SMEs to gain from new EU regulation

SMEs to gain from new EU regulation

Brussels wants to enforce rules designed to control the dominance of a few online giants, but Europe’s in this area is poor and we may have to wait for US authorities to act, says John Whelan.

Almost a year after the European Commission fined Google €2.42bn for abusing its dominance as a search engine by giving an illegal advantage to Google’s own comparison shopping service, the commission slammed the company with an even bigger fine of €4.3bn for abusing its dominant position in the market with its Android operating system.

Neither of these fines, the latter the largest ever imposed on a single company, have had any impact on the Google share price, which last week hit an all-time peak, or on its global expansion.

Competition commissioner Margrethe Vestager announcing earlier this month that Googlehad 90 days to end ‘illegal’ practices surrounding its Android operating system or facefurther fines, after slapping a record €4.34bn penalty on the firm. Picture: John Thys
Competition commissioner Margrethe Vestager announcing earlier this month that Googlehad 90 days to end ‘illegal’ practices surrounding its Android operating system or facefurther fines, after slapping a record €4.34bn penalty on the firm. Picture: John Thys

Hence there is a fresh urgency in Brussels to get the proposed new rules to control the dominance a few online platform operators quickly transposed into a regulation binding on all EU member countries and requiring them to legally enforce these new measures.

It is now widely recognised that online platforms offer easy access to cross-border consumer markets and have become a valuable and efficient tool for millions of businesses, big and small, including for consumers buying online from retail outlets.

But these same businesses may find their products suddenly delisted, or the listing costs dramatically increased once sales take off, or even worse, the platform owner introducing his own competing product at the top of the search list and relegating your product to the hard-to-find pit.

Today, these businesses are at the platforms owners’ mercy. A platform owner can launch a competing product and sell it on more favourable terms than outside vendors. That’s what Spotify says Apple is doing by claiming a share of its monthly subscription fees.

In return, the streaming music service sells the subscription at a higher price to iPhone users, which makes Spotify’s product more expensive than Apple Music — the platform’s own offering. In a brief sent to the commission last year, Spotify called for “imposing heightened obligations in cases where the platform operator competes downstream on the platform against its own business users”.

SMEs to gain from new EU regulation

As Spotify is a Swedish company, there may be a tendency to link the actions of the European competition commissioner Margrethe Vestager as biased against US corporations and favouring EU competitors. However, the recent Google case was triggered by a 2013 complaint from two US competitors, Oracle and Microsoft.

The new regulation is aimed at addressing the issues of unfair contractual clauses and trading practices identified in platform-to-business relationships, by exploring dispute resolution, fair practice criteria and transparency. Businesses, particularly small businesses that rely on search engines for attracting internet consumer traffic to their websites are amongst those who will benefit from the new rules.

The proposed law is expected to prevent these abuses and give more rights to the seller which should prove to be beneficial for Irish businesses selling across the EU, as it will make more transparent how platforms and search engines such as Amazon and Google, list retailers when consumers conduct searches for goods and services.

These new rights for the seller will ensure that if a platform owner suspends or terminates all or part of what a business user offers, they will have to state the reasons for this. In addition, they will have to show how they treat their own goods or services compared to those offered by other users and that critical bone of contention; they must set out the general criteria that determine how goods and services are ranked in search results.

But as has happened in the past, the platform owner may say sorry, but gives no compensation to the business user who has spent many a hard day building up his online business only to see it swiped away. The new EU legislation has tackled this by requiring the platform owner to set up an internal complaint-handling system to facilitate out-of-court dispute resolution.

This will be much appreciated by the small business owners who seldom can afford to take large platform corporations to court.

Interestingly, business associations such as the Irish Exporters Association or the Small Firms Association under the new legislation will be granted the right to bring court proceedings on behalf of businesses to enforce the new transparency and dispute settlement rules.

A large chunk of the Irish SMEs (40%) who responded to a recent Eurobarometer survey claimed that they use online marketplaces to sell their products and services

The survey also showed that nine out of 10 Irish businesses that use the internet to sell their products use search engines, with Poland and the UK the second and third highest users of search engines.

Irish businesses are also shown to be leading the way in Europe in the sophisticated use of search engines, with the EU survey showing over two thirds (71%) saying that they use search engine optimisation techniques to appear higher in search results.

However, another study informed the commission that nearly 50% of European businesses operating on platforms experience problems. The study also showed that 38% of problems regarding contractual relations remain unsolved, and 26% are solved but with difficulties.

The new regulations will, it is expected, tackle such concerns. Some Irish and European businesses will still think the new regulations do not go far enough, particularly in the area of protecting their products against parallel selling of a similar product owned by the platform operator.

While it would be unrealistic and counterproductive to require Google or to disclose specific algorithms — that information would most likely be exploited by unscrupulous players — the EU would be justified in prohibiting companies that function as internet platform providers from launching products that compete with those of outside existing vendors.

SMEs to gain from new EU regulation

A further regulatory measure such as this may be considered draconian, but would show that the EU will not tolerate ongoing breach of its competition rules. It would probably add significantly to the Trump ranting and an

increase in the transatlantic trade war, as it would mean requiring Apple to spin off Apple Music and perhaps even all of its app and content business.

Google would have to get rid of its shopping-comparison engine, already the subject of an EU fine and all similar products — for example, for airline tickets — that compete with anything that comes up in its “organic” search results. Amazon might need to spin off Marketplace and offer its products on it on the same terms as other sellers.

Such drastic action may be the only way to force these giants in the online industry to reduce their monopolistic practices and allow for more competition.

However, the EU does not have a good track record in effectively enforcing the breakup of monopolies. Perhaps we may have to await action by the US to take a federal antitrust action, which has been effective in the past in breaking up companies like Standard Oil who monopolised the oil industry, and AT&T, who dominated the telephone industry for decades.

Microsoft might have become the dominant company in search and mobile without the scrutiny that the US Federal antitrust case brought in 2002. Throughout history, entrepreneurs have often needed government’s help to dislodge a monopolist — and may today need it again.

Meanwhile, the proposed EU regulation, which has been with member states since April, is expected to be agreed soon and enacted across the EU in the autumn, according to sources in Brussels.

John Whelan is an expert in global trade

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