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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?

  • Are the users representing themselves accurately and truthfully?

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.

  • Is the data provided by the users correct?

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.

  • Are the users providing data whose IP they don’t have the rights to?

Another issue that can arise in two-sided markets is when a user infringes someone else’s IP rights through the platform. The marketplace provider must protect itself against this infringement.  An indemnification* can limit the risk of liability for infringement of a third party’s IP to the provider. In addition, the Digital Millennium Copyright Act (“DMCA”) provides safe harbors from copyright infringement liabilities for online service providers. To receive this protection, the provider must register an agent who will receive notifications of claimed copyright infringement. This agent must be listed on the provider’s website or mobile app (usually within its Terms of Use) and this agent must also be registered with the Copyright Office.

*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.

 


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