Online Platforms and the Digital Single Market Contents

Chapter 9: Regulating online platforms

352.In this final chapter we address the fundamental question underlying our inquiry, namely whether general regulation of online platforms is necessary.

Disrupted regulation

353.While online platforms bring enormous benefits for businesses and consumers, they also result in widespread disruption. Professor Gawer said: “there is no denying that these new business models and the companies that have adopted them are very disruptive to incumbent firms which were operating under the previous industry modes.”518 She said that regulators should accept that some “incumbent firms will not immediately adapt or will not even survive waves of technological change. We saw that in the Industrial Revolution, and when fridges and similar appliances came in; the ice harvesting industry completely disappeared.”519

354.Witnesses recognised that as well as disrupting existing traditional markets, online platforms also disrupted regulatory frameworks. e-Conomics observed that: “the dynamics of the digital economy … disrupt existing markets and simultaneously challenge the (sector specific) rules that govern those markets.”520 Professors Strowel and Vergote noted that “the term ‘disruption’ is also associated with the challenge those entrants pose to the existing laws” and observed that “digital platforms generate many legal disputes, especially when they operate at the margin of existing laws”.521

355.Developing this point, Professors Strowel and Vergote suggested that regulatory disruption was a central feature of online platforms:

“Our view is that legal disruption is not an accident of the platform economy, it is a core feature. Digital platforms obviously challenge the law, and this is a key feature and consequence of their operations. They like to show how the law is out-of-date with the new economy”.522

356.Orange, formerly France Telecom, said that the sheer speed at which platforms emerged had contributed to their disruptiveness: “the fast pace of technology and market changes … rendered the current regulatory framework outdated”.523 The CMA also told us that “the speed at which technology is changing—and the rapid emergence of novel online business models—present challenges to the application of many existing and traditional regulatory frameworks.”524

357.The Minister, the Rt Hon. Ed Vaizey MP, agreed that “as a general point in this tech world, some of these issues arise very quickly.” While competition authorities had, in his view, “caught up with the digital age”, they were challenged by rapid changes to market structures. The Minister observed that authorities that had “been dealing with supermarkets for 20 years” suddenly found themselves dealing with “these new very big players that have risen very quickly.”525

358.As a result, some witnesses suggested that large online platforms were, in the words of First Tutors, “effectively above the law”. They highlighted “the great advantage non-EU headquartered companies have in knowing they can trade in Europe and that so long as they have a substantial war chest, they can effectively override EU laws whilst they gain traction.”526 e-Conomics suggested that, as a consequence, policymakers’ concerns frequently related to the enforcement of existing regulation, rather than the regulation itself: “The fears expressed in policy debates can often be traced back to the enforcement of the law, and not to its substance.”527

Responding to regulatory disruption

359.Witnesses warned against trying to contain this disruption through heavy-handed regulation, which risked stifling innovation. Professors Ezrachi and Stucke told us that “The risk of chilling innovation and investment due to excessive intervention is real.”528 Smaller emerging online businesses were particularly at risk—Skyscape, a provider of cloud storage, said that the Commission needed “to take care not to impose regulation designed to curb the behaviours of some online platform providers that imposes unnecessary burden and cost … on SMEs and European start-ups.”529

360.The CMA focused on the potentially anti-competitive effects of “disproportionate regulatory mechanisms”, which could have “the counterproductive effect of ‘locking-in’ a particular market structure”, and thereby “insulate incumbent on-line firms from dynamic competition that would otherwise benefit consumers”.530 Professors Dutton and Jeitschko said that extra regulation could “potentially advantage dominant businesses … which have the scale to support the legal and administrative costs of negotiating through this regulatory complexity.”531

361.Nonetheless, most witnesses argued that there should be regulations to protect the fundamental rights of citizens. BEUC said that the benefits of digital technologies “must not come at the expense of fundamental rights and freedoms.”532 Mr Chisholm said: “I absolutely accept that certain fundamental rights should be protected up front in relation to things such as privacy and data protection. We should, if you like, be able to take that for granted as the regulatory framework.”533 Professors Sally Broughton and Damian Tambini advocated the creation of a regulatory regime that leaned “in the direction of regulating for the protection of individual consumers (data protection, transparency of terms etc.) and not over-regulating the arenas in which freedom of expression and creation are at stake”.534

362.In previous chapters, while rejecting the case for general regulation of platforms, we have identified a number of adaptations to existing regulation that would address specific concerns. We have also highlighted the need for the enforcement of consumer protection law, data protection law and competition law to be sufficiently robust to protect the public interest and deter abusive behaviour.

363.Witnesses identified further practical ways in which concerns about regulatory disruption and enforcement could be addressed.

Ensure that regulators are properly resourced and willing to act

364.First Tutors suggested that some regulators lacked the resources or were simply unwilling to enforce regulations against large, complex businesses: “Whilst the regulation may often be there already, in case law it is often untested and EU states seemingly lack the appetite or resource to actually enforce on large online businesses.”535 Yahoo also noted that competition law, in particular, was “not well tested for the business models highlighted by the Commission.”536

365.Witnesses agreed that enforcement agencies should be willing to take firm action where necessary. CCIA said that enforcement procedures should be “robust and rapid”.537 Baroness Neville Rolfe said that it was important to tackle “the over-mighty when they get over-mighty”, and said that she welcomed Commissioner Vestager’s decision to extend the inquiry into Google Search “with more energy than under the previous Commissioner”, as well as DG Competition’s decision to launch a sector inquiry into cross-border e-commerce.538

366.If existing law is to be better able to deal with large, disruptive businesses, regulators will need to have sufficient resources. Yahoo observed that “the reduction in resources experienced by almost all national and EU regulatory authorities as a result of economic recession will have had an impact on their ability to adapt to and study fast moving markets.”539 TechUK said: “It is important to empower authorities to respond quickly when problems arise… If there is doubt whether the regulator has the capabilities, resources and skills needed to intervene effectively, this should be addressed.”540

367.Regulators will also need technical expertise. Mr Cohen conceded that the Commission, in its ongoing investigation against Google, relied heavily on expertise provided by Google itself. Nonetheless, he was confident the authorities “apply the time and the resources that they need to understand these issues.”541 Mr Loriot, from DG Competition, recognised that some of the markets they investigated were “complex”, and presented “a general challenge” to competition authorities. Nevertheless, he said: “I do not believe that you need to have created a start-up to understand and gather information on the market realities.”542 Martin Bailey, Digital Single Market head of unit at DG Connect, said that he was confident that the Commission had “not suffered, I would say, from a lack of expertise”. He said that the Commission employed “people with private sector backgrounds, people who have worked in tech companies and people who have worked in professions … in multinational environments”.543

Review existing law and develop guidance

368.Most witnesses agreed that the Commission should concentrate on reviewing existing law and its application to online platforms, rather than introducing new regulation. e-Conomics observed: “Many existing rules can be applied to digital business models. Sometimes this may require reinterpretations or adaptations of laws, but often they just need to be enforced.” They recommended that policymakers “review the contested rules and focus on the public interests that formed the reasons for why we had these rules in the first place”; only then would policymakers be able to analyse “whether the disrupting forces are a cure or a curse for these public interests and call for less, more, or different rules.”544

369.BEUC said that it was particularly important to clarify how existing consumer protection law applied to the digital environment:

“The European legislature has been developing, for almost three decades, specific laws to protect consumers across the EU but with a strong focus on the physical world. Only recently the Consumer Rights Directive incorporated specific information rights for digital content products … The challenge is how to make these laws fit for purpose in the digital environment.”545

370.Ms Bury, of DG Grow, said that the Commission recognised that it was important to provide “guidance on the extent to which existing law is relevant.” Some legislation was quite old, including the E-commerce Directive, which was “20 years old now, so even though it stood the test of time relatively well, because it was very much principle-based … we see that there may be, as the regulatory environment evolves, a need for guidance as to how those principles apply in specific situations.”546

371.Nesta said that the need for guidance was particularly marked in the collaborative economy, and called on the Commission to “develop a framework of best practice for collaborative platforms on a sector-by-sector basis, applicable to all member states”, and to “make clear how legislation on the digital economy applies to collaborative platforms”.547

372.Ms Bury acknowledged the difficulty regulatory authorities faced when attempting to keep pace with rapid developments in areas like the collaborative economy. She said it was “very important to have an overview of what is happening in regulatory developments in Member States”. In relation to the collaborative economy, the Commission was “currently mapping what is happening across Member States … as the background for any guidance we give.” By introducing guidance in this area as part of its Single Market Strategy, the Commission hoped to provide “something that may go into the marketplace relatively quickly and be able to help developments”.548

373.The rapid growth of online platforms has disrupted many traditional markets. It has also resulted in uncertainty about how existing regulation, designed in a pre-digital age, applies to these new disruptive business models. As a consequence there is a perception that large online platforms are above the law.

374.We do not consider that highly restrictive regulation that seeks to contain disruption would be the right response. It would risk entrenching existing market structures and make it difficult for new platforms to emerge, thereby discouraging innovation. Nonetheless, we acknowledge the need to protect fundamental rights and to ensure that existing regulation is effective and up-to-date.

375.In addition to the adaptations proposed elsewhere in this report, we recommend that the Commission, in concert with regulators at Member State level, critically review and refit existing regulation to ensure that its application to online platforms is clear. We believe that in many cases specific guidance from the Commission could provide this clarification.

376.As many concerns relate to the enforcement of existing laws rather than the content of those laws, we invite both the Commission and the Member States to consider whether providing regulators with increased resources would be a more efficient way to address concerns about enforcement than introducing additional rules.

377.We recommend that regulators robustly enforce against online platforms they believe to be in breach of the law. Enforcement authorities should sometimes proceed even where there is a risk of losing the case or having the outcome appealed—such outcomes help to clarify how the law applies. For this reason we welcome Commissioner Vestager’s decision to proceed with the Google case, without prejudice to the outcome.

A continuous process

378.We heard that the work of reviewing and updating regulation would have to be ongoing, because digital disruption was unlikely to end any time soon. In Professor Rodden’s words: “current trends such as the ‘Internet of Things’ and ‘Smart cities’ will further expand the influence of online platforms”.549 The CMA echoed this view.550

379.e-Conomics said that responding to developments by digital businesses precluded “compartmentalised law making”, in which “policy debates are led once, then translated and fixed into a regulatory scheme—a set of definitions with prohibitions and obligations attached to them—and these debates are then forgotten forever after”. They argued that “in order for law and regulation to be sustainable in the face of innovation, policy concerns must remain part of the law, so that the law and regulation can be adjusted promptly while keeping focus on the ultimate policy concerns”.551

380.Skyscanner said that, if regulators wanted innovative businesses to continue to emerge, the process of reviewing the existing law needed to be continuous:

“Our perception is that governments and regulators often struggle to understand the emerging disruptive business models that exploit such data and how best to fit them into existing regulatory frameworks in a way that protects consumers without stifling business/innovation … it requires governments and national authorities to endeavour to continually keep abreast with developments in the online space”.552

Coherence across the single market

381.In addition to the growing regulatory fragmentation in specific sectors, such as the collaborative economy, witnesses noted that Member States were taking divergent regulatory approaches to platforms more generally. Yelp told us that “France has recently introduced a draft bill that seeks to regulate online platforms, while Germany is exploring the merits of platform-specific legislation. The achievement of a truly single market requires pan-European reflection and approach.”553 Professors Broughton and Tambini said that “The French Conseil d’État has recommended that a new category of platforms should be devised with new public obligations”, adding that “the Prime Minister of Schleswig-Holstein has argued for an obligation on Google to prioritize public service broadcasters in their results.”554 Professors Dutton and Jeitschko suggested that such actions indicated “a likely but worrisome development”, where “nations increasingly assert national regulatory authority over global technologies”, leading “toward the so-called ‘Balkanization’ of the Internet”.555

382.Ms Bury told us that the Commission was “very much aware” that “if Member States introduce different kinds of rules and regulation”, this could create “barriers to companies operating in a seamless way across the single market.”556 In the previous chapter we noted that businesses strongly supported increased harmonisation at EU level in order to reduce this problem, and to reduce the regulatory burden of cross-border trade.

383.Regulators recognised that this fragmentation also manifested itself in divergent enforcement actions among Member States. In relation to the investigations into wide price parity clauses in the hospitality sector, Mr Chisholm felt it was not “in the interests of the internal market to have different solutions being developed in different countries in Europe.”557

384.Witnesses broadly agreed that, to respond effectively to these concerns, both legislators and enforcement agencies needed to coordinate more closely in order to create coherence across the single market. Addison Lee said that “national regulatory structures … require coordination to ensure that online platforms are assessed on their multi-jurisdictional activities.” They added: “We believe the European Commission, and national regulators and governments must align more effectively and at a more urgent pace to keep up with technological change.”558 The CMA told us that these co-coordinating mechanisms were already in place for competition enforcement agencies, through the European Competition Network (ECN), and said that it had collaborated “with consumer enforcement counterparts through the mechanisms provided for in Regulation (EC) No 2006/2004 on Consumer Protection Cooperation (CPC).” The Information Commissioner’s Office (ICO) told us that data protection authorities currently co-ordinate enforcement actions through Working Group 29, and that the General Data Protection Regulation would introduce a “one-stop shop” for cases and a European Data Protection Board.559

Work across regulatory regimes

385.A further source of confusion and fragmentation is the fact that the challenges presented by online platforms cut across multiple regulatory frameworks and therefore require authorities to co-ordinate their work across these different regimes. Giovanni Buttarelli, the European Data Protection Supervisor (EDPS), identified a need for different types of regulator to work across regulatory frameworks in general: “It is time for us to work less in silos and to understand better what we should do.”560 He referred us to a European Data Protection Supervisor (EDPS) report published in March 2014, which recommended “a more holistic approach to enforcement.”561

386.The ICO also welcomed the EDPS report, describing creating digital trust as “a multi-faceted issue.” They continued: “There are many relevant issues that fall outside the area of responsibility of a data protection authority—for example differential online pricing and competition rules. More work needs to be done to map these relationships”. The ICO also supported “closer working”. They had “worked with the OFT a few years ago on issues to do with the fairness of using consumers’ information to offer people the same goods at different prices”, and had “worked closely with the CMA on their recent report ‘The commercial use of consumer data’”. The ICO emphasised that “more co-working, especially as information privacy becomes more of a mainstream consumer concern, is clearly important.”562

An outlet for political pressure

387.The inherent difficulty, outlined above, in keeping regulation up-to-date and co-ordinating enforcement activity across Member States and across different enforcement regimes, creates a risk of political pressure leading legislators to act without proper reflection. The Digital Policy Alliance said: “The Commission should resist any political pressure to achieve quick results at the expense of well formulated, clearly targeted and effective remedies.”563

388.Building on these concerns, e-Conomics suggested:

“The main question arising at this juncture is how to deal with pressure to intervene arising in the future … As the recent example of network neutrality shows, when a concern catches the imagination of lawmakers and policymakers, it is difficult to carry out a level-headed analysis of whether any additional intervention is needed, and even more difficult to carry the day if that analysis would conclude that no legislative intervention is needed. Political pressure can prove too high.”564

e-Conomics said that this risk “could be the best justification for introducing a mechanism where concerns surrounding online platforms are debated and analysed: it would enable a measured and well-grounded discussion if and when online platforms give rise to serious concerns.” On this basis, they asked whether it might be worthwhile “to create an outlet to channel future political pressures, in order to avoid misguided intervention.”565

An independent expert panel

389.Online platforms present regulators and enforcement agencies with multiple challenges, outlined in detail in this report. In addition to a perceived gap in enforcement, popular concerns about their use of personal data, disruption of traditional industries and corporate tax contributions have put pressure on policymakers to act at Member State level, resulting in increased regulatory fragmentation. Unless these concerns are addressed in a concerted way at a European level this fragmentation will continue to increase, undermining the possibility of creating a single market in digital goods and services.

390.While the Digital Single Market Strategy identifies specific policy interventions designed to achieve this goal, we consider that the political sensitivity of questions relating to online platforms, as well as their sheer variety, make reaching a consensus in this policy area difficult.

391.Although we welcome the Commission’s consultation as a valuable first step, we believe that it is too broadly designed to address these issues decisively. To support the growth of innovative online platforms across the EU in a sustainable way, we believe that the process of reviewing the effectiveness of existing laws in relation to online platforms must be continuous.

392.We therefore recommend that the European Commission appoint an independent panel of experts tasked with identifying priority areas for action in the digital economy and making specific policy recommendations.

393.The panel would consist of a representative group of independent experts with deep insight into the digital economy and the emerging challenges it presents, drawn from outside the Commission itself. It would be supported by staff that would enable it to effectively pursue its objectives, and would seek input from a wide range of specialists on specific issues. The panel would report annually to the European Commission, the European Council and the European Parliament.

394.The panel would act as a channel for public concerns, engaging with regulators, policymakers, businesses and citizens, but would then subject those concerns to rigorous and impartial analysis, before formulating its recommendations. In this way the panel would seek to build political consensus around its policy proposals, thus reducing the risk of regulatory fragmentation and removing obstacles to the creation of a Digital Single Market.

395.While the panel would set its own agenda, on the basis of this report we identify three subjects that require immediate consideration:

518 Written evidence from Professor Annabelle Gawer (OPO0050)

519 Q 1 (Professor Annabelle Gawer)

520 Written evidence from e-Conomics (OPL0066)

521 Written evidence from Professor Alain Strowel and Professor Wouter Vergote (OPL0087)

522 Written evidence from Professor Alain Strowel and Professor Wouter Vergote (OPL0087)

523 Written evidence from Orange (OPL0092)

524 Written evidence from the Competition and Markets Authority (OPL0055)

525 Q 186 (Ed Vaizey MP)

526 Written evidence from First Tutors EduNation Ltd (OPL0020)

527 Written evidence from e-Conomics (OPL0066)

528 Written evidence from Professor Ariel Ezrachi and Professor Maurice Stucke (OPL0043)

529 Written evidence from Skyscape Cloud Services Ltd (OPL0030)

530 Written evidence from the Competition and Markets Authority (OPL0055)

531 Written evidence from Professor William Dutton and Professor Thomas Jeitschko (OPL0057)

532 Supplementary written evidence from BEUC (OPL0068)

533 Q 50 (Alex Chisholm)

534 Written evidence from Sally Broughton Micova and Damien Tambini (OPL0053)

535 Written evidence from First Tutors Edunation Ltd (OPL0020)

536 Written evidence from Yahoo (OPL0042)

537 Written evidence from the Computer and Communications Industry Association (CCIA) (OPL0040)

538 Q 182 (Baroness Neville-Rolfe)

539 Written evidence from Yahoo (OPL0042)

540 Written evidence from TechUK (OPL0056)

541 Q 113 (Adam Cohen)

542 Q 105 (Guillaume Loriot)

543 Q 105 (Martin Bailey)

544 Written evidence from e-Conomics (OPL0066)

545 Written evidence from BEUC (OPL0068)

546 107 (Claire Bury)

547 Written evidence from Nesta (OPL0027)

548 Q 107 (Claire Bury)

549 Written evidence from Professor Tom Rodden (OPL0074)

550 Written evidence from the Competition and Markets Authority (OPL0055)

551 Written evidence from e-Conomics (OPL0066)

552 Written evidence from Skyscanner Limited (OPL0006)

553 Written evidence from Yelp (OPL0034)

554 Written evidence from Sally Broughton Micova and Damien Tambini (OPL0053)

555 Written evidence from Professor William Dutton and Professor Thomas Jeitschko (OPL0057)

556 Q 107 (Claire Bury)

557 Q 50 (Alex Chisholm)

558 Written evidence from Addison Lee Ltd (OPL0067)

559 Supplementary written evidence from the Information Commissioner’s Office (OPL0069)

560 Q 53 (Giovanni Buttarelli)

561 European Data Protection Supervisor, Preliminary Opinion of the European Data Protection Supervisor, Privacy and competitiveness in the age of big data: The interplay between data protection, competition law and consumer protection in the Digital Economy (March 2014) p 36: [accessed on 17 March 2016]

562 Supplementary written evidence from the Information Commissioner’s Office (OPL0069)

563 Written evidence from the Digital Policy Alliance Eurim (OPL0051)

564 Written evidence from e-Conomics (OPL0066)

565 Written evidence from e-Conomics (OPL0066)

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