Following the conclusion of the e-commerce sector inquiry in May 2017, the European Commission (the Commission) has aggressively opened probes into online restrictions imposed by suppliers of branded goods and services. So far, no less than 18 companies are under investigation. These cases focus on the main concerns identified by the Commission during the e-commerce sector inquiry, namely geo-blocking and resale price maintenance (RPM). Further investigations by the Commission are expected and could also have a ripple effect on the appetite of national competition authorities to increase their enforcement activity in this field.
Brand owners should view this enforcement uptick as an opportunity to review their current distribution strategies and agreements with retailers and ensure that they comply with EU competition rules.
What Practices Are in Focus?
Geo-blocking and RPM are the main concerns identified. In February 2017, the Commission initiated investigations in the consumer electronics, video games and hotels sectors, mainly on allegations of RPM and geo-blocking concerns. A few months later, in June 2017, the Commission announced further probes, this time primarily addressing geo-blocking.
The Commission identified early on the widespread contractual imposition of geo-blocking on retailers as problematic. Geo-blocking covenants restrict the cross-border distribution of goods or services via the Internet, e.g. blocking access to retailers’ websites, re-routing customers to the national retailers, refusing to deliver cross-border, refusing to accept cross-border payments, etc. The following sectors are already under scrutiny:
- Licensed merchandise: on June 14, the Commission opened an investigation into the licensing and distribution practices of Nike, Sanrio and Universal studios. The Commission will investigate whether the three companies have breached EU competition rules by restricting the ability of their licensees to sell licensed merchandise cross-border and online.
- Clothing: on June 6, an investigation was opened against clothing manufacturer and retailer Guess. The Commission will investigate whether Guess is restricting illegally the ability of authorised dealers from selling online to consumers or retailers residing outside the dealers’ country of establishment.
- Video games: on February 2, the Commission confirmed that the online video game distribution platform Steam and a number of PC video game publishers (Bandai Namco, Capcom, Focus Home, Koch Media and ZeniMax) were under investigation. The Commission suspects that their distribution agreements limit consumer choice by forcing them to purchase video games online only through the platform operating in their country of residence.
- Hotel pricing: also on February 2, the Commission confirmed an investigation regarding hotel accommodation agreements between the largest European tour operators (Kuoni, REWE, Thomas Cook and TUI) and Meliá Hotels. These agreements allegedly contain clauses that discriminate among customers, based on their nationality or country of residence. As a result, consumers may not obtain the best possible prices.
2. Resale price maintenance
In contrast with national competition authorities, the Commission has not enforced a single RPM case over the past 15 years. This has now changed. The e-commerce sector enquiry has been a catalyst for the Commission to take a leading enforcement role. The Commission alleges that RPM is widespread in the EU, but also that the use of pricing algorithms may facilitate RPM. Four consumer electronics manufacturers are under scrutiny:
- On February 2, the Commission announced an investigation against Asus, Denon & Marantz, Philips and Pioneer. These consumer electronics manufacturers allegedly restrict the ability of their online retailers to set their own prices for popular consumer electronics products, such as household appliances, notebooks and hi-fi products.
Geo-blocking and RPM, Should Brand Owners Worry About Anything Else?
Unfortunately, yes. Beside geo-blocking and RPM, brand owners should also be mindful of other forms of vertical restraints, such as absolute internet sales bans or bans on selling through online marketplaces and comparison shopping sites.
An absolute ban on selling online was already considered a hard-core restriction in the Pierre Fabre case. Other types of internet sales restrictions are less obvious: are suppliers allowed to prevent distributors from selling on eBay or Amazon, or using comparison shopping websites, in order to protect the brand image or to favour their own online shops?
The debate on these issues is currently raging. A court in Germany ruled in the Asics case that a ban on comparison shopping websites is akin to an absolute internet sales ban and, therefore, a hardcore restriction. On the other hand, in the pending Coty case, the Commission seems to be of the opinion that bans on online marketplaces are not hardcore restrictions and should be allowed under certain circumstances.
Be Prepared for the Antitrust Challenges Ahead
Following the e-commerce sector inquiry, clothing manufacturers such as Mango, Oysho and Pull&Bear have reportedly started to review and adapt their distribution agreements. Other companies, such as coffee machine manufacturer De Longhi and photo equipment manufacturer Manfrotto, have followed suit.
As the e-commerce sector inquiry is now translating into aggressive enforcement, it is the right time for brand owners to review their distribution agreements, and possibly adapt them, to ensure that they comply with EU and national law.