The European Commission is pursuing a range of actions of significant importance to companies operating in the TMT (telecoms, media and technology), creative and other sectors, including in particular those which use or intend to use online distribution and/or data sharing technologies.
- On 6 May 2015, further to the announcement earlier this year of its plans for the digital economy (see our e-bulletinof 2 April 2015), the Commission officially adopted its Digital Single Market (DSM) Strategy.
- The Commission has now officially announced its competition inquiry into the e-commerce sector.
- The Commission has stated its intention to carry out a public consultation in relation to online platforms.
As the Commission is expected to be sending out requests for information to interested stakeholders imminently as part of its e-commerce inquiry (if it has not done so already), in this bulletin we take the opportunity to re-cap on the principal elements of the Commission's recent activity in the digital space and also take a step back to reflect on the policy goals behind the Commission's ambitious strategy.
- Digital Single Market Strategy: 16 actions under 3 pillars
- Competition e-commerce inquiry launched
- EU public consultation on online platforms
- Comment: The Commission's focus on a pan-EU digital economy as an engine for growth
- Next steps
1. Digital Single Market Strategy: 16 actions under 3 pillars
The DSM Strategy includes a set of 16 key actions to be delivered by the Digital Single Market project team by the end of 2016. These actions fall under three pillars:
- Better access for consumers and businesses to digital goods and services across Europe, including: rules to make cross-border e-commerce easier, such as harmonised legislation on contracts and consumer protection; a review of the Consumer Protection Cooperation Regulation; more efficient and affordable parcel delivery; ending what the Commission deems to be "unjustified" geo-blocking; a "modern, more European copyright law" allowing for wider online access to works across the EU including further harmonisation measures; identifying potential competition concerns in European e-commerce markets; reviewing the Satellite and Cable Directive to assess if its scope needs to be enlarged to broadcasters' online transmissions and to explore how to boost cross-border access to broadcasters' services across Europe; and reducing the burden on businesses from differing VAT regimes.
- Creating the right conditions and a level playing field for digital networks and innovative services to flourish, including: an overhaul of EU telecoms rules; a review of the audiovisual media framework to make it fit for the 21st century; a comprehensive analysis of the role of online platforms (search engines, social media, app stores etc.); how best to tackle illegal content on the Internet; reinforcing trust and security in digital services, especially the handling of personal data; and proposing a partnership with the industry on cybersecurity in the area of technologies and solutions for online network security.
- Maximising the growth potential of the digital economy, including: a proposed 'European free flow of data initiative' to promote the free movement of data in the EU; defining priorities for standards and interoperability in areas critical to the DSM; and supporting an inclusive digital society.
2. Competition e-commerce inquiry launched
To complement the actions targeted within the DSM Strategy, the Commission has launched an e-commerce sector inquiry in order to identify potential competition concerns affecting European e-commerce markets.
The inquiry will have a particular focus on potential barriers to cross-border trade in those goods and services where e-commerce is most prevalent, such as electronics, clothing, shoes and digital content. The inquiry may also cover free-to-air and public broadcasting, as well as advertising-based broadcasting. If during the course of the inquiry the Commission identifies any potential infringements of competition law it could open investigations under the standard competition rules (Articles 101 or 102 TFEU). The Commission has also indicated that the national competition authorities will play a key role in this sector inquiry. They will have the ability to review and contribute to the information gathered by the Commission and will be consulted on the inquiry's results.
The Commission will send requests for information to various stakeholders over the coming weeks, including manufacturers and wholesalers as well as e-commerce retailers. A preliminary report is expected to be published for consultation in mid-2016, and a final report is expected in the first quarter of 2017. Further information can be found in the Commission's Factsheet and sector inquiry website.
3. EU public consultation on online platforms
Another notable feature of the Commission's announcement was the commitment to launch before the end of 2015 a comprehensive assessment of the role of platforms, including in the sharing economy, and of online intermediaries, which will cover issues such as (i) transparency e.g. in search results (involving paid-for links and/or advertisements), (ii) platforms' usage of the information they collect, (iii) relations between platforms and suppliers, (iv) constraints on the ability of individuals and businesses to move from one platform to another, and (v) how best to tackle illegal content on the Internet.
The Commission has expressly acknowledged that platforms have proven to be innovators in the digital economy, helping smaller businesses to move online and reach new markets, and that they have a significant role to play in the rise of the sharing economy which offers opportunities for increased efficiency, growth and jobs through informed consumer choice. However, (as is clear from the Commission's competition law investigations into Google), it also considers that platforms raise a number of new regulatory questions which require consideration, such as:
- The fundamental question of what constitutes a "platform" (e.g. what common characteristics bring different services such as Facebook, eBay and Spotify under the common heading of platforms).
- Lack of user understanding about the ways in which platforms collect and process data and present information (e.g. through the use of algorithms).
- Lack of consumer awareness about the way in which data relating to users' online activities are collected and used.
- Lack of consumer understanding as to whether they are contracting with the platform or a third party upstream merchant when using a platform.
- Discrimination by platforms to favour their own services over those of third parties.
- Pricing or marketing restrictions imposed by some platforms on third party merchants.
This is a different review to the competition inquiry on e-commerce which is conducted under the Commission's formal competition law powers. The online platform public consultation, which will be broader/more 'holistic' than a competition law review, will be led by DG Connect (rather than DG Competition) and its aim is to consider possible proposals for legislation rather than findings in relation to compliance with competition law. However, the Commission's Competition Commissioner, Margrethe Vestager has been quoted as stating that the Commission is "very aware" that it is dealing with fast-moving markets and that it would only legislate where the legislation would be "future proof".
The Commission's focus on a pan-EU digital economy as an engine for growth
Commission President, Jean-Claude Juncker made the DSM one of the marquee policies in his election campaign, and the statement made by Commissioner for the Digital Economy and Society, Günther Oettinger that "Our economies and societies are going digital. Future prosperity will depend largely on how well we master this transition" shows how important the Juncker Commission believes the DSM to be for the future of the EU. In particular, the Commission is concerned that the EU is lagging other markets (in particular the US) in its efforts to maximise the benefits of digitisation. For example, in its Staff Working Document on the DSM, it was noted that between 2001 and 2011, technology accounted for 30% of GDP growth in the EU, compared to 55% in the US.
The Commission believes that the digital economy, if fully developed and exploited, has the potential to bridge that gap, creating growth and employment by providing opportunities for investment and innovation. This, in turn, should lead to expanding markets and more choice for consumers in goods and services at lower prices. Meanwhile, more efficient use of data should, it is argued, improve many aspects of life including health, food safety and resource efficiency.
However, the Commission has noted that scale is key to maximising the benefits of the digital economy and e-commerce in Europe and that it is therefore vital that digitisation takes place across the whole of the EU to take benefit of the EU internal market. This is based on the premise that digital technologies can enable businesses, including small ones, to scale up at very little marginal cost, and that the larger the market in which these business operate, the more consumers they can serve who will benefit from wider choice and better prices. Without the economies of scale which arise from cross-border e-commerce, the concern is that online businesses may not be viable because there is not enough demand in a single Member State and/or marginal costs of production are high when demand is limited. This is believed to be particularly important for SMEs, which are clearly intended to be one of the group's to benefit most significantly from the DSM Strategy, as Europe seeks to encourage the successful start-ups which could be the Googles and Facebooks of tomorrow.
Other anticipated benefits include the consolidation of Europe's leading position in the production of cultural goods and services.
In order for businesses and consumers to make the most of these potential benefits, the Commission has identified an urgent need to develop a clear and harmonised regulatory framework in order to overcome the current "home bias" which is limiting cross-border online activity. The belief is that this regulatory reform will give all stakeholders more confidence to engage with suppliers and customers from other Member States.
The Strategy also places great significance on the need to deploy high-speed broadband across the EU in order to enable the advanced digital services and new technologies on which all of the potential business and consumer benefits depend – for example, the so-called Internet of Things, big data analytics and cloud computing infrastructure.
However, in the Q&As the Commission states that it does not want to change the principle or the territoriality of intellectual property rights (principally copyright in this case), although it does wish to:
- "Facilitate licensing" and improve the portability of legally acquired content (including a review of the Satellite and Cable Directive assessing how it has facilitated consumers' cross-border access to, and the portability of, satellite broadcasting services in the Internal Market).
- Provide better access to online services from other EU Member States ("if a service can be bought online in another EU country, why can't you buy it?").
- Harmonize exceptions to copyright infringement further (to include data mining inter alia).
- Clarify the rules on the use of copyright-protected content by intermediaries (ISP liability).
5. Next steps
It is clear that the Commission sees the DSM as a key priority. The Commission is pursuing a range of actions in parallel using all the tools at its disposal including consultations, sector inquiries under its competition powers, specific competition investigations and, potentially, legislative proposals. This approach reflects the Juncker Commission's more joined-up structure when compared to its predecessors (the Digital Single Market is led by a number of Commission departments working together under the supervision of Vice President Andrus Ansip).
The task which the Commission has set for itself is a large one to say the very least (the Commission has estimated that it will cost between €34 bn and €92 bn just to meet its broadband roll-out and up-take targets). Even the commitment made by the Commission to deliver on its 16 key actions under the DSM Strategy by the end of 2016 seems almost impossibly ambitious. Consequently, while it is not clear that Juncker will be able to deliver on all of his goals, it is inevitable that, having set the bar so high, his Commission will ultimately be judged in no small part on the extent to which he is able to do so.
Companies which are or aim to be active – either directly or indirectly – in the digital sector will now need to engage with the Commission, in particular as they will likely be asked to respond to formal Commission questionnaires in the context of the e-commerce inquiry. Moreover, given the potential consequences for companies of this inquiry, the consultation on platforms and the DSM Strategy more generally, which may result in specific competition law actions and/or new legislation, it is more important than ever for companies to be prepared, to ensure their practices are compliant with the EU competition rules and to anticipate the potential impact of the Commission's various initiatives on their business practices.