Risks and opportunities in the coming era of online platform regulation

The unregulated era for the digital economy is coming to an end. Governments around the world are done studying digital markets and have moved on to crafting new antitrust laws and regulations that will reshape the relationship that exists between large online platforms and their business users, trading partners, and competitors. The big online platforms will face new legal risks, while the tech companies operating in their spheres of influence will see new legal protections and business opportunities. Everyone will need to keep up with a fast-changing legal landscape.

After years of exhaustive study of digital markets, a rare consensus has emerged among the world’s major antitrust enforcers and policymakers. The online platforms that connect buyers to sellers, consumers to producers, suppliers to customers, have gotten so big that their size poses not only an opportunity but also a liability to the businesses which have sprung up on and around them. Governments are now scrambling to step in with new rules and regulations that can harness the benefits of online platforms while mitigating their most significant costs.

Competition law and online platform markets

The prevailing view among the world’s major competition law enforcers and policymakers is that the platforms through which large swaths of online commerce move are operating in concentrated markets with few competitors. Some of those platforms have crossed a dominance threshold that makes their every move subject to heightened antitrust scrutiny. For now, the focus is on the well-known Big Tech platforms active in consumer markets like social media, advertising, online search, and e-commerce. But over time, there is no reason not to expect the gaze to travel to other areas, like business-to-business (B2B) and Internet of Things (IoT).

The focus is on three categories of small and medium-sized enterprises (SMEs) operating within the spheres of influence of the large online platforms: business users, business partners, and competitors. The common thread running through all three is a desire to put in place a legal framework that makes markets competitive or, at a minimum, fair. The main lever being used is antitrust law (generally referred to as “competition law” outside the U.S.). Antitrust empowers government enforcers to go after abuses of market power (or mergers that create market power) through a combination of individual enforcement actions as well as, in some instances, market-wide rules.

Antitrust protections for business users of online platforms

Governments are using antitrust laws to scrutinize the terms and conditions that business users are required to agree to in order to use the big online platforms. With any given user too small to negotiate changes to a platform’s take-or-leave-it contract, antitrust enforcers are in effect inserting themselves into the negotiation to try to inject more fairness and transparency into the platforms’ dealings with users.

For example, competition authorities in Germany and Austria settled an antitrust investigation of Amazon by requiring it to make its terms and conditions with the third-party vendors using its marketplace platform more transparent and fair.¹ The provisions at issue covered such matters as liability waivers, account terminations, returns and replacements, product reviews, and seller ratings. The Italian competition authority is also investigating Amazon. Its focus is on whether the company violated competition laws by giving preferential placement and visibility to vendors who paid to use Amazon’s fulfillment and logistics service.² And in France, the competition authority found Google in violation of antitrust laws, imposing a €150 million fine and requiring it to change its practices to eliminate what it perceived as opaque rules, arbitrary enforcement, and unequal treatment of advertisers on its Google Ads platform.³

Antitrust protections for business partners of online platforms

Competition authorities are also looking at ways to even out some of the bargaining imbalances that exist in the business relationships between the large online platforms and the tech SMEs who partner with them.

In France and Australia, for example, competition authorities are forcing Google to negotiate with web publishers over compensation for the use of their content in the snippets that preview an article in Google News or in response to a user query in Google Search. In France, the authority opened an investigation and imposed interim measures forcing Google to the negotiation table with publishers.⁴ In Australia, instead of an individual enforcement action, the authority is pushing through a new “code of conduct” that will force Google (and Facebook) to negotiate with publishers, including binding arbitration in the event of a stalemate.⁵

Antitrust protections for competitors of online platforms

Competition authorities have focused some of their recent enforcement efforts on eliminating market barriers and promoting conditions that help competitors of large online platforms to survive and grow. In particular, these cases try to limit conflicts of interests that might arise as operators expand their businesses vertically from their platforms and find themselves in competition with their own users.

The modern origin of this theory of antitrust harm is a successful case brought by the European Commission against Google for violating antitrust laws by engaging in “self-preferencing” of its own Google Shopping service over third-party shopping services in its display of Google Search results.⁶(An appeal is pending.) The Commission also has an open investigation of Apple which centers on whether its App Store and Apple Pay services impose onerous terms and conditions on developers of third-party apps in competition with ones offered by Apple.⁷ Finally, the Commission recently issued a statement of objections that preliminarily found Amazon may have violated antitrust laws in its use of data concerning its third-party vendors to advantage its own retail sales (including, for example, of its Amazon Basics private label).⁸

In the U.S., there has been no government action yet that involves self-preferencing (also called “search bias”) but ongoing investigations of Google and Amazon by state as well as federal antitrust enforcers are believed to be looking into such issues. And a recent report by the House of Representatives Judiciary Committee (the “House Tech Antitrust Report”) made much of Amazon’s dual role as both the operator of its marketplace and a seller on it, recommending various antitrust reforms and other legal changes to prevent the company from acting on this “conflict of interest” to the detriment of third-party sellers.⁹ Meanwhile, private enforcement is barreling ahead in the U.S. A recent example is the highly-publicized private antitrust lawsuit against Apple filed by a major game developer, Epic, which alleges that the terms and conditions for using the App Store and Apple Pay prevent third-party gaming app stores from being offered to iPhone users.¹⁰

Antitrust review of platform mergers and acquisitions

One of the most consistently-held views by competition enforcers, academics, and policy makers is the need in tech markets for more aggressive enforcement of the laws governing mergers that harm competition.

Recent proposed antitrust reforms would require large online players to report to the authorities more of their acquisitions as well as shift the burden of proof in favor of enforcers and use stronger presumptions of illegality in deals involving certain digital markets. Other approaches would rely on existing laws to bring cases with novel vertical or conglomerate theories of competitive harm that scrutinize deals in which large platforms acquire companies operating in a market adjacent to their own. For example, Facebook’s recent acquisition of antimated-image service Giphy has attracted a close review by U.K. and Australian enforcers despite its relatively small size and its having been a completed deal. Their concerns center on whether the data Facebook obtains from the deal strengthens its position in social media or allows it to gather sensitive intelligence about competitors who use Giphy’s service (or even lock them out of it altogether).¹¹

The proposed antitrust reforms would also mean that, even when they clear a digital deal, antitrust authorities would be more likely to impose conditions or remedies on the merging companies. For example, in the E.U.’s ongoing review of Google’s acquisition of Fitbit, reports indicate that clearance is expected to soon be announced conditional on certain commitments from Google. These include a commitment that it will not use the health data gathered by Fitbit smartwatches to improve the targeting of online advertisements on Google Ads.¹²

Market-wide regulations to protect tech SMEs

Beyond case-by-case enforcement and targeted rules, some major jurisdictions around the world are looking to impose market-wide regulations that will more directly interfere with the workings of online platforms in order to promote fair and open competition. Such regulations could transform digital markets in which SMEs currently feel themselves at the mercy and whims of the largest online platforms.

These market-wide measures seek to bypass unwieldy administrative proceedings or lawsuits brought under competition laws by offering regulators a direct role in overseeing certain digital markets and intervening in them where conditions are not conducive to fair and competitive outcomes. Users, business partners, and competitors of online platforms all stand to benefit from these transformative industry regulations.

Japan, for example, has enacted a law that will require some online platforms (mainly, e-commerce and app stores) to submit a regular report to an overseeing agency which conducts an annual review to ensure fair treatment of users. The report will have to disclose platform terms and conditions as well as complaint procedures, and a notice and response period will apply for changes to platform rules and account terminations.

In the E.U., the European Commission has already set out rules requiring online platforms to be transparent about the algorithmic parameters for ranking business users.¹³ The forthcoming Digital Markets Act (DMA) will go much farther, setting out a list of do’s and don’ts for “gatekeeper” platforms.¹⁴ For platform users, the DMA will codify some of the protections—such as those against opaque and unequally enforced terms and conditions—that up to now have been guaranteed only by one-off antitrust enforcement actions. For the business partners and competitors whose fates are tied to being able to connect to the data and systems of the large platforms, the DMA is expected to require access to consumer data (and to make it portable) for “interested third parties.” The new rules are also expected to make it easier for consumers to switch between services by requiring platforms to make their systems more interoperable with third-party services.

Risks and obligations for online platforms in the new regulatory era

All the signs point in one direction: the imminent emergence of a new legal landscape governing how digital platforms treat their business users, business partners, and competitors. Though the details remains to be worked out, the hands-off era for Silicon Valley is coming to an end and the Big Tech companies operating the largest online platforms will have to adapt.

While some countries are further along in the legislative and rule-making process than others, where major jurisdictions like the E.U. lead others are likely to follow. The order in which the dominoes fall may be of little relevance, though. The major tech platforms operate worldwide, with data, users, and systems which cross national and legal boundaries. The practical reality may be that one major jurisdiction raising the bar is enough to force Big Tech companies to change their practices, systems, and strategies everywhere. This suggests that much can be gained by the tech platforms from closely following, as well as engaging with and quickly responding to, the legal changes happening in early-mover jurisdictions like the E.U.

In the near term, platform operators should expect many areas of their business to be impacted by new risks and obligations.

User terms and conditions will have to be screened to make sure they are transparent and clear. Internal policies and workflows will need to ensure that rules are enforced uniformly (for similarly-situated users) and fairly. Complaints procedures will need to be effective and equally available to all users.
In some instances, data use or collection practices—and even the criteria or algorithmic rules for ranking a user on a platform—will need to be disclosed, along with any subsequent revisions.
For platforms with vertical services that put them in competition with some of their own users, internal rules and compliance programs will need to be cautious when it comes to: user delistings or terminations, ranking or display in search results, fee levels, and access to essential infrastructure and user data. And care will need to be taken whenever a different rule is applied to—or the same rule is enforced differently for—a user who competes with the platform than for one who does not.
Platforms that compete with their own users may also have to consider putting up firewalls that ensure one side of the business is not using information from the other to out-compete platform users. In some extreme cases, it may even be necessary to restructure the organization so that business lines are separated to ensure there is not even the incentive to act on a conflict of interest to the detriment of a user.
Platforms will need to prepare for a new normal in which some of the data they collect about users may have to be shared with their competitors or with business partners operating in adjacent markets. This will place a higher premium on the processes determining what one does with data (for example, the algorithms and machine learning tools that turn data into actions) than on the mere possession of the data.
Requirements for making a platform’s systems interoperable with other online services will pose unique technical and business challenges. One way for online platforms to already anticipate such regulations is to become proactive about interoperability by pursuing cooperation with industry participants in setting out openness standards. This may even head off, or help influence the direction of, the requirements set out by new laws.
Ongoing due diligence will need to be done on all contracts with business partners to ensure that they are up to date in complying with the latest regulatory regimes governing such matters as data access and sharing, system interoperability, and exclusive relationships. Using higher-risk provisions, like those conferring exclusivity or Most Favored Nations status, will require even stronger business justifications (and supporting documentation) than they already do.
Large platforms planning and negotiating mergers and acquisitions will need to take into account the heightened antitrust risks—including the possibility of having divestitures or conduct remedies imposed as a condition for regulatory clearance—for any deals that involve a business operating within, or adjacent to, its ecosystem. Enforcers will scrutinize data access and protection, interoperability, vertical relationships, and other less traditional dynamics of the deal in their review. Build-or-buy decisions may increasingly need to favor the former.

In the long term, platform operators will face an expanding regulatory and enforcement framework. They will also see more clarity emerge on what conduct is and is not prohibited. But no matter how things shake out, the new normal for online platforms will require a multi-disciplinary approach to compliance as the legal landscape intrudes on new technologies (such as 5G, IoT, blockchain, and AI/machine learning) relying on legal mechanisms that go well beyond traditional antitrust (to include sector-specific regulations, consumer protection, content control and liability, and data protection or privacy).

Protections and opportunities for platform users, partners, and competitors in the new regulatory era

The various tech SMEs that operate in or around the ecosystems of online platforms should expect no windfall from the forthcoming laws and regulations. But it is no doubt that the playing field will be leveled more in their favor than it has been under existing legal regimes. This will present opportunities for growth, more steady revenue streams, and better access to venture capital as the Big Tech “kill zone” shrinks under new laws.

The opportunities for tech SMEs will be extensive, especially for those who know their new rights and how to protect them.

Users should expect to operate in a climate in which platform terms and conditions are more transparent, less discriminatory, and generally fairer than they have been up to now. Enforcement of platform rules and internal complaints procedures will be less arbitrary.
Users who compete with a platform operator’s own produces or services—whether in the immediate or an adjacent market—should expect heightened protections against exorbitant fees, misleading reviews, arbitrary delistings or terminations, and sudden demotions in placements, listings or rankings.
Users and business partners will be able to lean on antitrust case rulings as well as regulations and rules to push back against exclusivity and Most Favored Nations clauses which limit their abilities to operate on multiple online platforms (or to sell on their own apps or websites). This could include favorably renegotiating existing contracts.
Business partners, and in some instances even competitors, of platforms will get more access to key data and infrastructure, especially where a pre-existing relationship already exists that gets arbitrarily cut off. In some cases, certain data could end up being centrally hosted (even by a government body) and shared openly with interested parties.
Business partners and competitors should expect to see a dwindling of excessive barriers to interoperability between their services and the systems and services of large online platforms.
Consumers will see their data made more portable, which means they will be able to more easily transfer it from one online service to another. A platform’s competitors will be able to capitalize on this to attract more users to their own services.
Users, partners and competitors with concerns about how their business may be impacted by a merger, acquisition, or strategic partnership being pursued by a platform can voice them to antitrust authorities reviewing the deal. It could result in mitigating conditions being attached to the deal’s clearance, such as requirements for continued data access or interoperability with certain third parties.

This is by no means an exhaustive list of the legal changes on the horizon. And even if it were, court and administrative interpretations of the new rules and regulations governing online platforms will leave room for tech SMEs to try to fit their grievances within whatever framework emerges. But even that would not be the limit of what the users, partners, and competitors of online platforms can do to protect their interests in the new regulatory era. The recent advocacy by app developers, web publishers, and online retailers—though not without their challenges and costs—have proven successful at moving the discussion and even specific enforcement actions and policy in their own favor at the expense of Big Tech.

Tech SMEs, therefore, will want to be familiar with not only the substance of the rights they will enjoy in a more favorable regulatory climate, but also with how to enforce them. Recent experience in Europe—for example, a complaint by music streaming app Spotify against Apple, or complaints by shopping aggregator Foundem and online publisher Gibmedia against Google—shows that voicing one’s concerns to a competition authority can be an effective way to throw light on the internet’s inequities and even to spur government action.

But choosing the right authority matters. The quickness with which France imposed interim remedies on Google to the benefit of publishers, for example, stands in stark contrast to the decade-long case brought by the E.U. against Google which has still not brought adequate relief to shopping aggregators. And tech SMEs need not be hemmed in by the options available in their home jurisdictions. As online platforms become truly global, an international patchwork of laws and regulations will govern them. At the same time, large platforms may not be keen on having different policies, strategies, and technical set-ups all over the world. These forces combine to create an opportunity for tech SMEs to lodge complaints or join proceedings in one jurisdiction which, if successful, could lead to other jurisdictions following suit or cause the platform to change its practices worldwide in response.

Of course, where entirely new agencies or procedures emerge for digital platform markets, those will likely provide more direct routes to relief. For example, the U.K. is setting up a Digital Markets Unit with powers to directly intervene in digital markets.¹⁵ Meanwhile, the E.U. is crafting a “new competition tool” which is expected to provide a way for the European Commission to tackle market failures in certain sectors, including digital markets, without having to bring a full administrative proceeding to establish an infringement of the competition laws.

But even if it doesn’t lead to a specific case being filed, lodging complaints with government officials can steer public policy and influence enforcement priorities. This can be seen in the large roster of third-party complainants who helped inform the sweeping recommendations for U.S. legal reform contained in the recent House Tech Antitrust Report. The moment is ripe all around the world for shaping the future of tech policy, and one need not be a Big Tech giant to have their voice heard. Opportunities abound for tech companies of all sizes and perspectives to weigh in on a once-in-a-generation debate that will determine the rules of the game for the internet for decades to follow.

And in jurisdictions like the U.S., where government enforcement lags, private litigation will remain a viable option for those with an urgent need for resolution or in search of targeted relief. Epic’s case against Apple, for example, has seen a quick ruling on a preliminary injunction and the calendaring of a relatively prompt trial schedule. Even in European jurisdictions where government enforcement is more active, such as the U.K., civil lawsuits offer another avenue for redressing harms.

Keeping pace with the era of online platform regulation

After a long lull, the tech legal landscape is now changing at a blistering pace. But digital markets are extremely fluid, and their players are known for quickly adapting to changing circumstances. That will no doubt be how things play out for the online platform markets which are being subjected to heightened scrutiny under antitrust and other laws. But to react, one has to be aware of the changes. And one thing has become abundantly clear: governments are now wielding a powerful mandate from their voters to rein in some of the abuses and inequities that have resulted from the consolidation of key online platform markets.

This will be an international effort, with a patchwork of rules and regulations for online platforms emerging from it. While that can be said of most areas of the law, digital markets are uniquely global in scope. This means that the tech companies operating in them—whether they are the platform operators or the users, partners, and competitors orbiting them—will need to have a sophisticated understanding of the legal risks and opportunities that exist in the coming era of online platform regulation.