Author: Donna Chesteen, Esq.
So, what is a double-sided marketplace (or, a two-sided marketplace)? We use these marketplaces every day but most people have never heard this term. A double-sided marketplace is essentially a marketplace that brings together two categories of users who need each other to be successful. One of the most familiar examples is Uber®. Uber requires both drivers and passengers; otherwise it would not be a business. Other examples include matchmaking businesses such as Match®, business review platforms such as Yelp®, and sites like eBay® that bring together buyers and sellers.
These double-sided marketplaces are especially prevalent in the mobile app world but these marketplaces have an unusual legal risk associated with them. This risk revolves around the lack of control over the users.
This issue manifests itself in many ways with the following being the most common:
1. Are the users representing themselves accurately and truthfully?
2. Is the data provided by the users correct?
3. Are the users providing data whose IP they don’t have the rights to?
Untruthful user representations present a huge issue when dealing when two-sided marketplaces—whether that marketplace is a dating website or a babysitting matching app—because of the dangers of interacting with unknown individuals or organizations. The terms and conditions (or similar agreements) used by the provider of a two-sided marketplace need to explicitly state that the provider has no control over the users of the platform and that the use of the platform is at the user’s own risk. It should explain the risk of dealing with individuals or businesses that are unknown to the user and have the user agree that the provider is not responsible for the actions of others. It should also contain an indemnification clause* requiring the user to indemnify the provider against legal actions from third parties with regard to misrepresentations.
There can also be risks involved with a user entering “bad” data and other data integrity issues. For instance, if a user enters an incorrect phone number or email address and, therefore, the other party is unsuccessful in notifying her of some important event, the provider needs provisions to ensure it is not liable for that. This is another situation where an indemnification clause* should be included to protect the provider of the platform against data integrity issues.
*An Indemnification Clause is a clause that protects a provider, if a third party files suit against it, by transferring that liability to the party who actually committed the wrongful act.
As you can see, while a double-sided marketplace can be a great business model, it can also cause the provider double trouble. If you need assistance with protecting yourself against the legal risks involved with providing a double-sided marketplace, contact me for help.