New antitrust challenges in the digital era

Challenges in the digital distribution era

In the last few years, e-commerce and the digital economy have grown exponentially, creating new challenges for antitrust regimes around the globe. A crucial question remains as to how competition law should deal with new vertical models of distribution, including through online platforms, and the increasing use of restraints that impact online selling, such as across platform parity agreements (APPAs) or most favoured nation clauses (MFNs).

In Europe, the European Commission’s Guidelines on Vertical Restraints do not provide much guidance on the emerging issues. Despite the global character of many of these practices, the Commission has also not prioritised enforcement in this area in the last ten years (it has not adopted an infringement decision in relation to a purely vertical agreement since 2005).

The centre stage has been left to the national competition authorities (NCAs), which have been actively grappling with these matters. A number of NCAs have been vigorous in proceeding against businesses that engage in established contraventions of EU competition laws, such as resale price maintenance (RPM) or restrictions on online selling. They have also focused on newer types of distribution practices and restraints (such as APPAs or restrictions on selling via certain online platforms), which they fear may be restricting competition to the detriment of consumers.

“The recent events in the online hotel booking cases in Europe have sent a clear message to the Commission to play a direct enforcement role in investigating digital practices with clear international scope. Firms should be aware of this and should expect more EU-level involvement on this front.”

Gian Luca Zampa, Partner, Rome

A challenge in a decentralised enforcement system is for the different enforcers to act consistently with one another and, so, to adopt a uniform interpretation of the law. The difficulties that may be encountered are illustrated by the events which unfolded when a number of NCAs scrutinised the use of MFNs between hotels and online travel agents (OTAs).

Broadly, each hotel had agreed that it would not sell its services on the OTA’s platform at a price higher than the price at which it sold on other platforms, including its own website, and other offline distribution channels. Although the German NCA, the Bundeskartellamt, has prohibited these provisions altogether, others, including the French, Italian and Swedish authorities, have accepted commitments allowing narrower provisions to be retained. These allow the hotels to give the OTAs parity in respect of rates and conditions published by that hotel online, but eliminate availability parity and price/condition parity against other OTAs or through offline channels used by hotels.

These different approaches, adopted for the same problem, have led to criticism of the Commission’s decision not to take the case.

The Commission now recognises the importance of acting in this rapidly expanding area, especially where the same business model is applied throughout the EU. In the course of its e-commerce sector inquiry, launched in May 2015 within the framework of the Digital Single Market strategy, it is in the process of seeking to identify barriers to cross-border online trade in agreements between suppliers and distributors.

“Competition authorities across the globe are likely to be watching how EU policy on e-commerce and digital distribution, and the e-commerce sector inquiry in particular, develops and will be carefully considering its implications for competition policy in their jurisdiction.”

Deirdre Trapp, Partner, London

This will enable it to assess what effects they have on competition and consumers and to determine the extent to which barriers to parallel trade may be justified. Consistent with this, the Commission is also investigating, in the Hollywood Studios case, whether agreements concluded between US film studios and EU pay-TV broadcasters incorporating “geo-blocking” provisions, which prevent cross-border access to online or satellite pay-TV services, infringe EU competition law.

Other competition authorities across the world are watching these investigations with interest and will be considering their implications for competition policy towards e-commerce and digital distribution in their jurisdiction.

“Businesses active in the e-commerce space should be aware that the Commission is using the sector inquiry as a review mechanism to enable it to identify candidates for future competition enforcement action, and may wish pre-emptively to get their houses in order.”

Alastair Chapman, Partner, London

Looking ahead to 2016:

Firms need to be examining carefully their practices in the digital economy, with particular regard to online selling and distribution/retailing through digital platforms. They should consider the extent to which vertical restraints designed to encourage dealer services, to prevent free riding and/or to protect product image are necessary to achieve that objective and whether other less restrictive alternatives may be feasible.

Action in this area is important for a number of reasons:

  • Concerns about obstacles to online competition: many competition authorities are keen to ensure that opportunities for online selling are preserved as far as is possible and that firms do not impose obstacles to competition between online and bricks and mortar distributors.
  • Renewed interest in RPM: RPM is already a concern in Europe and in a number of other jurisdictions across the globe, including Japan and China. It may also be an enforcement target in Hong Kong under the new competition law (see further Theme 9).
  • Restraints to cross-border trade: in Europe, there is particular anxiety about restraints on cross-border trade and online selling because of their ability to hinder the EU’s wider internal market objective:
    • The Commission is, in the context of its e-commerce sector inquiry, sending many requests for information to firms operating in electronics, clothing, shoes and digital content markets in an attempt to uncover practices that may be frustrating achievement of the EU Digital Single Market strategy. Enforcement action is likely to follow.
    • NCAs remain vigilant about restrictions on online selling. Although NCAs have been willing to prioritise cases or close investigations into vertical restraints where parties have offered suitable commitments, some NCAs, including the Bundeskartellamt, have actively pursued businesses that impose price restraints on distributors, limit sales via online merchants or market places or engage in other practices designed to deter selling online, such as restrictions on search engine advertising. The risk of fines is therefore real.
  • How to assess new business models: new business models are also likely to raise further questions: how antitrust rules governing content distribution (such as through the use of referrals or social media) should dovetail with rules governing traffic providers that may be dominant on a market; how current law applies to situations where suppliers, distributors and platform operators are vertically integrated and operate across all levels of the market (for example platform operators which also operate at upstream and downstream levels)‎. In online retail, companies need to make sure they are reconciling complex online reselling and distribution models (such as affiliate marketing models) with the existing rules, particularly where, in parallel, a competitive relationship exists at other levels of the supply chain.
  • Online platforms, geo-blocking and broader policy concerns: online selling, geo-blocking and the role of platforms is also attracting the interest of a broader group of policy-makers and politicians:
    • There is a growing view that competition law may not be able to deal with the multiplicity of issues arising and that, for example, regulation of online platforms or change of copyright and/or data protection rules may be required. Although Commissioner Vestager and Alex Chisolm (Chief Executive of the UK CMA) have urged caution in relation to ex-ante regulation of online platforms, some of these issues are being considered by the Commission within the framework of the Digital Single Market strategy.
    • National legislators in the EU have indicated that, if they are unhappy with solutions reached by competition agencies, they may be prepared to intervene. In France the legislator acted, with the so-called “Macron Law”, to render unenforceable contractual provisions negotiated with the French competition authority in the online hotel bookings case which prohibit hotels from displaying better deals for rooms on their own websites (see further Theme 10). The Italian legislature is poised to follow suit.

      “New models of online distribution often bring about significant efficiencies, but also add complexities to the antitrust analysis. In an agreement, a party can be simultaneously a supplier, content provider, platform operator, joint selling partner and/or competitor. Since new EU vertical guidelines and block exemption regulations are not expected any time soon, companies will need to self-assess carefully their new distribution models to ensure that potential restrictions are permissible under the applicable competition rules.”

      Frank Röhling, Partner, Berlin