On 6 May the European Commission (“the Commission”) announced the launch of a competition law inquiry into the e-commerce sector, where it is believed that companies who engage in selling via the internet may be employing methods to restrict online trade with the aim, in particular, of territorial fragmentation and restriction of price competition.
The inquiry will allow the Commission to identify possible competition concerns affecting European e-commerce markets and will complement its Digital Single Market Strategy which has prioritised the removal of obstacles to cross-border online trade.
The inquiry will focus on certain industries including clothing/shoes/accessories, consumer electronics and electrical household appliances, books (printed and electronic), healthcare products, digital content and travel services. The inquiry will cover manufacturers and retailers, online content service providers, and online platforms such as marketplaces and price comparison websites.
The Commission will commence the inquiry by issuing possibly upwards of 2,000 questionnaires to market participants this month (June 2015) and will issue its final report in early 2017. The scale of the inquiry is expected to be similar to that conducted in the energy sector between 2005 and 2007.
Competition Sector Inquiries
The Commission carries out sector inquiries when it has indications that a sector is not working as well as it should. Evidence of this may include issues such as limited trade between Member States, lack of new entrants on the relevant markets, and price rigidity. The Commission will write to businesses and request various information. It will then analyse the information that it obtains to better understand the relevant sector and attempt to identify issues that could hamper effective competition. Importantly, companies which receive a questionnaire from the Commission can be fined where they supply incorrect or misleading information.
While the establishment of a sector inquiry does not mean that there are necessarily grounds for enforcement action, the information that the Commission receives may lead to follow-up investigations. A series of investigations in relation to alleged anti-competitive practices were sparked in the wake of previous sector inquiries into energy and pharmaceuticals.
E-Commerce Sector Inquiry
The development and functioning of online markets is essential both for cross-border trade and allowing consumers to compare prices and offerings. There has been increasing enforcement activity against, and a renewed focus on, vertical restraints in relation to online sales across a number of EU jurisdictions.
The Commission’s Fact Sheet on the inquiry states that there are indications that undertakings active in e-commerce may restrict cross-border online trade within the EU by deliberately creating various barriers, such as contractual restrictions in their distribution agreements and restrictions affecting sales on online platforms.
The Commission has stated that the purpose of its inquiry is to gain more market knowledge in order to better understand the nature, prevalence and effects of these and similar barriers that hinder cross-border e-commerce and to assess them in the light of EU antitrust rules. The inquiry will focus on the sale of consumer goods, including clothing/shoes/accessories, consumer electronics and electrical household appliances, books (printed and electronic), healthcare products, digital content and travel services. It will cover manufacturers and retailers, online content service providers, and online platforms such as marketplaces and price comparison sites. One issue the Commission will consider is cross-border availability of digital content, such as multiple language options on websites.
As noted above, online sales and e-commerce are a key enforcement priority for both the Commission and national competition authorities. In the UK the Competition and Markets Authority (“the CMA”) has stated that ensuring effective competition in online commerce forms a large part of its strategic objectives and it is following the lead of the Commission by placing online sales activity at the heart of its strategy. Accordingly, the CMA has recently held a meeting with numerous industry associations, lawyers and economists for discussion and debate on the subject of online retailing.
Businesses may receive information requests from the Commission and will need to consider carefully their responses. But the ramifications of the inquiry need to be considered also by businesses that do not receive information requests, particularly if there is a possibility that resellers may allege that they are being constrained in their ability to meet demand from customers based in other Member States. Such allegations may prompt follow-on investigations which will be costly and disruptive.
It is therefore a good time for businesses to review their trading and distribution practices. Substantial fines can be imposed for competition law breaches, and a finding of infringement is increasingly likely to trigger follow-on claims for damages.