Predominantly, the perception is that the P2B regulation reinforces the best practices of platforms. It is important to note that not all platforms are gatekeepers, and many cannot afford to lose their professional client base. As stated previously, professional users as clients, as well as consumers, will ultimately benefit should platforms ensure their terms and conditions are clear, rankings are transparent, and they have effective complaint handling and redress mechanisms in place.
The digital economy presents small and medium-sized enterprises (SMEs) a whole new world of opportunities for growth and insights. According to the Organisation for Economic Cooperation and Development (OECD), there is an urgent need to address digital adoption in SMEs. The longer it takes for them to implement digital technologies, the wider inequalities among people, firms and locations will grow. The pressure to digitise is on.
SMEs face a number of barriers and challenges in their quest to become digitally relevant including a lack of institutional knowledge on how to do so, insufficient resources to invest in the digitalisation of business processes or even just a simple understanding of digital transformation and its dimensions. However, platforms provide SMEs with opportunities to bridge the digital divide. And, as SMEs experience the exceptional circumstances brought about by the pandemic, many, if not all, will depend on digital platforms for survival.
The platform-to-business (P2B) relationship, however, is a complicated one. Yes, platforms offer small businesses many opportunities but there are many pain points SMEs face when dealing with them as platforms can perform the role of gatekeeper between businesses and their clients. Businesses will also lose out on valuable information when operating via platforms and in some instances will even have to compete against the platform operators themselves as they take their goods and services to market.
In this context, the European Union has implemented Regulation (EU) 2019/1150 of the European Parliament and of the Council of 20 June 2019 on promoting fairness and transparency for business users of online intermediation services to promote transparency and fairness between platforms and businesses (P2B regulation). This new regulation aims to promote platform best practices including transparency and accessible complaint handling mechanisms.
This report explores the context and value of the P2B regulation as the first of its kind to address the asymmetry between online platforms and businesses. With the help of nine Spain-based experts from law, academia, and the private and public sectors, as well as practising lawyers from firms based in different EU countries, Spain-based SME associations/agencies, and local experts on digital transformation the report also assesses the impact the regulation could have on SMEs in Spain.
SMEs face a number of barriers and challenges in their quest to become digitally relevant including a lack of institutional knowledge on how to do so, insufficient resources to invest in the digitalisation of business processes or even just a simple understanding of digital transformation and its dimensions. However, platforms provide SMEs with opportunities to bridge the digital divide. And, as SMEs experience the exceptional circumstances brought about by the pandemic, many, if not all, will depend on digital platforms for survival.
The platform-to-business (P2B) relationship, however, is a complicated one. Yes, platforms offer small businesses many opportunities but there are many pain points SMEs face when dealing with them as platforms can perform the role of gatekeeper between businesses and their clients. Businesses will also lose out on valuable information when operating via platforms and in some instances will even have to compete against the platform operators themselves as they take their goods and services to market.
In this context, the European Union has implemented Regulation (EU) 2019/1150 of the European Parliament and of the Council of 20 June 2019 on promoting fairness and transparency for business users of online intermediation services to promote transparency and fairness between platforms and businesses (P2B regulation). This new regulation aims to promote platform best practices including transparency and accessible complaint handling mechanisms.
This report explores the context and value of the P2B regulation as the first of its kind to address the asymmetry between online platforms and businesses. With the help of nine Spain-based experts from law, academia, and the private and public sectors, as well as practising lawyers from firms based in different EU countries, Spain-based SME associations/agencies, and local experts on digital transformation the report also assesses the impact the regulation could have on SMEs in Spain.
The P2B Regulation is the first attempt to introduce a horizontal and competition-based regulation adapted to the platform economy. Until recently, platforms were subject to a myriad of different and piecemeal rules and regulations, and the services they provide and activities they carry out, had not been regulated in their entirety.
The P2B regulation aims to shape platform best practices
Expert insights on the platform-to-business regulation
Overall, the general consensus is that the P2B regulation is positive for SMEs as they do not need to act or comply with any new requirements. They also benefit from the new duties imposed upon platforms. However, this is partly because the regulation aims to promote desired behaviours, without posing a burden on competition and innovation. Enforcement measures fall to individual EU member states. For example, some might enable fines for breaches of the regulation while others could empower business users affected by a breach to sue for compensation, etc. Consequently, it is important to stress that a supervision mechanism to ensure compliance is relevant. Fines are a disincentive to infringe, but they do not compensate users affected by the breach of regulation. In that regard, users only benefit from the compliance of the regulation.
“The impact in practice may also depend on what action SMEs or SME representative associations are willing to take against platforms that do not comply with the requirements of this regulation.”
Dr. Kuan Hon – Director of Privacy, Security and Information Law, Fieldfisher LLP
Transparency is the cornerstone of the regulation. This emphasis on transparency between P2B relations is done so in the hopes it will promote fairness between platforms and their business users. The clear benefit of promoting transparency to the providers of online intermediation services is they become easier to monitor and they can be held accountable more easily. However, some argue that, by requiring platform transparency, the regulation does not adequately address platform dominance of the P2B relationship.
The regulation does not take any steps towards changing or limiting platform activity, which may explain some of the disappointment SMEs feel towards it. Sebastiano Toffaletti, Secretary- General at European Digital SME Alliance, says “large platforms will easily interpret the transparency clause in their favour since the law is only asking for an explanation. Thus, there is no enforcement to give chances to SMEs”
“The regulation’s main focus is to promote transparency as a mechanism to repair information asymmetry. However, excessive reliance on transparency raises the question whether transparency is an effective mechanism for dispute resolution, prevention and protection of interests. Nonetheless, it sketches out an initial set of standards of good practices for a platform economy that will set a global precedent.”
Teresa Rodriguez de las Heras Ballell – Professor of Commercial Law, Universidad Carlos III Madrid
One of the regulation’s objectives is to strengthen the bargaining power of professional users. Here, the regulation carefully considers the financially vulnerable position SMEs may find themselves in, but more importantly, the disadvantageous position, or at least, the vulnerable position, that arises from them being locked-into the service. In that regard, business users might be reluctant to litigate where the dependency is high at the risk of losing their customer base.
Given that the cost and length of litigation may pose a barrier to SMEs holding platforms accountable, the regulation requires platforms to facilitate mediation and also bear a reasonable proportion of its total costs. There are numerous possible factors that could dissuade businesses seeking redress (financial, complexity, lack of resources or expertise, retaliation on behalf of platforms). The regulation allows for the possibility of industry or business associations, such as SME or developer associations or alliances, to take action to compel compliance.
“The P2B regulation promotes complaint-handling mechanisms, and opts for incentivising mediation, but it does not show a firm and conclusive bet for pure online dispute resolution (ODR) in the solving of disputes between the business users and the platform operator and as a primary dispute resolution mechanism for conflicts between users. Furthermore, the P2B regulation is cautious in opting for automated ODR.”
Teresa Rodriguez de las Heras Ballell – Professor of Commercial Law, Universidad Carlos III Madrid
The regulation focuses on transparency to guarantee that both parties understand the contractual terms of their relationship. By knowing the rules of the game, SMEs can decide whether to contract a platform’s services and if they do, they can decide how best to optimise these services.
One significant concern, discussed in the first part of the report, is the dominance of certain platforms and the growing dependencies that smaller businesses develop. Does knowing the rules of the game prove to be enough to address this dependency? It arguably reduces opacity and enables business users to plan their activity, strategically design their business models, and understand how they compete with other business users and how consumers perceive them. In this, the regulation tries to adopt an impartial view of fairness. It recognises that “many terms and conditions that may appear unfair from the perspective of one party, are actually central to the functioning of the platform and therefore create significant value and efficiencies for the system as a whole”.
Network effects are central to the platform business model in that a successful platform builds strong network effects to provide more value to its professional users. Some argue that it is in the platform’s best interest to act transparently, as their professional users are clients. In ensuring a 15-day notice period or clear and concise terms and conditions, the regulation incentivises best practices of platforms that are already taking care of their professional users.
“SMEs should be mindful of these new rights when contracting with online platform operators and in the event that difficulties arise.”
Francine Cunningham – Director of Regulatory and Public Affairs
Bird & Bird LLP