On March 26 2015 EU Competition Commissioner Margrethe Vestager announced that she will propose an inquiry into the e-commerce sector, focusing particularly on contractual restrictions and geo-blocking in the online sale of goods and digital content. The inquiry will begin on May 6 2015. The European Union is likely to send detailed requests for information across the supply chain to suppliers, e-tailers and price comparison or marketplace platforms.
This is the first sector inquiry conducted by the European Commission since its far-reaching inquiry into the pharmaceutical sector in 2008 and 2009. The impetus appears to be the commission's broader digital market agenda, which aims to encourage economic growth through addresing alleged or perceived restrictions on cross-border e-commerce. The agenda is not confined to restrictive trade practices. Regulatory impediments (value-added tax rules, payment regulations and national copyright rules) are all within the digital single market policy.
Sector inquiries are a non-company specific tool by which the commission conducts a sector-wide review of possible market failures within an industry. If the commission finds market restrictions, it can launch follow-on investigations of specific companies. Some inquiries end with little follow-on action – for example, the 2005 insurance market study. Others have seen very aggressive follow-up. For example, the pharmaceutical sector inquiry led to, or revived, cases against pharmaceutical companies which resulted in the imposition of high fines on Lundbeck, Servier and a number of generic pharmaceutical companies, which are the subject of ongoing appeals.
The European Union has a number of open cases in the online sector. In January 2014 it announced an investigation into territorial restrictions on pay-television broadcasters. It was alleged that licensors restricted broadcasters from allowing non-domestic subscribers view their content. In March 2015 dawn raids on e-commerce sites were confirmed in an ongoing investigation of whether suppliers of e-tailers imposed illegal resale restrictions. Vestager also stated that the commission is investigating suppliers and retailers of video games.
The inquiry will focus on cross-border restrictions on internet sales in distribution contracts. The commission wishes to examine whether suppliers impose – via contract or through other practices – obligations on e-tailers not to sell in other territories, or to impose penalties or offer inducements not to do so. A likely focus will be whether the supplier sets different prices on sales to different countries. The allegation may be that by charging a higher price for products destined for, for example, France rather than Germany, the supplier is discouraging sales to France. It may also examine whether, by technical means, customers are prevented from purchasing online across borders (eg, geo-blocking requirements).
There may also be allegations that suppliers discourage online sales altogether – for example, by requiring that any sale be accompanied by a consultation in person or by creating unjustified hurdles to doing business online.
The inquiry is likely to commence on May 6 2015, the same day as the commission is set to adopt the digital single market white paper. Although dawn raids (unannounced inspections of company premises to secure evidence that might otherwise go astray) are possible, the public nature of the announcement makes them less likely. The more likely course is that the commission will send detailed requests for information and documents to suppliers, internet platforms and e-tailers. These could range from simple requests for statistical information to requests for contracts or electronic records going back years. Requests are mandatory and penalties can apply for non-cooperation. Previous inquiries have been extremely onerous for companies.
Preliminary inquiry results are due to be available in mid-2016. Typically, sector inquiries deliver an interim report on potential concerns, to which the sector can respond, followed by a final report announcing the commission's conclusions. Follow-up actions can occur at any time. Infamously, the commission scheduled a dawn raid of companies subject to the pharmaceutical sector inquiry on the same day it invited the sector (including those same companies) to attend a hearing to comment on its interim report.
A final report is likely to be available at the end of 2016 or early 2017. Other elements of the digital single market policy will occur concurrently. The content licensing sector in particular will be watching the commission's copyright reform proposals in May 2015. Leaked drafts suggest that the commission's proposals may tackle the issue of cross-border licensing as part of the reform.
Companies should review their internal practices to ensure that they have a compliant resale relationship with e-commerce sites or vendors. This includes not only a review of contract terms, but also how the relationship works in practice through informal day-to-day communications. It is important to be ready and to look out for mandatory information requests, as they typically contain tight reply deadlines and can be time consuming to complete. Care should be taken to ensure that a protocol is put in place to protect privileged communications from disclosure. EU regulators do not respect in-house legal privilege, but communications with external EU lawyers or documents created exclusively in the course of obtaining external EU legal advice will generally be protected.
For further information on this topic please contact Bill Batchelor, Fiona Carlin or Kurt Haegeman at Baker & McKenzie by telephone (+32 2 639 36 11) or email (firstname.lastname@example.org, email@example.com or firstname.lastname@example.org). The Baker & McKenzie website can be accessed at www.bakermckenzie.com.
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