the EU and directly applicable, the new rules will make it easier to provide digital innovations across borders, while ensuring the same level of protection to all citizens in the EU.

Further information can be retrieved from the Commission’s dedicated webpage.

New Rules to Improve Fairness within the Online Platform Economy

Over the past decade, online platforms (such as Shopify, Magento, Etsy, etc.) have established their presence as important economic players, connecting economic actors and boosting efficiency while spurring innovation and new business models.

As of today, they play an important role in many industries, since they allow buyers and sellers of goods and services to trade and communicate with each other. At the same time, they create network effects, and raise new issues related to fairness, transparency, and market distortions.

This ecosystem is now regulated by means of Regulation 2019/1150 on online platform-to-business relationships (P2B Regulation).

The regulation, which directly applies throughout the Union since 11 July 2020, has introduced a set of transparency rules to be followed by online platforms in their relations with business users, to address unfair and potentially harmful contractual clauses and trading practices, and lack of effective redress.

Its scope covers online intermediation services and online search engines provided, or offered to be provided, to business users and corporate website users, respectively, that have their place of establishment or residence in the Union and that, through those online intermediation services or online search engines, offer goods or services to consumers located in the Union, irrespective of the place of establishment or residence of the providers of those services and irrespective of the law otherwise applicable.

The key points covered by the regulation can be summarized as follows:

    • Terms and Conditions will have to be written in plain and intelligible language;
    • Business users will have to be informed of any modification of the Terms and Conditions;
    • Platforms will have to respect a reasonable notice period depending on the nature of the modification (minimum is fixed at 15 days) unless a business user gives an explicit agreement for this period to be shortened;
    • Providers of online intermediation services will have to provide business users with the reasons for restricting or suspending individual products/ services;
    • In case of definitive termination of the online intermediation service offered, the platform will provide the business user concerned with a statement of reasons at least 30 days in advance;
    • The providers of these services have to formulate and publish general policies on what data generated through their services can be accessed, by whom and under what conditions;
    • Providers of online intermediation services as well as online search engines will be required to clearly inform businesses about the main parameters determining how goods and services are ranked;
    • Online search engines should be transparent about any preferential treatment they give to their own products and services offered through their search sites;
    • Providers of online intermediation services will be required to explain the use of contract clauses demanding the most favourable range or price of products and services offered by their professional users;
    • Online platforms will have to set up or have in place internal complaint handling mechanisms (small enterprises with less than 50 staff members and generating ≤€10 million turnover will be exempted from this obligation);
    • Business users will have access to out-of-court dispute settlement through easily accessible external mediators (small enterprises with less than 50 staff members and generating <€10 million turnover will be exempted from this obligation);
    • Representative organisations or associations will be able to defend businesses in courts against possible infringements of the proposed rules by online platforms or search engines.

Furhtermore, an EU Observatory of the Online Platform Economy has been established to look into the current and emerging challenges and opportunities for the EU in the online economy. The observatory shall be monitoring online trends, the evolution of trading practices, and the development of national policies, in order to monitor, anticipate and solve issues arising in the online economy.

A New Deal for Consumers

On 8 November 2019, the European Parliament and the Council adopted a directive on the better enforcement and modernisation of EU consumer protection rules. The directive is a part of the so-called “New Deal for Consumers” legislative package proposed by the European Commission in April last year. The directive, which the Member States will have 24 months to implement into their national legislation, is bound to bring about many significant changes, especially for businesses trading online. The most notable updates are briefly set out below.

Online Marketplaces

In today’s online intermediation services (marketplaces), the trading coordinates of the actual seller is not always clear to the end-consumer. This has been identified as an issue, since consumer protection rules do not apply to C2C (consumer to consumer) relationships, and a consumer could unknowingly purchase products from another private individual through a marketplace. The new legislation introduces transparency as regards whom the consumer is entering into an agreement with.

That is, when buying from an online market place, consumers will have to be clearly informed about whether they are buying goods or services from a trader or from a private person, so they know what protection they will benefit from if something goes wrong. Moreover, when searching online, consumers must be clearly informed when a search result is being paid for by a third-party trader or not. They will also be informed about the main parameters determining the ranking of search results and who they can turn to when something goes wrong.

Personalised Pricing

Transparency will be further required with respect to personalised pricing. The new legislation mandates that consumers be clearly informed when the price presented to them is based on personalisation on the basis of automated decision-making. There should be noted, here, that GDPR restricts the use of automated decision-making, which may also impact the use of personalised pricing.

Consumer Protection for “Free” Services

There is no denying the fact that data may often replace monetary payment when using online services such as social media, cloud services, and email services. To bolster consumer protection for such “free” services, the directive now requires that the fourteen (14) day withdrawal right be applicable to digital services will also apply to such “free” services.

Clear Information on Price Reductions

In order to address misleading price information, the new directive dictates that any announcement of a price reduction must indicate the prior price applied by the trader. The prior price means the lowest price applied by the trader during a period of time not shorter than 30 days prior to the application of the price reduction.

New penalties for Violations

Aiming to reimburse consumer protection, the new directive grants the national legislator the right to impose a fine of up to 4% of the trader’s turnover for violations that are widespread and affect consumers in several Member States. This follows the same pattern with personal data protection, where the GDPR introduced similar fines for violations. This pattern has proved successful, as many enterprizes have proceeded with substantial investments to enhance data protection. It is therefore expected that businesses shall now need to turn their attention to furhter enhancing their compliance with consumer protection legislation.

The directive is only one of the two directives making up the New Deal for Consumers legislative package. The second directive on representative actions for the protection of the collective interests of consumers would empower certain qualified entities, such as consumer organisations, to launch representative actions seeking injunctions and collective redress (e.g. compensation, replacement, or repair) on behalf of a group of consumers. This directive is still making its way through the legislative process.

Unlocking e-commerce in Europe

On 3 December 2018, Regulation (EU) 2018/302, better known as the Geo-blocking Regulation, entered into force. This development is a part of the European Commission’s digital single market strategy to ban unjustified geo-blocking, which restricts the consumers’ ability to access a website, complete a purchase, being rerouted to a country specific website, or refused delivery or payment because of their location.

Geo-blocking occurs when a consumer wants to browse products or services on a trader’s website, but is denied access. This can include the practice of rerouting to a country specific version which may display different products or prices. Even when consumers can access their preferred site, they may be prevented from finalising the purchase or are required to pay by debit or credit card from a particular country. Geo-blocking Regulation now prevents this behaviour by prohibiting the practice of automatically rerouting consumers to country specific websites and banning unjustified discrimination in relation to payment methods. In fact, only few days following the Regulation’s entry into force, the European Commission fined Guess €40 million for anticompetitive agreements to block cross-border sales.

Nevertheless, although EU-based traders will no longer be permitted to refuse to sell to consumers based on their nationality or place of residence, the new rules do not require such traders to offer delivery of the goods to consumers who live in a different country. Certain goods and services are excluded from the scope of the Regulation, including transport services, retail financial services and healthcare service. Importantly, the Regulation does not cover the provision of (non-audiovisual) copyright protected content services (such as e-books, online music, software and videogames). Audio-visual services also do not fall within the scope of the Regulation.

This webpage, provided by the European Commission, explains in a concise way how online sellers can ensure their services are compatible with the new rules and provides examples of best practices.

Buyer’s review following an eBay transaction

In a recently published judgement (Urt. v. 23.09.2016, Az. 142 C 12436 /16) the District Court of Munich ruled that a false review of an eBay transaction constitutes a contractual breach and should be deleted by its author.

In the said case, the plaintiff offered on sale a high-end amplifier “Burmester 808 MK 3”. Pursuant to the description of the item, “the 808 MK3 would be delivered in its original packaging“. The buyer, however, acting in bad faith, reviewed the plaintiff’s profile negatively and lessened its status from 5 to 4,75 stars. The reviewer, in particular falsely claimed that the packaging was not the original one and discouraged other potential buyers from concluding an agreement with the plaintiff.

The plaintiff then repeatedly asked the buyer to withdraw the review and finally brought an action before the District Court of Munich.

The District Court of Munich ruled that an eBay buyer is obliged under the purchase agreement to disclose a truthful valuation regarding the seller and the transaction, and consequently condemned the defendant to remove his negative review.

“Wahrheitsgemäße Bewertungen nach einer Ebay Auktion sind ein zentrales Informationsinstrument der Internetplattform Ebay, da damit anderen potentiellen Käufern Informationen über frühere Käufe und damit Kenntnisse über den Verkäufer, der ansonsten nicht greifbar ist und zuweilen lediglich als beliebiger Ebay- Mitgliedsname erscheint, vermittelt werden. Bewertungen stellen damit quasi eine Kundenempfehlung bzw. Warnung dar. Daraus ergibt sich ein zentrales Interesse des Verkäufers auf Ebay an einer zutreffenden Bewertung.”

According to the court, the truthful assessment after an auction poses a central information tool of the platform eBay, through which other potential buyers are informed about previous purchases and have access to intelligence regarding the trustworthiness of the seller. The breach of this secondary obligation creates hence a right of the falsely assessed person to have any false review erased.