Online selling – what does the new P2B Regulation mean for brands and their franchisees and distributors?

The digital economy has been increasing its share of the overall the economy for a number of years, and this trend has been exacerbated by the Covid-19 pandemic. A number of big brands have invested significantly in their own direct-to-consumer online platforms, but a significant number of SME's have increased their online sales by selling through third party platforms, such as Amazon, Zalando, Otto, Asos, Deliveroo, UberEats, and many have become dependent on these platforms.

The law has struggled to keep pace with this shift in buying habits. The European Commission (EC) is concerned that there is an increasing power imbalance and lack of transparency and fairness in the relationship between the platforms and the brands who sell on their platforms. The EC has sought to address this perceived imbalance by implementing the P2B Regulation (2019/1150), which was adopted on 20 June 2019 and entered into force on 12 July 2020.

What is the P2B Regulation?

The aim of the P2B (which means Platform to Business) Regulation is to ensure transparency and equal treatment within the European market for business users of online intermediation services.

The PSB Regulation has direct effect across all member states of the European Union and it will apply to Iceland, Liechtenstein and Norway. This means that national governments do not need to pass their own implementing legislation.

Despite Brexit, the UK must implement this PSB Regulation because its applicable date falls within the transition period (between 31 Jan 2020 and 31 Dec 2020).

It has been introduced in response to concerns that the intermediary role of online platforms sometimes allows unfair trading practices that can cause economic harm to businesses. The P2B Regulation is the first regulatory attempt to address this concern.  

The P2B Regulation applies to: e-commerce marketplaces, app stores, social networks for companies, booking and price comparison portals, and online search engines.

The P2B Regulation does not apply to: business-to-business platforms, company-owned websites, peer-to-peer mediations in which commercial providers are not involved, online payment services, or online advertising tools or online advertising exchanges that are not provided to facilitate the initiation of direct transactions and where there is no contractual relationship with consumers.

What does the P2B Regulation focus on?

In order to ensure the equal treatment for business users, the P2B Regulation focuses on the following areas:

• Terms and conditions – providers must ensure they are transparent, are drafted in simple and understandable language and are easily available to business users. The T&Cs must also contain:

  • information on terminating and suspending a business' account;

  • description of what supplemental goods and services the platform proposes to consumers, alongside the business';

  • information on which distribution channels the platform will offer the business' goods and services;

  • description of the type of data that will be shared with business users; and

  • details of why the platform may restrict businesses from offering goods and services on different conditions through other intermediation platforms (i.e. most favoured nation clauses).  

• Disclosure of ranking parameters – providers must inform businesses of how they treat and rank goods or services offered in comparison to third party businesses and must inform businesses how they can influence their ranking position (e.g. through payment of a commission).

• Restriction, suspension and termination – where providers wish to do this they are subject to strict procedural rules (e.g. providers must give a statement of reasons to the business concerned).

• Disputes – requirement to set up internal complaint management systems to resolve disputes between businesses and online platform intermediaries. 

What does this mean for brands, and brands which use franchising and distribution models?

In general, the P2B Regulation is good news for brands that engage with online intermediation services. It provides for a greater level of transparency and fairness and helps to even out the playing field.

For brands which use a franchise or distribution network in Europe, the good news applies equally to their franchisees and distributors which sell via these platforms. However, historically, a number of brands (particularly in the retail and food & beverage sector) have struggled with how best to include online sales as part of their franchising or distribution strategy.

Many brands have attempted to limit their franchisees' ability to use online platforms – particularly where the brand itself operates an online channel. Such restrictions were imposed to ensure quality control – it can be damaging to a brand's reputation to have multiple websites and platforms offering their products in divergent ways. This is certainly true in the context of pricing, where brands cannot impose resale prices on the franchisees or distributors in their network.

However, contractual terms or practices which restrict or prevent online sales by distributors or franchisees have always risked falling foul of competition law (a number of high profile brands have been fined by the EC in the last few years for this) and given that consumers are increasingly dependent on online sales, excluding franchisees or distributors from online selling is no longer commercial viable (with a few exceptions).  

What should brands do in response?

1. Brands should review their own relationships with online platforms in light of the P2B Regulations and seek to introduce changes to those terms.
   
   This is in the interests of the relevant platform, as non-compliance may render the contract terms void and unenforceable.

2. Brands should review their online presence and online sale strategy with a view to incorporating their franchisees or distributors into that strategy in way which ensures control and quality consistency and ensures that customers receive a seamless service.

3. As a consequence of point 2, brands should review their franchise and distribution agreements and supporting policies, manuals and processes to ensure that they reflect the online strategy, which may include taking the lead in informing and educating the network on the P2B Regulation.

In conclusion

Both brands and consumers stand to benefit from the new P2B Regulation. Consumers, due to the expansion of choice and the increase in online competition and brands due to higher transparency in utilising influential platforms and thereby getting the most out of the online sales. However, now more than ever, brands should ensure that they are aligned with their franchisees and distributors in relation to their online market strategy.