European Union: Cross Border Trade And Online Platforms Are The Current Focus Of The Digital Single Market Strategy

Last Updated: 9 June 2016
Article by Debbie Heywood, Christopher Jeffery, Mark Owen, Adam Rendle, Emma Sagir and Sian Skelton
Most Read Contributor in UK, January 2017

The European Commission has today unveiled further developments in the Digital Single Market (DSM) Strategy (see Taylor Wessing's DSM microsite), covering online platforms, proposed amendments to the Audiovisual Media Services Directive (AVMSD), geoblocking and ecommerce.

As part of its drive towards replicating the "real world" single market for buying and selling goods and services in the online world, today's announcements include:

  • plans to address the current disincentivisation of online platforms to take a more proactive approach to combating, for example, copyright infringement and hate speech, by seeking it out, rather than relying on notifications;
  • amendments to the AVMSD which would increase regulation of streaming services such as Netflix, to bring them closer in line with traditional television viewing platforms, as well as introducing a quota of European content for such services;
  • a proposal for a Regulation on addressing geo-blocking and other forms of discrimination based on customers' nationality, place of residence or place of establishment within the internal market, which, in its current form, excludes audiovisual media services;
  • a proposal for a Regulation on cross-border parcel delivery services aimed at increasing transparency and regulatory oversight to promote affordable cross-border deliveries and returns; and
  • a proposal for a revised Consumer Protection Cooperation Regulation in order to give national authorities more power to enforce consumer rights in the digital world.

Online platforms defined

At the beginning of April, the UK government, along with 10 other EU Member States, wrote a letter to the Commission expressing concern that over-regulation of online platforms risked harming the DSM Strategy. This letter was written in anticipation of delivery of today's Communication on online platforms in the DSM. Although the Communication concludes that, at least for the time being, "there is no compelling case" for introducing general, anticipatory regulation across the board, it sets out in broad strokes what we might expect in a regulatory shake up of both online platforms and the traditional telecommunications models with which they compete.

For the purposes of the Communication, online platforms are defined as undertakings "capable of facilitating direct interactions between users via online systems and that capitalise on data-driven efficiencies enabled by network effects". The non-exhaustive list of examples includes Google's AdSense and Search facilities, eBay, Facebook, YouTube, PayPal and Android and Apple app stores. Services such as Netflix, which are considered "single-side" content distributors, are specifically excluded on the basis that "they do not involve direct contacts between different users".

The Communication expounds the virtues of online platforms, which the Commission considers are fundamental to the continued success and expansion of the digital economy. However, it highlights just how far behind the US and Asia the EU in terms of market capitalisation of the largest online platforms, representing, as it currently does, only a 4% share. Actions being taken by the Commission to remedy this, as part of the DSM Strategy, include ensuring access to high-speed internet in all Member States, facilitating the growth of start-ups and harmonising the regulatory framework for online platforms across the EU. However, while these initiatives are aimed at "supporting the scaling-up of disruptive innovators in Europe", they will also benefit existing players, which could have the result that they surge even further ahead before the start-ups get off the ground.

Disparity of regulation between traditional and online telecommunication business models

The Communication discusses a perceived lack of regulation of online platforms versus their traditional business model alternatives. For example so-called "over-the-top" telecommunications services, whereby telecommunications service providers deliver one or more services across all IP networks, as opposed to the carrier's own access network, are not subject to the same legislative requirements covering confidentiality, security, transparency and quality of service as traditional telecommunication business models. In order to address this disparity, the Commission is expected to announce this year, as part of its review of EU telecoms rules, both partial deregulation of current telecoms-specific rules and the application of the remaining rules to all comparable services. The effect of this would be to provide greater balance across the board both in terms of protecting consumers and enhancing opportunities for business growth.

Protecting rights holders

Whilst, notably, there has been no announcement of a reform of the E-Commerce Directive, the Commission considers that online platforms should be encouraged to take greater voluntary and self-regulatory action, without affecting their "innovation potential", in particular in helping to close the so-called "value gap" and taking more control over the content they provide. The copyright value gap concept is centred on the music industry led concern that some internet intermediaries, such as hosts of user generated content, search engines and social networks, are failing to ensure that rights holders are sufficiently remunerated for use of their copyright-protected content online. However, the Commission recognises the concerns of online platforms, raised during the consultation process, that any voluntary measures introduced to detect and tackle illegal or harmful material posted online would prevent them from benefitting from the safe harbour defence. The Communication reports that the Commission will convene a multi-stakeholder forum to work on self-regulatory measures and to provide guidance to the Commission by the end of 2016. The intention thereafter is that a plan will be drawn up by Spring 2017 to implement any agreed actions by the end of 2018. The Commission is also expected to undertake a review of the need for formal notice-and-take-down procedures during the second half of 2016 as, unlike in the US, where notice and takedown procedures are prescribed by law, platforms in the EU are currently given more free rein to determine what procedures to adopt.

Furthermore, the Communication highlights a need for "greater transparency and fairness in business-to-consumer online platform practices", in particular in respect of the collection, storage and use of personal and non-personal data. It also considers the need to ensure that consumers and business users are able to switch between digital service providers "affordably and with minimum disruption", all of which ties in with a greater emphasis on data protection.

What's next for online platforms?

The Communication does not go so far as to suggest new regulation of online platforms but does make clear that it considers there is much work to be done in order to bring online platforms in line with the Commission's DSM vision. However, it is likely that we will now have to wait at least until the end of 2016 to gain a clearer picture of exactly how the Commission intends to implement the changes discussed.

Quota of European content for on-demand video streaming services

As with the proposals set out in the Communication on online platforms, the proposal for amending the AVMSD largely focusses on bringing regulation of online streaming services such as Netflix into line with that already in place for traditional television viewing platforms. While this will impose additional obligations on video on-demand services, such as requiring them to implement measures aimed at protecting minors from accessing inappropriate content, it will also lead to a relaxation of advertising restrictions across the board. For example, the current hourly limits on advertising would be replaced with a daily limit of 20% between 7am and 11pm.

A slightly more controversial element of the proposals is the introduction of a quota requiring Member States to ensure that at least 20% of programming included in the catalogues of on-demand audiovisual services operating within their jurisdiction be comprised of "European works". However, given that a 2015 study by the European Audiovisual Observatory revealed that, on average, European films already account for 27% of all films available in video-on-demand catalogues in the EU, it is unlikely that this amendment would have much, if any, impact on service providers. The draft amendments also give Member States the authority to require on-demand services to contribute financially to the production of European works, either via direct investment or through "contributions to national funds".

Geo-blocking

The Commission has become increasingly concerned that the practice of geo-blocking (limiting access to websites based on nationality, place of residence or establishment) is a barrier to access to the Single Market. To tackle this, it has now published a draft Regulation on addressing geo-blocking and other forms of discrimination based on customers' nationality, place of residence or place of establishment within the internal market (Geo-blocking Regulation).

The Geo-blocking Regulation covers the sale of goods and supply of services in the EU to both consumers and businesses. Audio-visual services (often the focus of geo-blocking concerns) are among the services currently specifically excluded from scope as are goods purchased for re-sale. However, the draft Regulation provides for periodic reviews of it application and specifies that the first assessment carried out should consider whether it should be extended to cover services providing access to and use of copyright protected works.

Traders may not discriminate against customers (whether individuals or entities) on the basis of their nationality, place of residence or place of establishment, with regard to:

  • access to their online interface, i.e. website, software or apps through which goods or services may be provided (although allowing access is not the same as being required to supply goods and services);
  • redirection to a different page (for example, another country page) without the explicit consent of the customer and providing the originally requested online interface remains easily accessible;
  • conditions of access (including price) to goods and services where:
    • the trader sells goods which are not delivered cross-border to the Member State of the customer by or on behalf of the trader;
    • the trader provides electronically supplied services, other than services which mainly provide access to and use of copyright protected works or other protected subject matter;
    • services are supplied in a physical location in a Member State which is not the customer's Member State of residence; and
  • conditions of payment – for example, the trader may not refuse to accept a particular payment instrument based on which Member State it comes from.

Some exemptions are available where dictated by Member State law and where this relates to access to a particular online interface, the reason for the exemption has to be explained to the customer. In addition, there is no general obligation to deliver goods across the EU and there are some exemptions for small businesses which fall under a certain VAT threshold.

Other provisions include a ban on passive sales in breach of this Regulation, enforcement provisions (which are left to the discretion of individual Member States), dispute resolution requirements and a review mechanism.

Cross-border parcel delivery

Another target for the Commission is the cost of cross-border parcel deliveries which consumers and small businesses, in particular, cite as a barrier to buying or selling goods across Member State borders. The Commission has now proposed a Regulation on cross-border parcel delivery services aimed at increasing transparency and regulatory oversight to promote affordable cross-border deliveries and returns.

The Regulation does not contain caps on delivery charges but rather introduces information requirements on parcel delivery service providers (with an exception for small non-cross border providers). There are different information requirements for universal service providers providing parcel delivery services.

National postal regulatory authorities are required to assess the affordability of the cross-border tariffs that service providers give them and the Commission will also publish price lists of universal service providers to increase transparency.

Increasing consumer trust in e-commerce

In order to give national authorities more power to enforce consumer rights, the Commission is proposing a revision of the Consumer Protection Cooperation Regulation. The proposals aim to enable regulators to:

  • check whether websites geo-block consumers or offer after-sales conditions in breach of EU rules;
  • order immediate takedown of website hosting scams;
  • request information from domain registrars and banks to identify the traders responsible for any of these actions.

Revisions also allow for cooperation between the Commission and Member States to stop these practices as quickly as possible.

In addition, the Commission has published updated guidance on the application of the Unfair Commercial Practices Directive. As well as including two sets of self-regulatory principles agreed by stakeholders, the revised guidance suggests:

  • platforms should distinguish paid placements from natural search results;
  • traders fully comply with EU consumer law; and
  • platforms should state that rules on unfair commercial practices do not apply to private individuals selling goods.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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