Do you really know how collaborative platforms work?

Rosa Guirado | Lawyer & Economist | Founder of Legal Sharing

“Competition is inconvenient, and that does not make it unfair, it is simply competition”, is the sentence our latest article ends with, regarding the difference between competition existing and it being unfair, and how collaborative platforms are continually under suspicion as to whether they compete fairly, when all the majority do is to try to compete. 

Thus, and although on previous occasions we have offered our analysis of the judgements handed down in favour of Airbnb and BlaBlaCar, now some time has elapsed, it is worth considering the “big picture” and understanding exactly how collaborative platforms work. 

Both the BlaBlaCar as well as the Airbnb Judgements emphasise that collaborative platforms (we mean the “pure” ones, that is, platforms that do not intervene by setting either the price or conditions of the underlying physical contract, for transport, accommodation, etc.) are merely intermediaries that just provide an electronic service. That is the key to understanding the collaborative economy: platforms do not act in the underlying contract (transport, accommodation, etc.) but rather, all they offer is an electronic service as online platforms, which is not insignificant, as without them, the users would not be able to meet and contact each other. 

What does that electronic service consist of?

The electronic service provided by the platforms consists of bringing different users offering and those seeking together in a complete electronic system (organised using computer applications, that integrates a set of services, of communications and information, developed using mobile and geolocation tools and technologies) the purpose of which is to provide the users the possibility of: (i) access to the platform, (ii) hosting their offers or demands on the different underlying services, or delivery of the assets and (iii) allowing the user requesting to find the best offers of the service or product sought by search and subsequent automatic matching by the system.[*]

The key lies in the platform offering a introduction service between two parties potentially interested in entering into a contract, which is the underlying physical contract. The relevant fact is that “pure” platforms do not provide the underlying service, but rather just make their electronic system available to the users to expedite their automatic search and – where appropriate – reaching regarding the price and service or product to be exchanged. 

This gives rise to all the consequences regarding their regime of liability, taxation, etc. Thus, if platforms do not provide the underlying service, it is difficult for them to be able / or to have to undertake obligations regarding such. That makes it senseless for those who fail to understand that concept to call for platforms, for example, to be taxed on revenue they receive from users for provision of the underlying services, when the only tax obligation of the platforms may refer to commissions they obtain for providing their electronic service, but not for something they do not provide, or charge, themselves. 

An image is worth a thousand words. 

Graphics make it easier understand:

As may be seen, there are two well distinguishable types of commercial and legal relations:

The posture taken by the European Commission.

At this point, one must consider the position taken by the European Commission, that published a Communication on the collaborative economy in June 2016, titled “A European Agenda for the collaborative economic”. In that Communication, the European Commission underlined the legality of collaborative economy platforms and called on the Member States to allow their exercise and not to impose requisites for access to the market, proposing review of their national laws, in order to eliminate unnecessary obstacles that are unjustified or disproportionate. 

With regard to the service the platforms provide, the European Commission stated that: 

• Platforms are intermediaries that provide information society services.

This means that, in principle, platforms do not provide the underlying physical service that takes place between private individuals. It is due to that reason that platforms do NOT have to comply with the regulations of the sector concerned, nor must undertaken the obligations of the underlying service (such as, for example, tax regulations regarding the activities between the users).

It is a different matter that, although they are not under such a legal obligation, platforms wishing to offer certain “extra” services due to purely business related reasons, although not being obliged to do so, as in the case of insurance coverage, that many platforms offer their users nowadays, to increase the perception of confidence between users, to benefit the transactions.

As such information society services, platforms are not liable for the data housed (that is, the content uploaded by the users) as no online platform is, as long as the collaborative platform does not provide an active role that allows it to acquire knowledge or control of illicit information,and when it obtains knowledge of such, it acts promptly to withdraw the data or make access to it impossible. Moreover, the exemption is limited solely to the information society services, without covering the accessory services (such as modes of payment, insurance coverage, ratings, classification, etc.).

• The underlying service

Notwithstanding this, there may be cases when the platform provides the underlying service, instead of the user-provider or prosumer. The European Commission understands that this must be established on a case by case basis. Notwithstanding this, there are elements that may indicate that a collaborative platform also offers the underlying service such as,fundamentally, the level of control or influence the collaborative platform exerts over the provider of such services.

The level of influence or control may be established according to the following key criteria: that the platform (1) set the price, (2) determine the key contractual conditions or (3) owns the key assets to provide the underlying service. Thus, when these three criteria are fulfilled, there are clear signs that the collaborative platform exerts significant influence or control over the provider of the underlying service, which may indicate that it also provides the underlying service (in addition to an information society service). Along with these criteria, there are also other relevant ones, such as the fact that (4) the platform bears the expenses, (5) that it undertakes all the risks related to provision of the underlying service, or (6) that there be a labour relation between the collaborative platform and the person providing the underlying service concerned, in which case one may also assume that the collaborative platform exercises a major level of control and influence over provision of the underlying service.

• The auxiliary activities do not alter the nature of the main contract.

Moreover, collaborative platforms may aid the provider of the underlying services with certain activities that are auxiliary with regard to the main information society services (e.g.: payment terms, insurance coverage, after-sale services, evaluation or rating mechanisms, etc.). The important thing is that this, on the contrary to the preceding point,does not in itself constitute a proof of influence and control with regard to the underlying service.

And in particular, the European Commission offers the following example: “a collaborative platform that offers services in the short term letting sector may only provide the information society services and not also the actual accommodation service if, for example, the provider of the accommodation service sets its own prices and the platform does not own any of the assets to provide the service. The fact of the collaborative platform also being able to offer its users insurance and rating services need not alter that conclusion [that it does NOT provide the accommodation services itself]”.

Possible situations

Even though there may be various, we shall concentrate on the two situations that may mainly arise and that may graphically be seen as follows: 

(i) when the platform only provides information society services:

 (ii) when the platform also provides the underlying service:

And why is it so important to define which service the platforms provide?

Because in the event -and only in that event- of the platform providing the underlying service (transport, accommodation, restaurant services, etc.) it must comply with the regulations applicable to the sector concerned. And in the case of these being breached and obtaining a significant advantage by that infringement, it might eventually be considered to compete unfairly on that market.  

However, one must take care, as we saw in our previous post: mere competition may not be considered unfair. Much less so if the platform does not compete on the underlying market, as it only provides information society services and, thus operates on a completely different market to that of online platforms. And that explanation is so relevant that they key to the matter lies in the fact that “pure” collaborative platforms (those that do not provide the underlying service) are winning sentences in the Courts. 

However, we shall refer to this in our next post.

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[*]  As recorded, in different paragraphs, by Professor Isabel Rodríguez Martínez. MONTERO PASCUAL, JUAN JOSé (Director). “LA REGULACIóN DE LA ECONOMíA COLABORATIVA”. Chapter 4 “Electronic mediation service and the obligations of collaborative economy platforms”. Page 128 and following. Ed. Tirant Lo Blanch. January 2017.