2Online platforms
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Committee’s assessment |
Politically important |
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Not cleared from scrutiny; scrutiny waiver granted; further information requested |
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Document details |
Proposal for a Regulation of the European Parliament and of the Council on promoting fairness and transparency for business users of online intermediation services |
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Legal base |
Article 114; Ordinary Legislative Procedure; QMV |
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Department |
Business, Energy and Industrial Strategy |
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Document Number |
(39665), 8413/18 + ADDs 1–3, COM(18) 238 final |
Summary and Committee’s conclusions
2.1The Parliamentary Under-Secretary of State at the Department for Business, Energy and Industrial Strategy (Lord Henley) wrote to the Committee on 4 February 2018 to inform it that the Romanian Presidency of the Council has designated the Commission’s proposal for a Platform-to-Business Regulation file as a priority and is seeking to bring it to completion quickly.7 Although trilogues are ongoing and there remain substantial differences between the Parliament and Council texts, meaning that the shape of the final text remains to be determined on a number of points, the Regulation is provisionally scheduled for adoption at the Competitiveness Council on 18 February, following a final trilogue on 12 February.
2.2The main features of the proposal, which seeks to promote fairness and transparency for business users of online intermediation services by establishing a range of regulatory requirements applicable to multi-sided e-commerce marketplaces, app stores, social media, and search engines, are set out in the Committee’s first report on the subject,8 which it considered at its meeting on 18 July 2018.
2.3The Committee considered the Government’s Explanatory Memorandum9 to be exceptionally brief and non-committal, with the Minister (Lord Henley) merely observing that the Government was committed to maintaining “the right environment to ensure both platforms and the businesses that use them can thrive”, without specifying whether the proposal represented the right environment or not. The Committee accepted the rationale for targeting these categories of intermediary on the basis of the features of the markets they operated in, which are characterised by strong network effects, which can lead to high levels of market concentration and successful platforms becoming almost unavoidable trading partners for businesses seeking to reach consumers. A key consequence of these market dynamics is that platforms can possess very high levels of bargaining power in negotiations with the smaller businesses that depend on them to reach the market, which can lead to the imposition of unfair terms and conditions on dependent businesses.
2.4The Committee considered that the level of intervention proposed was, for the most part, light-touch, with the focus being on improving transparency in these markets, but also recognised the need identified by the Government to balance the need to promote innovation with the need to ensure fairness to reliant businesses.
2.5In its second report on 14 November 2018,10 the Committee granted the Government a waiver to support the text at the Competitiveness Council on 29/30 November 2018. The Minister informed the Committee that the compromise text was balanced and that it included a number of minor changes: terms and conditions that did not comply with the transparency requirements set out in the Regulation would be rendered “non-binding” rather than “null and void”; explanations of suspension or termination would be communicated to the business users via a “durable medium”; and search engines would not have to disclose the reasons for the relative importance of ranking criteria.
2.6In the Minister’s most recent letter, approved and sent to the Committee on 4 February 2019 (despite being dated 31 January),11 the Minister indicates that two trilogues have taken place, with a third scheduled for 12 February. However, the Minister states that progress has been limited and that there continue to be a number of disagreements between the positions of the Council and the European Parliament. The Minister judges that the European Parliament’s text goes significantly beyond the UK Government’s intention of creating a proportionate Regulation, on three points:
- expansion of the scope of the Regulation to include operating systems;
- introduction of a notice period for platforms to suspend business users; and
- tighter rules on differentiated treatment for search engines as well as a ban on differentiated treatment for online platforms that compete with their business users.
2.7On the proposed expansion of the scope of the Regulation to include operating systems, the Minister states that, although the Government recognises the intention behind the text to future-proof the regulation by expanding the scope in this way, it is “particularly concerned regarding the unintended consequences this may have and the unnecessary burdens this may place on businesses”. The Minister states that there is currently insufficient evidence to warrant the inclusion of operating systems or the introduction of a non-circumvention clause. He also states that operating systems fulfil “primarily a technical function” and therefore expanding the scope of the Regulation “might have unintended consequences such as compromising device security and exposing systems to fraud or manipulation”.
2.8On the subject of suspension and termination, the Minister states that the Government supports some of the Parliament’s suggested text, including allowing platforms to waive any notice period when there is a legal obligation on the platform to protect customers. He states that the Government does not, however, support the inclusion of a 15-day notice period before the suspension of platform services to a business, as this would take away a platform’s ability to protect itself, other businesses and its customers through the immediate suspension of its services to a business which is breaching its terms and conditions. The Minister concludes on this point that the Council text has established the right balance by allowing for immediate suspension (with appropriate notification), while introducing a 30-day notice period before the business relationship can be finally terminated.
2.9The Minister states that differentiated treatment is one of the Government’s biggest concerns. He states that the Government’s position is that “platforms must be transparent about any differentiated treatment they offer between their own business activities and those of their business customers”, and that the proposed text “significantly widens the scope of this to cover search engines as well as platforms”. He also states that the Government has concerns about the European Parliament’s proposal to prevent platforms from discriminating against goods or services listed on the platform by other businesses versus themselves, on the basis that this would “endanger existing and legitimate business models of many online platforms and severely limit the innovation capacity of the platform economy”. The Minister states that the Government’s position remains that “instead of banning this differentiated treatment, the Regulation should require platforms to be transparent about it.”
2.10While noting its concerns about these aspects of the European Parliament’s text, the Minister states that the Government recognises the importance of this Regulation and wants to support a proportionate and balanced approach. He states that, to do so (and for the Government to be willing to vote in favour of the Regulation), he considers it essential that the final text:
- avoids a further widening of the scope of the Regulation, specifically with regard to a suggested inclusion of operating systems;
- enables platforms to protect themselves, other businesses and customers by suspending business users immediately;
- avoids the introduction of a ban on differentiated treatment.
2.11Given that the final trilogue will take place on 12 February 2019, with the proposal being adopted on 18 February, it was clearly not feasible for the Minister to write to the Committee following the final trilogue in sufficient time for the Committee to consider the Minister’s letter and grant clearance/a waiver, in advance of the adoption of the Regulation in Council. In order to avoid an override of the scrutiny reserve, the Minister therefore requests that the Committee either clear the document from scrutiny or grant the Government a scrutiny waiver so that it can participate at Council, on the basis of the information provided.
2.12We have taken note of the Minister’s update in advance of the forthcoming Competitiveness Council on 18 February 2019 at which it is anticipated that the final text of the proposed Regulation will be adopted. Given that there remain considerable differences between the European Parliament and Council texts, and that it is unclear how they will be resolved, we are not yet willing to clear the proposal from scrutiny.
2.13We have taken note of the Government’s red lines, which will determine whether it can support the final text or not: the Government seeks to avoid a further widening of the scope of the Regulation to include operating systems; wishes to ensure that platforms are able to protect themselves, other businesses and customers by suspending business users immediately where necessary (with a 30-day notice period before the business relationship can be finally terminated); and wishes to avoid the introduction of an absolute ban on differentiated treatment, while supporting the requirement that platforms be transparent about differentiated treatment where it is occurring.
2.14While we note the principles and positions the Government has identified which will enable it to determine whether it will be able to support the Regulation in its final form, we are not entirely persuaded by the Government’s argument that operating systems should be excluded from the measure. Our assessment is that operating systems are also multisided platforms, may act as intermediaries between business users and consumers, may have effects on the operation of many of the other platforms within the scope of the Regulation, and that many similar concerns which the Regulation seeks to address could therefore in principle arise in relation to them. We therefore encourage the Government to critically reflect on any evidence that is brought forward, and whether (if there is) there is scope for a compromise which would enable both the Council and the Parliament to address their concerns on this point in a manner that is not disproportionate.
2.15Subject to this point, we grant the Government a scrutiny waiver to participate at Council. We request an update in due course regarding the final text that is adopted, and a summary of the final changes to the Regulation, as it represents a significant and long-contested strand of the Digital Single Market Strategy. We particularly ask for a summary of any obligations placed upon operating systems by the Regulation (in the event that they are included in its scope). In the meantime, we retain this document under scrutiny.
Full details of the documents
Proposal for a Regulation of the European Parliament and of the Council on promoting fairness and transparency for business users of online intermediation services: (39665), 8413/18 + ADDs 1–3, COM(18) 238 final
Previous Committee Reports
Forty-fourth Report HC 301–xliii (2017—2019), chapter 1 (14 November 2018); Thirty-sixth Report HC 301–xxxv (2017—2019), chapter 2 (18 July 2018).
7 Letter from the Minister to the Chair of the European Scrutiny Committee of 4 February 2018 (incorrectly dated 31 January). The letter will be made available in due course on the following web-page of the Department for Exiting the European Union’s European Memoranda portal: https://goo.gl/XXN2vp.
8 Thirty-sixth Report HC 301–xxxv (2017—2019), chapter 2 (18 July 2018).
9 Explanatory memorandum submitted by the Department for Business, Energy and Industrial Strategy (5 June 2018).
11 See footnote 1.
Published: 12 February 2019