The use by businesses of online platforms may be impacted by upcoming changes in competition law and a recent judgment of the EFTA Court concerning agency law.
Whether operating on a B2B or B2C basis, online platforms either:
purchase and resell goods and in doing so the platform is acting as an independent reseller; or
act as an intermediary allowing sales by suppliers to customers. In doing so, the platform can be said to be acting as a conduit between seller and buyer.
Sometimes, an online platform will perform both functions. In doing so, it becomes a hybrid platform. In respect of this it is worth noting that a retailer selling its own products on its own website whilst allowing other suppliers to sell their products on the same website is itself acting as a hybrid platform.
The competition law issues
EU competition law is concerned with the prevention, restriction or distortion of competition within the single market. The concern is that it is possible that agreements between parties at whatever level of the supply chain may prevent competition ultimately to the detriment of consumers. However, currently, an agreement between a supplier and a hybrid platform can take advantage of an exemption from competition law (both in the EU and the UK). If:
the agreement satisfies certain requirements contained in an exemption to EU competition law
in fulfilling the intermediary function, the hybrid platform is not involved in the setting of the price at which goods are offered for sale on the platform
the hybrid platform is not involved in determining the trading terms on which the supplier sells the goods to buyers.
But competition law is changing as of 1 June 2022. So, what does this mean?
An agreement between a supplier and a hybrid platform where the platform is reselling goods and, as such, is acting as a distributor, will no longer benefit from a block exemption from EU competition law. As a consequence, most agreements between suppliers and hybrid platforms will need to be individually assessed to determine whether or not the agreements infringe competition law.
Further, the guidelines issued by the EU Commission to provide interpretation of the new block exemption regulation raises doubts as to the ability of suppliers and hybrid platforms to rely on the exemption where the platform is also acting as an intermediary.
With effect from 1 June 2022, the UK will have its own vertical agreement block exemption order. There will also be other changes in existing competition law. However, for most agreements between suppliers and hybrid platforms at the retail level, there will be no change. As a result, provided:
neither the supplier nor the hybrid platform’s market shares exceeds 30%
the agreement contains no so-called hardcore restrictions,
the agreement will benefit from exemption.
Indeed, it is expected that more agreements between suppliers and hybrid platforms will be exempted than at present. The Competition and Markets Authority is expected to extend the current safe harbour of exemption to the wholesale and importer level of supply which currently do not enjoy exemption.
What should suppliers using platforms be doing?
Where suppliers are using platforms to sell to buyers, it is likely that the EU Commission will look carefully to determine whether the platforms are truly acting as intermediaries and therefore the agreements between the parties amount to agency agreements.
Where a supplier is using a hybrid platform, the supplier should give consideration whether – on a self-assessed basis – the agreement with the hybrid platform is exempted from infringing competition law.
Where a supplier is using a hybrid platform, in order for the platform to resell the goods as well as act as an intermediary – in effect, acting as a distributor and as an agent – it may be that the supplier will conclude that the relationship can no longer be maintained.
Platforms currently serving both the UK and the EU may find themselves in specific difficulty as the competition laws of the two diverge.
So why may developments in agency law impact business models of suppliers using platforms?
Where a platform is acting as an intermediary between a supplier and a buyer and does so on a passive basis, it will be as a matter of law performing the role of an agent. However, it cannot be said to be a commercial agent as a key aspect of the role of a commercial agent is to act as an active conduit between the principal and the buyer.
This was emphasised in a recent judgment of the EFTA Court. In doing so it followed a judgment a few years ago by the Court of Justice of the European Union which had examined the role of an agent. It is also consistent with a judgment some years ago of the English Court of Appeal.
However, if the platform performing the intermediary role seeks to actively boost sales for the supplier, for example, by the platform providing a chat function for potential buyers to obtain information about the goods or by the platform sending targeted emails to buyers, it may well be that the platform moves from a passive to an active role and, in so doing, becomes a commercial agent. In this situation it could be expected that should the agreement between the supplier and the platform come to an end, it will be open to the platform to make a claim under the Commercial Agents Regulations or the EU Agents Directive.
It follows that a supplier using a platform should consider including provisions in its agreement with the platform which expressly limits (so far as possible) the statutory entitlements of the platform if following termination of the agreement it should be claimed that the platform has been performing the role of a commercial agent.
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