Digital Platforms Should Contribute to the Enforcement of Sector-Specific Regulations

Tech companies often rely on the European Union’s outdated e-Commerce Directive to oppose and undermine new laws and regulations. The EU should overhaul the Directive and compel digital platforms to leverage their data for enforcement of sector-specific regulations.

Platform regulation is one of the most debated issues in the European Union (EU), where many feel that the fast rise of tech giants is a threat to consumers, data protection, free and fair competition, city logistics, and even to democracy itself. This feeling is reinforced by the fact that most of these companies were not founded in the EU. Yet even as national and local authorities across the EU have been eager to pass new laws and regulations, platform operators have been relying heavily on the 2000 e-Commerce Directive (ECD) to oppose these initiatives.

The ECD was originally aimed at fostering the development of e-commerce by ensuring the free movement of electronic services in the EU. Thus, it widely restricts EU Member States from regulating the conditions under which electronic services are provided in their territory (see the brief summary of its provisions on the European Commission’s website). This allowed businesses to reap the benefits of the development of the Internet. However, with the recent emergence of large platforms, the ECD is arguably outdated.

Specifically, there is a lot of uncertainty as to how and by whom platforms can be regulated. Furthermore, in many instances, the ECD prevents public authorities from addressing flagrant market failures caused by platform services.

With the European Commission, the EU’s executive arm, preparing to issue a proposal for a new Digital Services Act (DSA), let us look at the shortcomings of the ECD and examine how the DSA could compel platforms to contribute to the enforcement of sector-specific regulations.

The Uncertain Legal Classification of Composite Services

Many platform economy services, such as those provided by social media platforms, undoubtedly classify as electronic services. Consequently, they fall within the scope of the ECD.

The classification of composite services—such as collaborative economy services (see the Commission’s communication on the collaborative economy), or e-commerce services that are linked to the delivery of goods—is not as straightforward. On the one hand, the online and offline supplies could be considered separately. On the other hand, there might be good reasons to consider a single, comprehensive service, for instance, where the supply comprises a single service from an economic point of view or where partial liberalization is not desirable.

So far, the Court of Justice of the European Union (ECJ) has only opted for this second approach when examining UberPop, an Uber service that connected passengers to non-professional drivers (see here for an overview of the European context at the time). It held that Uber’s intermediation service must be classified as a transport service as it “form[s] an integral part of an overall service whose main component is a transport service.” As these services have not yet been liberalized in the EU, it remains for Member States to regulate them, in conformity with the general rules of EU law.

On the contrary, the ECJ held that eBay and Airbnb only provide electronic services (see our brief commentary of the Airbnb judgment), so Member States wishing to regulate these services must abide by the strict provisions of the ECD.

The ECJ judgments are rather contradictory and do not allow for a definite conclusion to be drawn as regards the legal classification of carpooling (e.g. BlaBlaCar) as well as food ordering and delivery (e.g. Uber Eats) services. Even accommodation or ride-hailing services that differ from the specific services already examined by the ECJ may be difficult to classify in light of these judgments (we discuss that in more detail in this article). 

However, the ECJ has made one thing clear: the ECD may adversely affect the enforcement of sector-specific regulations applicable to the underlying offline services to platforms’ intermediation services.

The Suboptimal Regulation of Platform Services

To understand the shortcomings of the current legal framework, it is necessary to highlight some features of the ECD.

First, the Directive prohibits Member States from subjecting the activity of electronic services providers established on their territory to prior authorization.

Second, it sets out a country-of-origin principle: Member States may only restrict the freedom to provide electronic services from another Member State by measures that are justified by reasons of public policy, public health, public security or the protection of consumers. They should also notify the Commission and the Member State at stake before implementing these measures.

Third, Member States may not hold electronic services providers liable for the content that they transmit, store, or host, as long as they act in a strictly passive manner, and as long as they do not have knowledge of the “illegal activity or information,” or are acting “expeditiously to remove or to disable access to that information” as soon as they become aware of it (as the Court recalled in a Facebook case last year, and as the Commission explains in this communication). This may sound familiar to those acquainted with Section 230 of the Communications Decency Act (CDA) of 1996.

Fourth, Member States must not impose a general obligation on these providers to monitor the information that they transmit or store, or a general obligation to actively seek facts or circumstances indicating illegal activity. 

The impact of these provisions on regulation is dramatic. As far as EU law is concerned, most platform operators are established in a small number of Member States such as Ireland, Luxembourg, and the Netherlands. (Incidentally, these states offer advantageous tax and regulatory frameworks.) As a result, the remaining Member States are not only prohibited from holding these operators liable and imposing that they collect data, but are also widely restricted from regulating the conditions under which they provide services on their territory. This is all the more worrying since platform operators are subject to virtually no EU regulatory obligations.

In concrete terms, Member States where Twitter, YouTube, and Facebook provide their services may not pass laws forcing these companies to take down user content that breaches their national laws on hate speech.

Furthermore, the ECD adversely affects the regulation of the underlying offline services to electronic intermediation services.

In this regard, the case of short-term accommodation rental platforms in Paris, France, is telling. The ECJ has most recently confirmed that France may subject Airbnb hosts who wish to rent accommodation for more than 120 days a year to a (proportionate) prior authorization. But such a scheme will not allow the City of Paris to ensure a sufficient supply of affordable long-term rental housing. Indeed, without access to (at least some of) the data collected by short-term accommodation rental platforms, it is incredibly hard to detect infringements. The City of Paris’ staff needs to locate suspected apartments and prove that they are up for rent beyond the 120-day limit, without having the occupants’ consent to access those apartments.

E-commerce platforms provide another example of the shortcomings of the applicable legal framework. Member States may regulate the companies selling products on marketplaces, but the ever-increasing number of small-players makes the enforcement of product safety regulation very challenging. A recent inquiry by the European Consumer Organisation found that approximately two-thirds of products bought from online marketplaces failed safety tests.

Theoretically, platforms offer “the promise of greater control” over economic agents and may “play an active role in correcting market failures that are traditionally addressed through regulation.” Unfortunately, despite a number of commendable initiatives, there is mounting evidence that businesses have “lost control of their massive platforms—or decline to control them.” Furthermore, experience shows that platforms are often restrictive and selective in granting access to their user data, and are reluctant to cooperate with public authorities when it comes to preventing breaches, which the mayors of numerous EU cities, including Paris, have long been complaining about.

As the ECD prevents Member States from requiring platforms to contribute to the enforcement of applicable laws, these laws remain widely unenforced.

A Way Forward

The DSA should overhaul the ECD. It shall end the growing uncertainty regarding how and by whom platforms can be regulated in the EU. In light of the above, it also must compel platforms to leverage the data they are amassing to contribute to the enforcement of sector-specific regulations.

New obligations may require platforms to share relevant data with EU and/or national public authorities. They may also demand that platforms enforce certain regulations themselves, reporting to a regulatory body of some sort.

For e-commerce platforms, this could consist in further cooperation with regulators, as well as obligations to improve compliance of products sold on their marketplaces and accuracy of third-party ratings. For short-term accommodation rental platforms, this could translate to obligations either to transmit user data to public authorities, or to automatically limit rentals and block certain listings. For social media platforms, this could mean additional monitoring and take-down obligations regarding harmful content.

In any case, it would be optimal to avoid fragmenting the EU internal market by setting out obligations at the EU level, even though some regulatory powers should be left to local governments.

Augustin Chapuis-Doppler currently serves as a legal adviser at the French Competition Authority. Prior to that, he also served as a legal adviser at the General Secretariat for European Affairs. The views expressed are solely those of the writer and should not in any circumstances be regarded as an official position of the French Competition Authority or the French Government.