Further enforcement action expected following publication of European Commission’s Final Report on e-commerce sector inquiry

Introduction

As part of its wider Digital Single Market Strategy, on 10 May 2017 the European Commission published its Final Report (accompanied by a Staff Working Document) on the e-commerce sector inquiry. The publication of the Final Report is the last formal step of the sector inquiry.

It identifies business practices that may restrict competition and should allow the Commission to target its enforcement of EU antitrust rules in e-commerce markets. The Final Report presents the Commission's definitive findings, taking account of comments received on its preliminary report published in September 2016. The Final Report largely confirms the preliminary report's conclusions.

The key findings in the Final Report

The Final Report identifies business practices that may restrict competition and should allow the Commission to target its enforcement of EU antitrust rules in e-commerce markets. The key findings of the Final Report are as follows:

• In terms of market trends, there has been an increased use of selective distribution systems, where products can only be sold by pre-selected authorised sellers, and an increased use of contractual restrictions to better control product distribution (such as pricing restrictions, marketplace bans, restrictions on the use of price comparison tools and the exclusion of pure online players from distribution networks). The Commission recognises that some of these practices may be justified, for example in order to improve the quality of product distribution. However, other practices may warrant antitrust scrutiny.

• In relation to selective distribution systems, the Commission notes that certain requirements to operate at least one brick and mortar shop (thereby excluding pure online players from the system) without any apparent link to distribution quality and/or other possible efficiencies may require further antitrust scrutiny in individual cases.

• Pricing restrictions/recommendations are by far the most widespread restrictions reported by retailers which responded to the Commission’s inquiry. Agreements that establish a minimum or fixed price (or price range) are a restriction of competition by object under Article 101(1) TFEU. The Final Report states that manufacturers and retailers frequently monitor online retail prices, often by means of pricing software. This could allow manufacturers to retaliate against retailers that deviate from a recommended price level and may even limit incentives for retailers to deviate from such recommendations. Increased price transparency online may facilitate or strengthen collusion between retailers by making it easier to detect deviations from the collusive agreement.

• In relation to dual pricing (where two different prices are offered to the same retailer depending on whether goods are sold offline or online), the Final Report confirms that charging different prices to the same (hybrid) retailer is generally considered as a hardcore restriction under EU competition rules. However, this may be exempted on the basis of Article 101(3) TFEU in specific cases.

• According to the Commission, marketplace bans do not typically amount to a de facto prohibition on selling online or restrict the use of the internet as an effective sales channel irrespective of the markets concerned. In addition, restrictions on the use of marketplaces are largely found in the context of selective distribution systems and typically concern branded goods. The Commission states that the findings of the sector inquiry indicate that (absolute) marketplace bans should not be considered as hardcore restrictions under EU competition rules on vertical agreements. However, this does not mean - according to the Commission - that absolute marketplace bans are generally compatible with the EU competition rules; in particular cases they may not be. A reference on a preliminary ruling concerning the use of marketplace bans is currently pending before the Court of Justice (in C-230 Coty Germany GmbH v Parfumerie Akzente GmbH).

• The Final Report reiterates the concerns around certain geographical restrictions (including geo-blocking) in relation to the online distribution of physical goods, set out in the Commission's preliminary report. Refusal to deliver abroad by retailers is the most common type of geo-blocking followed by refusal to accept cross border payments. The Commission has proposed a regulation covering some of these behaviours. The Final Report suggests that certain territorial restrictions could raise concerns under EU competition rules including contractual restrictions relating to the territory into which a distributor may sell the goods; the restriction of passive sales in the context of an exclusive distribution system; and certain restrictions in the context of selective distribution systems (including active and passive sales restrictions to end users).

• The sector inquiry results confirm the increased relevance of data and point to potential competition law concerns relating to data collection and usage. For instance, the exchange of competitive sensitive data, such as pricing information or sold quantities data, between marketplaces and third party sellers with own shops and retailers may lead to antitrust concerns where the same players are in direct competition for the sale of certain products/services.

• In relation to online content, the Final Report identifies certain licensing practices which may make it more difficult for new online business models and/or services to emerge. For example, the use of bundling to restrict output in situations where online rights have been acquired but are not, or only partly, exploited by the licensee, and the use of certain mechanisms to renew agreements (such as automatic renewal clauses, first negotiation clauses and or a matching offer right) could be problematic depending on the context and markets concerned. Moreover, almost 60% of digital content providers who responded to the Commission’s consultation said that they are contractually required by right holders to geo-block.

Commentary

In February 2017, the Commission opened three separate investigations into: (a) the discrimination of customers based on nationality or location in relation to holiday accommodation; (b) geo-blocking practices in relation to PC video games distribution; and (c) possible resale price maintenance practices involving pricing software in relation to consumer electronics. Further antitrust enforcement is expected by the Commission in the wake of the Final Report. In addition, the Commission has said that it will open a dialogue with national competition authorities within the European Competition Network on e-commerce-related enforcement to achieve a consistent application of competition rules in the ecommerce sector.

The Commission reported when it published its Final Report that a number of companies, including clothes retailers and retailers in other sectors, have already reviewed their practices in light of the inquiry results. This, coupled with the risk of enforcement action by the Commission, underlines the importance for all businesses in the sector to understand the implications of the Final Report and review their commercial practices and agreements in light of it.