There is a growing global appetite to tackle the issue of online harms and protecting online consumers and users. But who should bear the responsibility for preventing, policing and removing harmful online content or products? Who decides what is and is not acceptable and how can that be fairly enforced? These are not easy questions. What is clear is that regulation is coming and the responsibilities and liabilities of online marketplaces, platforms and digital content hosts will change.

In this series Kemp Little’s experts look at the problem, current solutions, consultations and recent developments in shaping a safer digital world.

We hope you enjoy this KL Series. Please also join us on 11 June for a webinar covering the EU’s new Digital Service Act and consultation and the UK’s progress in its online harms initiative. Register here!

Issue # 1: The Consumer Protection Perspective: Should online marketplaces be liable for faulty or unsafe goods sold on their Platforms?

The President of the European Commission has committed to “upgrade the Union’s liability and safety rules for digital platforms, services and products, with a new Digital Services Act” (the DSA). A public consultation on the DSA is due and various interested bodies have started to publish reports and recommendations.

European consumer organisation BEUC has recommended that online marketplaces should be liable for faulty and unsafe goods which third parties sell on the marketplace platforms as part of the EU’s proposed DSA, which is likely to overhaul Directive 2000/31/EC (the E-Commerce Directive).

In February, BEUC, which represents consumer groups across the EU, tested 250 products bought from online marketplaces such as Amazon, AliExpress, eBay and Wish, two thirds of which failed safety tests.

BEUC reported that the products tested included smoke and carbon monoxide alarms which failed to detect smoke or carbon monoxide, toys containing chemicals 200 times over the legal limit, and power banks which melted during testing.

The Director General of BEUC, Monique Goyens, said: “Consumer group tests show that shopping online isn’t as safe as in the offline world. The simple reason is that marketplaces fail to prevent dangerous products from appearing on their sites. If you take smoke detectors that can’t detect smoke as an example, it’s easy to see how this might have disastrous consequences.

Consumer groups have repeatedly flagged unsafe products after which marketplaces have taken the listing down. But this can’t become a modus operandi to keep consumers safe, as similar or new dangerous products reappear.

It’s time the EU makes online marketplaces liable for dangerous products sold on their sites, and that authorities place them under greater scrutiny. This should make marketplaces more cautious in the future and would prevent consumers from being exposed to unsafe products in the first place – the most effective way of protecting them.”

According to BEUC, regulatory action is required to achieve a Digital Services Act that better protects consumers. The key issues with the current regime identified by the BEUC, and their specific recommendations, are summarised below.

1. There is a spread of a wide range of illegal activities online, including illegal products.

BEUC proposes that the updated E-Commerce rules must:

• Establish that consumer law and product safety requirements and infringements fall within their scope of action. While there are differences between faulty products and other types of online content, marketplace platforms facilitate the purchase and promotion of products by listing them or hosting content to sell, supply or promote them.
• Impose additional regulatory obligations on marketplace platforms, as self-regulation is proving ineffective and insufficient and may simply delay regulatory action.

2. The E-Commerce Directive does not apply to service providers established in a third country.

BEUC recommendations:

• The territorial scope should cover all entities that provide services, products and/or digital content to EU consumers, regardless of whether they have an establishment in the EU.
• Platforms must check suppliers from outside the EU which target European consumers either have set up a branch in the EU or have appointed a person responsible in the EU.

3. The way the E-Commerce Directive regulates liability limitations on hosting providers is being used by some platforms to shield themselves from accountability or to avoid taking sufficient action for fear of liability.

BEUC proposes establishing a toolbox for all types of online platforms, which should include:

• Clarifications to the liability regime in the E-Commerce Directive. The liability exemption and limitation principles in the E-Commerce Directive have provided for a balanced framework and should be maintained. However, many hosting service providers (notably online platforms) have a more active intermediary role because they have the capacity to know and control information hosted or transmitted in their sites or apps.
• A robust business user authentication obligation and a service and product verification process obligation, while preserving the right to anonymity of consumers. Platforms should enhance their checks before including suppliers on their sites and applications. Similarly, business users should provide evidence of compliance with safety and other legal requirements as a condition for their listing.

4. Current legislation has gaps on how to regulate the liability of online marketplaces. Including platforms where suppliers can place advertisements, digital comparison or other advisory services, and platforms that offer reputation services, including hybrid platforms.

Consumers should have effective protections online, and the reform of the E-Commerce Directive is an opportunity to hold online marketplaces accountable and even liable if they fail their duties. BEUC’s recommendations include:

• Creating a special liability regime for online marketplaces in the Digital Services Act, including those services which allow the conclusion of a distance contract between a trader and a consumer via advertisements, digital comparison, reputation or other advisory services.
• The Digital Services Act must clarify that an online marketplace will be liable for damages if it does not take adequate measures for the protection of platform users upon obtaining credible evidence of an illegal activity from a supplier or a costumer.
• Online marketplaces must be liable for damages, contract performance and/or guarantees and consumers must be able to exercise the same rights and remedies available against the supplier or producer:

• For failure to inform about the supplier of the goods or services.
• For misleading information or statements given by the supplier or a customer and notified to the platform operator.
• For misleading statements or guarantees made by the platform operator regarding the supplier (including the goods and/or services offered by the supplier) or customers.
• Where the platform has a predominant influence or control over suppliers.

To ensure proportionality and fairness, both suppliers and platforms covered under the special liability regime should have a right to redress towards the party at fault.

It remains to be seen whether BEUC’s recommendations will be incorporated into the draft Digital Services Act, but it is likely that significant additional legal requirements will be imposed on online marketplaces under the proposed Act, whether in line with the proposals made by the BEUC or otherwise.

For more information on our digital content and reputation risk practice and client resources please visit our hub site.

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