November 1, 2022
Online marketplaces have become an increasingly common means of buying and selling online. However, the growth of these marketplaces experienced a particular increase during the COVID-19 pandemic, as consumers sought a replacement for browsing their local high street.
For those considering setting up an online marketplace, or hoping to sell their products or services through one, it is important to know what the law says about how they are allowed to operate. In this blog, we set out key guidelines for setting up an online marketplace and offer a step-by-step guide to the rules of this online world.
A lot of online shopping is done by buying things (products, services or both) from a business through its own website. In other words, standard e-commerce/online retail.
Although it might feel similar to the buyer, an online marketplace is an app or website which provides a virtual forum for sellers to show off their wares to potential customers, and then facilitates and manages the sale process once the buyer has decided on their purchase. Widely known examples include eBay or Etsy. The sellers can either be businesses or individuals, and the items can be any kind of products or services.
Sometimes the owner of an online marketplace will sell products and services through their own platform, as well as allowing others to do so. A good example of this would be Amazon, where a lot of the products are sold by Amazon itself, but a considerable portion of them are sold by other businesses using Amazon’s platform (identified by Amazon as ‘third-party sellers’).
There are 3 main contracts happening here – one between the platform and the seller, one between the platform and the buyer, and one between the buyer and the seller. This makes it much more complex than other types of e-commerce, where there is only one contract (the buyer-seller one). Marketplace owners need to be very clear that they are not involved in the contract between the buyer and seller.
Countless small companies are dependent on online marketplaces for their entire business, or large proportions of it. The actions, and the terms and conditions, of these marketplaces can therefore have a huge effect on these businesses.
The EU decided that this level of power over other businesses needed to be kept in check, particularly in relation to marketplaces operated by large businesses. This also included the situation where a marketplace’s own products and services may be competing with the third-party sellers. With that in mind, a law was created which introduced extra obligations on these marketplaces governing how they treat the businesses that sell through them.
As this EU law came into force during the Brexit transition period, these requirements also apply in the UK, through an equivalent UK law which applies post-Brexit.
In the meantime, there have been additional changes to EU law to impose further obligations on the providers of online marketplaces – but these only apply to businesses selling into the EU, as they came into force post-Brexit. We will only discuss the rules which apply in the UK in this blog.
The main rules come from the EU’s P2B Regulation. P2B is short for Platform-to-Business, and the full name of the law is “Regulation (EU) 2019/1150 on promoting fairness and transparency for business users of online intermediation services”. Catchy, huh?
As you can probably guess from the name, the P2B Regulation – and the UK equivalent – regulates the relationships between online platforms and the businesses that use them to provide goods and services.
Among other things, under the UK P2B regulations, online marketplace owners need to:
Some parts of the P2B don’t apply if the online marketplace counts as a “small enterprise”, i.e. it employs fewer than 50 people and has an annual turnover and/or annual balance sheet total of EUR 10 million or less. The P2B sections which would not then apply include having to:
Non-compliant terms within the online marketplace T&Cs, or changes to the T&Cs without the required notice, are deemed never to have existed. This means that the terms in question won’t bind either the online marketplace or the business users.
First off, you’ll need to think about whether you’ll be selling your own goods or services through the marketplace, as that will guide your approach to the terms and conditions. You’ll then need to find a payment services provider to process the transactions through your platform. Then, it’s time to think about how the marketplace will function, from buyers registering with the platform, advertising their services, managing the purchase process, through to handling returns and complaints.