The European Commission has announced a competition law inquiry into the e-commerce sector in the context of a Digital Single Market strategy in the EU.  The Commission suspects that companies that engage in selling consumer goods on the Internet may be restricting online trade by using anti-competitive methods such as territorial fragmentation and restrictions of price competition.

The inquiry, announced in May 2015, will focus on identifying obstacles that hinder cross-border e-commerce of digital content and tangible goods (notably clothes, shoes and electronic goods) in particular restraints in distribution agreements.  Unilateral, abusive conduct by companies with a strong market position will also be targeted by the Commission.

In line with the EU’s agenda of creating a single unified market, the Commission is now focusing its efforts on breaking down barriers to trade and crossborder commerce.  A targeted change to the existing e-commerce framework is expected which will run parallel to the Commission’s work on opening up digital markets.

E-COMMERCE SECTOR INQUIRY

Under EU competition law,[1] the Commission has the power to conduct inquiries into particular industry sectors where the level of trade between member states, rigidity of prices or other circumstances suggest that competition may be distorted within the internal market.[2]

Consumers within the EU often find that that they cannot access goods or services offered on websites from other countries.  Although there may sometimes exist reasonable justification for this, such as varied legal frameworks or language barriers, there may also be aspects that could amount to anti-competitive agreements, concerted practices or abuses of a dominant position.

The scope of the sector inquiry is extremely broad, however it will initially focus on those goods and services in which e-commerce is most widespread such as electronics, clothing and shoes as well as digital content.  It will cover manufacturers and retailers, online content service providers, and online platforms such as marketplaces and price comparison websites.

The Commission informally indicated that it has sent out approximately 2,000 requests for information (RFIs) to companies across the EU.  RFIs are part of the Commission’s initial fact-finding exercise and questionnaires can be rather data intensive.  Companies that have received an RFI are likely to be given approximately one month to respond.

While the establishment of a sector inquiry does not mean that there are necessarily grounds for enforcement action, the information that the Commission receives may lead to follow-up investigations.  It is intended that by mid-2016, a preliminary report will be published by the Commission with a final report expected in early 2017.

GEOBLOCKING ISSUES

The Commission will focus on arrangements between suppliers and e-commerce platforms and will assess whether there are territorial or pricing restrictions on tangible goods as well as on digital content − i.e. geoblocking.  Contractual restrictions on an online retailer’s ability to engage in passive sales across the EU member states are prohibited[3] (i.e. if responding to customer queries rather than actively marketing).  However, individual retailers are free to unilaterally decide to reroute customers (within their own corporate group) to a particular local web portal, based on the customer’s location according to its IP address.  The competition law concerns arise when a retailer agrees with its distributor (online or offline) to partition the EU market.

The Commission can take action against unilateral behavior by online platforms where they are abusing a dominant position.  Examples of ways in which sellers and providers of services have created geoblocking barriers include:

  • Blocking any access to websites across borders. This is often coupled with automatic rerouting to national websites.
  • Allowing access to websites across borders but denying the possibility to complete the order or purchase after the e-commerce platform has obtained information on the location of the user.
  • Allowing access to websites across borders but denying the possibility to pick up, deliver or ship the goods across borders.

CONCLUSION

The Commission’s decision to conduct an inquiry into the e-commerce sector at this time appears to be triggered by a number of factors, not least the fact that existing practice rules do not appear to be suited to the current framework for analysing competition issues arising out of online sales and distribution.

The divergent approaches of member state competition authorities creates a more complex trading environment.

It is hoped that the e-commerce sector inquiry will clarify issues in a way that will enable cross-border trade in Europe to flourish.