The EU Regulation on fairness in the platform economy is a let down for intellectual property

The Digital Single Market Directive, introduced earlier this year, has been the subject of much discussion (see here, here and here for previous posts). Flying  under the radar of most IP enthusiasts is Regulation 2019/1150 on promoting fairness and transparency for business users of online intermediation services, passed on 20 June 2019.

This Regulation aims to provide “appropriate incentives to promote fairness and transparency” in order to maintain healthy competition in the ranking of corporate website users by online search engines and across the wider online platform economy.

The Regulation acknowledges the importance of search engines and online platforms in the commercial success of businesses, especially small and medium sized enterprises (Recital 2). It also acknowledges that often these businesses will be commercially dependent upon search engines and online platforms. On this, the Regulation stresses that:

Given that increasing dependence, the providers of those services often have superior bargaining power, which enables them to, in effect, behave unilaterally in a way that can be unfair and that can be harmful to the legitimate interests of their businesses users [sic] and, indirectly, also of consumers in the Union. For instance, they might unilaterally impose on business users practices which grossly deviate from good commercial conduct, or are contrary to good faith and fair dealing. This Regulation addresses such potential frictions in the online platform economy. (Rec 2)

Transparent cat

To this end, the Regulation introduces “measures” and “safeguards” to foster fairness and transparency on the platform economy by requiring that contractual terms and conditions of search engines and online platforms be clear, transparent and drafted in good faith.

The targets of the Regulation are search engines and “online intermediation services”. Whilst we have a pretty good idea what a search engine is, what exactly is an “online intermediation service”?

To be classified as an “online intermediation service” (and be affected by the provision of this Regulation) a platform must meet three cumulative requirements. Thus, the platform or service must (Article 2(2)):

(1) be  classified as  “information society service” information society services within the meaning of EU law (see, Directive 2015/1535, Article 1(1)b);

(2) allow business users to offer goods or services to consumers, with a view to facilitating transactions between those business users and consumers (irrespective of where those transactions are ultimately concluded);

(3) provide services to business users under a contract.

The Regulation casts a broad net over the platform economy. This definition will include a wide range of platforms, ranging from Amazon, to Uber, AirBnB and Fiverr, for example.

What has this got to do with intellectual property?

The Regulation references intellectual property clauses as important aspects of search engines and platforms’ terms of use -- and rightly so. Recital 17 of the Regulation reads:

The ownership and control of intellectual property rights online can have significant economic importance for both the providers of online intermediation services and their business users. To ensure clarity and transparency for business users and for their better understanding, providers of online intermediation services should within their terms and conditions include general, or more detailed, information if they so wish, regarding the overall effects, if any, of those terms and conditions on the ownership and control of intellectual property rights of the business user. Such information could, inter alia, include information such as the general usage of logos, trademarks or brand names.

Following on from this, Article 3 of the Regulation requires that terms and conditions:

• be drafted in plain and intelligible language (Article 3(1)(a));
• be easily available to business users at all stages of their commercial relationship with the provider of online intermediation services, including in the pre-contractual stage (Article 3(1)(b));
• include general information regarding the effects of the terms and conditions on the ownership and control of intellectual property rights of business users (Article 3(1)(e)) (emphasis added).

Failing to comply with these conditions and the relevant terms and conditions will be deemed null and void (Article 3(3)).

And… that is it. This is all there is in the Regulation for safeguarding the intellectual property rights of business users trading via online platforms: “include general information” on the effect of the intellectual property clauses. The provision is only marginally improved if read in conjunction with the requirement that these terms be written in plain and intelligible language, which (as readers will know) is not always a given when looking at rights transfer agreements.

Why is the Regulation a let down for intellectual property rights?

The Regulation is disappointing from the point of view of intellectual property for two reasons.

Let down #1

First,  the Regulation is too vague in the standards that it sets. As it is, Article 3(3) only requires that intellectual property clauses be made clear and explicit to the co-contracting party. … But does it guarantee that business users understand the extent of the intellectual property they are giving away?

Clarity in language for intellectual property clauses is not really a problem in practice. More often than not, a platform’s terms and condition will already provide for lengthy intellectual property clauses, in fairly plain language (see for a commentary of Google’s or Twitter’s T&Cs on IP here and here). As such, platforms could come across as are already complying with the basic standards of transparency and fairness set by the Regulations, and this new instrument will not change the situation very much.

The real threat to business users’ intellectual property resides in what the terms say (i.e. what they contain) rather than how they say it. Terms and conditions often operate on the premise of a full assignment of the rights, or an unrestricted non-exclusive licence, allowing platforms to use without limitation the intellectual property content that transacts through the platform. This is particularly detrimental to businesses, as platforms operate on a take-it-or-leave-it basis, with little to no room for negotiations.

The Paris Tribunal recently sanctioned service providers like Google, Facebook and Twitter precisely for this contractual practice. These platforms’ terms of use were assessed against legal standards of clarity, transparency, good faith and intellectual property protection set by French consumer and copyright law, and all were found to fall short. See here, here and here for previous posts on this.

The Regulation would have been the opportunity for the EU to boost the intellectual property protection of platform users (business and consumer user alike), following the example set by the French courts. But that would have been a more meaningful change in the law than what the instrument currently provides.

Of course, Member States have the option to do just that, going beyond the minimum required by the Regulation. But setting an EU-wide minimum standard would have made for a better safeguard. For example, the Regulation could have required that terms of service related to intellectual property list each intellectual property right, one by one, that the platform wishes to acquire, with the corresponding remuneration or consideration offered in exchange, as a condition of validity. This is already enforced in France, and it has proven to be successful in protecting rightsholders’ interests.

Let down #2

Second, the Regulation does not address another pressing issue of the platform economy in the creative industries (for whom intellectual property is critical): the impact of platforms’ terms of use on the contract formed between platform users and on the rights-transfer clauses it contains.

The Regulation addresses terms of use binding the platform to the platform user. In practice, these terms often shape or govern the terms of another contract (not mentioned by the Regulation): the agreement binding two platform users upon completion of a transaction via the platform.

For example, platforms like Fiverr, Upwork, and Quidjob, which broker the hiring or commissioning of creative services, will sometimes dictate the scope of intellectual property right transfer (or “buy out”) the parties may agree to as part of their transaction. This will often be done to favour, intentionally or not, the interests of the client acquiring intellectual property protected content than the artists who hold the rights; the latter will be pressed to agree to an assignment of the rights in exchange of a very low fee (see for example, Fiverr’s Terms and Conditions here). Readers will recall an earlier post on this and on the problems it creates for intellectual property, here.

This is a problem because platforms generally claim to be ‘neutral’ matchmakers where in fact they are involved in users’ negotiations, leading them to be in in  a position to engineer a race to the bottom (encouraging the transfer of intellectual property rights for very low remuneration) on a global scale. These aspects of the platform economy, relevant to fairness and transparency in contracts for business users and consumers, could have been addressed by the Regulation but, sadly, they were not.