1. Preliminary European Commission report on the e-commerce sector
On 15 September 2016, the European Commission published a report setting out its preliminary conclusions on the sector inquiry into e-commerce (see here). Launched in May 2015, the inquiry is part of a strategy for the creation of a Unique Digital Market and is aimed at ensuring better access to goods and services.
In view of the constant growth in e-commerce, the Commission opened the inquiry for the purpose of identifying potential competition issues within the sector. During the inquiry, the Commission analysed almost 8,000 distribution agreements and sent surveys to approximately 1,800 companies operating in the e-commerce sector for consumer goods and digital content, including manufacturers, retailers, price comparison enterprises, etc. from different industries (clothes, electronics, domestic appliances...).
The Commission had already published some initial findings in March 2016 outlining its concern with regard to the spreading of geo-blocking practices which prevent users from accessing and/or purchasing products or digital content offered on websites hosted in different member States (see here).
Among its now published preliminary conclusions, the Commission identifies the key market trends and business practices which may restrict competition and limit consumer choice.
With regard to the consumer products market, the preliminary report highlights the following:
- E-commerce has led to an increase in market transparency and therefore provides an immediate benefit for customers who are able to find the best offers at hand. However, such greater transparency coupled with a rise in price monitoring activities - which most distributors have declared to be carrying out via price comparison tools - may lead to competition issues in the form of price alignment. Moreover, it has been verified that the manufacturers themselves are using these types of systems to control deviations from recommended prices.
- Manufacturers are increasingly opting to control their product distribution channels by using selective distribution systems. The European Commission report highlights the need to analyse such new systems and, in particular, any clauses that may impose excessive restrictions such as the requirement to open at least one brick and mortar store.
- The report also mentions the general use of sales restrictions in distribution agreements. Thus, the majority of operators declare to have suffered restrictions or price recommendations, sales restrictions in online markets and restrictions relating to the submission of offers on price comparison websites. As stated back in March, one of the Commission's key concerns includes the contractual restrictions relating to cross-border commerce. Many of the surveyed sellers have admitted to applying various geo-blocking measures such as a refusal to deliver to certain countries, the setting of different prices, etc.
With regard to the digital content market, the report warns about the barriers to entry which some widespread licence granting practices may inflict. In the majority of cases, the licences granted by the holders of copyrights in content to digital content providers are exclusive and for the long term (clauses enabling the automatic renewal thereof are not included), which undoubtedly hinders the entry of new operators. Moreover, many of these agreements set out the territory, technology and exploitation windows which the digital content providers may use.
In this regard, the Commission emphasises its concern over the widespread geo-blocking practices in the e-commerce sector across the whole of the EU. Thus, where such geo-blocking is borne out of agreements between providers and distributors, restrictions to competition may arise.
In any event, the Commission has advised that all identified restrictions shall be analysed on a case-by-case basis to determine whether anti-trust laws have been breached.
What happens now?
The preliminary report shall be subject to a two-month public consultation period during which any interested stakeholders may submit their comments to the European Commission. All comments received shall serve as a basis for the Commission to compile its final report expected to be released in the first quarter of 2017.
The Commission has already expressed its wish for the report to prompt companies to review their business practices and distribution agreements and align them to European regulation as soon as possible.
In summary, the preliminary report does not foresee immediate changes to European competition law, although it is very likely that the Commission shall launch investigations against individual companies based on the information gathered during the inquiry.
CMS has published a brochure which sums up the preliminary findings of the sector inquiry and their likely outcomes. (see here).
2. Merger control
ABP Y FANEY VALLEY / SLANEY FOOD (M.7930)
02/09/2016. The agricultural firm ABP and cooperative FANEY VALLEY have notified the European Commission of their intention to take joint control of the Irish beef producer SLANEY FOOD. The notification is borne out of the acquisition by ABP of 50% of SLANEY FOOD, previously owned by the Allen family. The European Commission has until 7 October to make its decision on the concentration. However, the Irish Farmers' Association has warned that the operation may cause serious competition issues.
CVC / AR PACKAGING (M.8107)
25/08/2016. The European Commission has authorised the acquisition by the private equity fund CVC Capital Partners of the Swedish producer of packaging products for tobacco, food and other products AR PACKAGING in its first phase and without conditions. CVC's portfolio includes the Belgian food producer Continental Foods.
The Commission concluded that the proposed transaction would not raise any competition concerns since the companies' activities do not overlap and because AR Packaging only holds a minor share in the market for the supply of flexible packaging for food and pharmaceutical products.
IBERSOL / THE EAT GROUP (C/0798/16)
12/09/2016. The Portuguese group Ibersol has notified the acquisition of the restaurant group The Eat Out Group, owner of chains such as Pans & Company, Ribs and Fresc Co, among others. Ibersol operates fast food franchises in Spain and Portugal, including Pans & Company (Portugal), Pizza Hut, KFC and Burger King. The National Markets and Competition Commission (CNMC) has one month to authorise the concentration in its first phase. Alternatively, upon identifying competition concerns, the Commission shall open an investigation in the second phase.
GRUPO PALACIOS / FUENTETAJA (C/0789/16)
15/09/2016. The CNMC has authorised the acquisition by the Spanish food group Palacios of Precocinados Fuentetaja in its first phase and without conditions. A notification was issued due to the transaction reaching the market share threshold of 30%. We shall have to wait for the publication of the decision in order to know the definition of the affected markets.
VTECH/LEAPFROG (Press release)
30/08/2016. The UK Competition and Markets Authority (CMA) has launched an inquiry in the second phase of the acquisition by toy company VTECH of its educational products rival LEAPFROG, following VTECH's refusal to offer undertakings. The CMA has identified concerns regarding the supply of toddler electronic learning toys, child laptops/tablets and child electronic reading systems in the UK. The deadline for the CMA's final report is 13 February 2017.
HAIN / ORCHARD (Press release)
22/09/2016. The CMA has accepted the undertakings offered by HAIN to overcome the competition concerns arising from its acquisition of freshly-squeezed fruit juice competitor ORCHARD. In particular, HAIN had proposed to sell its own-label freshly squeezed fruit juice business to MULTIPLE MARKETING LIMITED. The decision shall be made public soon.
3. Restrictive practices
Fruit (News item)
The Belgian competition authority (ABC) is carrying out an extensive inquiry into the fruit market due to suspicions of price fixing. The inquiry includes producers of apples and pears. So far, the Belgian authority has met with producers, distributors and retailers.
The Belgian authority may impose sanctions on the companies involved in a cartel of up to 10% of their turnover, as well as fines amounting to between EUR 100 and 10,000 on their leaders.
Sandwich production (Press release)
16/09/2016. The French competition authority has carried out a series of inspections in the sector relating to the production and distribution of sandwiches for their subsequent sale to large food outlets. The authority has not released the names of the companies subject to investigation.
Spar (Press release)
12/08/2016. The Austrian competition authority has fined the supermarket chain SPAR a total of EUR 10.21m for agreeing resale prices with suppliers of various food products in Austria between July 2002 and December 2013.
The products affected by such price fixing included beer, non-alcoholic beverages, dairy products and condiments. According to the press release, the fine was reduced due to the supermarket chain's collaboration throughout the sanctioning proceedings.
TROD / GB EYE (Press release)
12/08/2016. The CMA has fined two online posters and frames distributors for their involvement in a cartel. According to the CMA, the companies fixed the prices applied to posters and frames sold on Amazon Marketplace via Amazon’s UK website between 24 March 2011 and 1 July 2015.
The CMA's decision imposes a fine on Trod of GBP 163,371, while GB EYE received immunity from payment under the CMA's leniency policy due to having reported the cartel to the authority.
Andalusia Regional Government (Judgment)
August 2016. A Supreme Court judgment has been published establishing the Andalusia Regional Government's liability in the infringement declared by the now extinct CNC in its decision on case S/0167/08, Producers of Jerez grapes and wine, overturning the judgment of the National Court (Audiencia Nacional) which had previously discharged it from all liability. In particular, the National Court judgment affirmed that since the Regional Government was not involved as an economic operator, but rather in the exercise of its public duty, the CNC was left with no other choice than to litigate against its conduct under article 12.3 of the Spanish Competition Act, i.e. a challenge of the Regional Government’s acts before the Judicial Review jurisdiction.
Nevertheless, the Supreme Court supports the CNC's stance insofar as a public authority is not required to perform economic activity to be found guilty of infringing conduct. In this sense, the Court argues that under the scope of Competition Law it operates a functional and extensive concept of a business. Hence, the key point is not the legal-economic status of the infringing subject, but actually the fact that its conduct has caused or is capable of causing an economically damaging outcome or the restriction of competition in the market.
August 2016. A National Court judgment has been published which declares the inspections carried out by the CNMC at the headquarters of nougat producer Almendra y Miel as lawful. The judgment is surprising given that in contrast to the Supreme Court's statement in the Montibello case, the High Court has declared that there is no requirement to notify the investigated entity of a refusal to grant judicial authorisation for the consent provided by such entity to be valid. In view of the foregoing, an appeal to the Supreme Court is expected. Until then, the most favourable action would be for the entity subject to the investigation order to ask the inspectors whether they applied for judicial authorisation and if it was rejected, prior to providing consent.
Edeka /Tengelmann (News item)
The German Bundesgerichthof is to decide on whether or not to uphold the provisional prohibition of the merger between supermarket chains Edeka and Tengelmann agreed in July this year by a court in Dusseldorf. An appeal against such provisional prohibition has been lodged by the Economy Minister and EDEKA.
In March 2016, the Ministry of Economy approved EDEKA's plans to acquire 450 TENGELMANN outlets with conditions, which had been previously forbidden by the Bundeskartellamt (BKA) in April of the same year. EDEKA's rival, Rewe, appealed the Ministry's decision to the Higher Regional Court of Düsseldorf, which put a stop to the merger.
It is expected that the court's judgment shall clarify how ministerial powers may be exercised with regard to the assessment of mergers.
Olive oil (Press release and Press release)
September 2016. First EL CORTE INGLÉS and then CARREFOUR have been fined for selling olive oil lower than cost price.
While EL CORTE INGLÉS has been fined EUR 3,005 by the Community of Madrid, the Extremadura Regional Government has ordered CARREFOUR to pay EUR 42,120.
Both inquiries originate from complaints submitted by the agricultural syndicate Unión de Pequeños Agricultores y Ganaderos (UPA) to the Agencia Estatal de Información y Control Alimentarios (AICA), which referred the cases to the corresponding Regional Governments after transferring the powers relating to the control of selling at a loss.
The Food Chain Act prohibits abusive offers and the strategic use of products which may cause harm to producers. Although the fines imposed by the Extremadura and Madrid Regional Governments are not particularly high, they would increase significantly in the event of a repeat offence.
According to the published information, the UPA has also denounced SUPERCOR and DIA for similar practices.