Lords urge better protection for users of online platforms

A new kite-mark for privacy standards on all EU websites and an investigation into online travel agents are two of the recommendations made in a Lords report out today.

The House of Lords EU Committee has been investigating whether large online platforms, such as Google, Amazon, Uber and Airbnb, which act as gateways to some markets, operate above the law. Its report, Online Platforms and the Digital Single Market, published today, sets out its findings which cover regulation, e-commerce, consumer protection, and competition.

The report recognises that online platforms have accelerated e-commerce across Europe, and that the UK is at the forefront of business creation, with 17 of Europe's 40 so-called ‘unicorns' (tech start-ups valued at $1bn) based in the UK. However the report also highlights areas where current regulation isn't working, such as competition law being too slow and mergers going ‘under the radar'.

Instead of introducing a new regulatory framework for platforms, it argues that the existing regulations should be updated and more robustly enforced.

The report raises serious concerns about practices by some online platforms, such as fake online reviews, unfair search ranking orders, incomprehensible privacy notices and rigged pricing, resulting in poor protection for consumers.

The Committee also calls on the UK competition regulator specifically to investigate current practices by online travel agents, who were described as intimidating hoteliers and misleading consumers.

Commenting on the report, Lord Whitty, Chairman of the Committee, said:

“We applaud the European Commission for its decision to examine the role of online platforms. Companies such as Google, Airbnb, and Uber are not only pioneers of innovation, and key drivers of growth, but they potentially wield enormous power over consumers and businesses, and must do so responsibly.

As Europe seeks to exploit its potential market of over 500 million consumers, it's the UK which stands to gain the most. With the highest levels of e-commerce in Europe, a tech start-up scene that has produced nearly half the $1bn start-ups in the EU, and a world-leading financial technology services industry, we heard how the UK should benefit more than any other EU Member State from the creation of a single market in digital goods and services.

But there are downsides. Growth of our digital economy should go hand-in-hand with better protection for consumers and small businesses. We heard of an array of worrying practices by websites that simply aren't transparent enough and leave consumers vulnerable to exploitation – from fake reviews to personalised pricing, from baffling privacy agreements to rigged displays of search results.

The online travel agent sector is a particular concern. We heard that the use of price parity clauses, which require hotels to offer online travel agents their best price, stifled competition and harmed consumers. Even though some of these price restrictions have been banned, we heard allegations that online travel agents had intimidated hotels for offering better deals to their competitors. Moreover, witnesses described a number of practices by online travel agents intended to mislead consumers. We urge the Competition and Markets Authority to carry out a rapid market investigation into this sector.

The Committee believes that one way to increase consumer trust in online platforms is the creation of a traffic-light style kite-mark on all websites and apps, to show good practice on privacy policies. This, we believe, will encourage platforms to compete against each other to improve standards on transparency, privacy and use of personal data.

Looking to the future, the Committee sees many diverse challenges ahead and is calling on the Commission to set up a panel of independent experts to examine these issues as they arise and to help steer the Commission in its policy-making.”

Key findings and recommendations

Competition
Citing the European Commission's five year investigation into Google, the report concludes that competition law is too slow to react to concerns about abuse of dominance in rapidly changing digital markets, and proposes a number of changes to address this concern – including increased use of ‘interim measures', time-limits on commitment proceedings, and strengthening the Commission's ‘sector inquiry' power. The Committee also calls for the rules on mergers to be revamped, to prevent large online platforms from acquiring smaller competitors and escaping scrutiny by competition regulators because they fall below the turnover thresholds.

Online travel Agents
The Committee urges the UK Competition and Markets Authority to carry out an urgent market investigation into the online travel agent sector. The Committee heard claims that online travel agents have intimidated hotels which gave better rates to their competitors and used deliberately misleading messages about vacancies, and so-called ‘shell websites' which pretend to be the hotel website to take bookings at a higher rate.

Consumer Protection
The report recommends that consumer protection law be updated to require online platforms to be more transparent about how they rank and present search results, publish ratings and reviews and when they use personal data from consumers to determine prices. Collaborative and sharing economy platforms should also be clearer about their consumer protection obligations.

Data Protection
The report concludes that consumer trust in online platforms is ‘worryingly low' because consumers do not fully understand how online platforms collect and use personal data, and that there is a lack of competition between platforms on privacy standards.

The Committee recommends that a kite-mark is created for websites and applications to indicate to consumers the quality of their privacy policies. In order to foster competition and drive up privacy standards, this kite-mark should include a graded, traffic light style, scale. Harnessing the power of corporate reputation, the report recommends that online platforms should be required to notify users when they are found to have breached privacy rules.

Regulation
The report finds that in addition to disrupting markets, online platforms also disrupt regulation. This leads to the perception that they are above the law and creates political pressure for Governments to introduce regulation at Member State level. This in turn creates regulatory fragmentation that undermines the possibility of creating a Digital Single Market. Instead of regulating to contain this disruption, the report recommends that policymakers should review and update the law, and enforce it robustly.

Expert Panel
Because the risk of regulatory fragmentation is so great, and disruption will not only continue but accelerate in future years, the Committee recommends the creation of a panel of independent experts to monitor ongoing issues of enforcement, privacy and innovation. As well as identifying any emerging challenges to the sector, the panel would also act as a channel for public concerns, engaging with regulators, policy makers, businesses and citizens, and subjecting them to rigorous scrutiny. The panel would make policy recommendations to the European Commission.

Background Information

Personalised pricing
Personalised pricing is where online platforms use information provided by or revealed by the consumer to determine an individual price for a particular good or service.

Price parity clauses
Price parity clauses ensure that sellers are deprived of their freedom to sell a product, currently offered through the online platform, cheaper on another sales channel, whether its own website (‘narrow price parity clause') or anywhere online or offline (‘wide price parity clause').

Unicorns
A business with a stock market valuation or estimated valuation of more than $1 billion.

You can watch a YouTube video of Lord Whitty talking about the report, its findings and recommendations.