European Commission Consultation on Ex Ante Regulation of Online Platforms: Is Change Coming?
In parallel to a public consultation to seek feedback from the public regarding the New Competition Tool, the European Commission (Commission) is consulting on a proposal for an ex ante regulatory instrument that would ensure that “online platform ecosystems controlled by large online platforms that benefit from significant network effects remain fair and contestable, in particular in situations where such platforms may act as gatekeepers”.
This proposal stems from a range of concerns which, according to the Commission, could lead to large-scale unfair trading practices, less innovation and reduced consumer choice.
Feedback on the Commission’s inception impact assessment was due on 30 June (85 opinions were collected). The period for stakeholders from public and private sectors to contribute to the Commission’s public consultation (via online questionnaires) ends on 8 September 2020.
Identified Need to Regulate Large Online Platforms
In its inception impact assessment, the Commission noted that the number of digital ecosystems controlled by a handful of large online platforms have multiplied and businesses and (final) consumers have become increasingly dependent upon them.
According to the Commission, these large online platforms can gain market power due to their ability to accumulate a considerable amount of data, to access different technical assets and to easily expand into new markets and leverage their advantage (i.e. data) from their services. As a result, the key role that these “gatekeepers” play in the online economy has led to imbalances in bargaining power vis-à-vis users and competitors, making it particularly difficult for smaller digital firms to bring innovative solutions to the market. The Commission is further concerned that the current EU regulatory framework does not specifically address “the economic power” of these platforms at the source of these issues aforementioned.
Notably, Regulation (EU) 2019/1150 of 20 June 2019 on promoting fairness and transparency for business users of online intermediation services (Platform to Business Regulation or P2B Regulation) came into effect in July 2020. It aims to address the imbalance that exists between online platform providers and business users by imposing a number of transparency obligations on online intermediation services, such as e-commerce market places, applications stores, online social media. However, the Regulation does not take account of market power and further does not specifically address, in its present form, the issues stemming from gatekeeper power. The P2B Regulation also leaves outside of its scope emerging practices, such as certain forms of ‘self-preferencing’, data access policies, and unfair contractual provisions. As such, the Commission does not believe that the P2B Regulation, as is, can address the problems that it has observed.
In this context, the Commission has proposed three alternative or complementary policy options:
- Option 1: A revision of the P2B Regulation, adding prescriptive rules on specific practices that are currently addressed by transparency obligations in the Regulation, as well as on aforementioned new emerging practices.
- Option 2: A horizontal framework empowering a dedicated regulatory body at EU level to collect information from gatekeepers for the purposes of assessment of their business practices. The regulator’s enforcement powers may include the power to impose penalties for refusing to provide the requested data but would not include any power to impose any substantive behavioral and/or structural remedies.
- Option 3: A new regulatory framework targeted at large online platforms acting as gatekeepers. This option includes two sub-options: (i) establishing clear obligations and blacklisting certain practices of gatekeepers, in all or in specific sectors (Option 3a); and (ii) in addition to establishing obligations and blacklisted practices as envisaged in Option 3a, allowing a dedicated EU regulatory body to impose tailor-made remedies on a case-by-case basis (Option 3b). These remedies could include platform-specific non-personal data access obligations, specific requirements regarding personal data portability, and interoperability requirements.
The P2B Regulation has only just become applicable; yet the Commission is already contemplating a revision to regulate “gatekeepers” the first evaluation of the Regulation scheduled in 2022. The Commission’s action appears to be motivated by a growing opinion that the ex-post competition law enforcement is not sufficient to tackle emerging issues in the digital sector.
The Commission’s baseline scenario focuses essentially on the application and enforcement of the current regulatory instruments applicable to online platforms, such as the P2B Regulation, competition law and consumer and personal data protection rules. If this initiative moves forward, these regulatory instruments will have to fit together in such a way to avoid excessive regulation which could hamper the ability and incentives of online platforms to innovate. In addition, the Commission’s consultation on the New Antitrust Tool will also need to be taken into account to ensure complementarity, while avoiding excessive regulation, as both are expected, to some extent, to operate in same field.
Also, the initiative gives rise to other interesting considerations.
If the Commission elects the option of setting a new regulatory framework targeted at large online platforms acting as gatekeepers only, it will need to assess what criteria to use to accurately define ‘gatekeepers’ and whether to regulate gatekeepers in all markets without taking into account their degree of competitiveness.
Secondly, if the Commission decides to establish a list of prohibited practices, there should be unambiguous evidence that shows the harmful effects of such practices. Conversely, one could argue that in the rapidly evolving digital sector, the list of practices should remain sufficiently flexible to include emerging practices.
Lastly, if the Commission chooses to apply customized remedies, as is stated in Option 3b, the principle of proportionality will need to serve as a guideline in the application of these remedies.
Commissioner Vestager recently acknowledged that the term gatekeeper will be “tricky to define”. The Consultation and subsequent administrative process will therefore provide valuable input as to what platforms will be covered.