On 15 September 2016, the European Commission published a preliminary report in its e-commerce sector inquiry.  The Commission launched the sector inquiry in May 2015 amidst concerns that businesses may be seeking to restrict online sales with a view to limiting price competition and cross-border trade.
The sector inquiry is part of the Commission’s Digital Single Market strategy which aims to ensure better access for consumers and businesses to goods and services. The inquiry focuses on consumer goods including clothing and shoes, consumer electronics, electrical household appliances, computer games and software, toys and childcare articles, media (books, CDs, DVDs and Blu-ray discs), cosmetics and healthcare products, sports and outdoor equipment and house and garden; it also covers digital content. In May, the Commission published a wide reaching Regulation prohibiting geo-blocking and other forms of discrimination based on nationality/location. 
The preliminary report would seem to validate the Commission’s concerns, and the Commission has made clear that antitrust enforcement action may follow on a case-by-case basis.
Main findings of the report
The EU e-commerce market is the largest in the world, with over half of individuals aged 16 to 74 having ordered goods or services over the internet. E-commerce is an important driver of price transparency and price competition, and therefore increases customer choice. However, there is a prevalence of both vertical restraints and restrictions imposed by businesses unilaterally. Some instances of vertical restraints that go further than the competition rules allow will face enforcement action.
E-commerce of consumer goods
Online price transparency has increased, leading to an increase in price competition. Although this is beneficial for consumers, it also allows companies to keep track of each other’s prices and adjust them accordingly. 53% of responding retailers said they tracked the prices of their competitors and almost 80% of these said they adjusted their prices in response to that information. The Commission has said that certain pricing strategies affected by this may require investigation on a case-by-case basis.
Use of direct marketplaces
Direct retailing by manufacturers has increased and many retailers are now competing with their suppliers.
Selective distribution is being used more and more, whereby products can only be sold by pre-selected and authorised sellers. Almost half the respondent manufacturers said that they do not allow pure online sellers to join their selective distribution networks.
Contractual sales restrictions
Additionally, contractual sales restrictions are being used in distribution agreements, such as price restrictions/recommendations, marketplace restrictions, cross-border sales restrictions, and restrictions on the use of price comparison tools. Over two in five retailers who responded face some form of price restriction or recommendation and over one in ten face restrictions on cross border sales imposed by suppliers. The Commission has stated that these restrictions may warrant case-by-case analysis under competition law because they can have the effect of restricting cross border shopping, making online shopping more difficult, and generally causing harm to consumers by preventing them from accessing wider choice and cheaper prices.
E-commerce in digital content
The availability of licences from content copyright holders is key, including the scope of rights granted, the duration of the licences, and the use of exclusivity. Licences of a long duration, over 10 years in some cases, can lead to difficulties for digital content providers trying to enter a new market where the rights are already licensed to other providers. Licences with automatic renewal clauses or first renewal clauses can worsen the situation. The Commission will assess on a case by case basis whether these agreements restrict competition and should face enforcement action.
Territorial restraints can lead to geo-blocking where the rights granted to the licensees are limited to a single member state. This practice is widespread, with more than 60% of licences examined by the Commission limited to the territory of a single member state and almost 60% of digital content provider respondents having agreed geo-blocking restrictions with the rights holder. This could restrict competition in breach of competition rules and the Commission will assess on a case-by-case basis whether to take enforcement action.
The preliminary report is open to public consultation until 18 November 2016 and the final report is expected in the first quarter of 2017.
The Commission has given the clearest message yet that it will take enforcement action in relation to online sales restrictions, and indeed it is common for a Commission sector inquiry to be followed by targeted enforcement action. In the field of online sales and vertical restraints, in recent years enforcement has been left to the national competition authorities, which has led to patchy enforcement across the EU and different authorities even within a single member state taking diverging approaches.
However, not all the conduct identified by the Commission is problematic under competition law. Unilateral conduct generally falls outside the competition rules, save in the case of dominant firms. And even some of the ‘restrictions’ agreed between supplier and a retailer fall into a distinctly grey area and are not clear cut hardcore restraints. If the draft Regulation published in May 2016 is finalised in anything like its current form, this could change: it contains very wide reaching prohibitions on traders, which would prevent them discriminating against customers by reference to nationality/location when accessing the trader’s website or purchasing goods or services, and it prohibits passive sales restrictions having this same effect. It is yet to be seen whether reform as fundamental as this will make it through the legislative process.
In the meantime, perhaps one of the difficulties for businesses trading online is establishing what is permitted to protect the brand or avoid freeriding and what is regarded as a hardcore restraint. The Commission’s 2010 Verticals Guidelines aimed to give some guidance on this, but over six years later – and only half way to renewal of the verticals regime in 2022 – they are in desperate need of a review.
It is hoped that the sector inquiry will lead to targeted enforcement in the most blatant of cases and much clearer guidance, making it easier for the majority of businesses that wish to comply with the competition rules to do so.