1. What is a sector inquiry?
The European Commission has the power to conduct inquiries into a particular sector of the economy or into a particular type of agreement across various 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. In the course of that inquiry, the European Commission may request information from businesses or industry associations and carry out inspections. Fines may be imposed on businesses and industry associations that supply incorrect or misleading information.
2. What is e-commerce and what is e-tailing?
Electronic commerce (“e-commerce”) refers to the purchase and sale of goods or services via electronic channels such as the Internet. Electronic retailing (“e-tailing”) refers to the sale of retail goods on the Internet.
3. What is the purpose of the sector inquiry into e-commerce and what does it cover?
According to the European Commission a well-functioning e-commerce sector is an important aspect for economic growth. E-commerce can reduce transaction costs, bring down prices and broaden consumer choice. The purpose is to gain more market knowledge in order to better understand the nature, prevalence and effects of alleged barriers erected by companies that hinder cross-border e-commerce and to assess them in the light of European competition rules. The preliminary report can be expected mid-2016 on thiswebpage of the European Commission. Following a public consultation on the preliminary report, the Commission aims to publish the final report in the first quarter of 2017.
The sector inquiry has a broad scope. It includes various sectors, such as the postal sector, telecoms and retail. The sector inquiry covers various legal areas such as data privacy, competition law and its public enforcement, and regulatory matters. It focuses particularly on potential barriers erected by companies to cross-border online trade in goods and services where e-commerce is most widespread, such as electronics, clothing and shoes, as well as digital content.
4. What are the consequences of a sector inquiry of the European Commission?
The European Commission may find contractual barriers imposed by particular businesses or regulatory barriers that hinder cross-border e-commerce. This could lead to, for instance, potential sanctions on the businesses in question for breach of article 101 and/or 102 of the Treaty on the Functioning of the European Union (“TFEU”).
5. What is the position of the national competition authorities on e-commerce?
Of all the national competition authorities the German Bundeskartellamt is arguably the most active. It organised a congress on Vertical Restraints in the Internet Economy and subsequently published an interesting paper on vertical restraints. The Bundeskartellamt considers it a key task to keep the markets open and to ensure that newly emerging competition is not hindered. This has so far led to a high number of investigations in issues like dual pricing, resale price maintenance and most favoured nation clauses.
The Dutch regulator, ACM, published a position paper on its strategy and enforcement priorities with regard to vertical agreements on 20 April 2015. This paper is accompanied by an information chart. Earlier, on 25 November 2014, Chris Fonteijn acknowledged in his speech for the Association for Competition Law that ACM had given little priority to the enforcement of vertical restraints and that the emergence of e-commerce had not changed this policy. On the basis of its new policy, however, ACM does intend to investigate vertical restraints that present a high risk for consumers. According to ACM that would particularly be the case (i) if vertical restrictions are used as an instrument to facilitate collusion between producers; or (ii) if inter-brand competition is already restrained and vertical agreements are used as a tool to exercise market power.
As early as 2012, the Office of Fair Trading (“OFT”, now the CMA) in the UK published the report, Can ‘Fair’ Prices Be Unfair? A Review of Price Relationship Agreements. In September 2014 Philip Marsden of the CMAelaborated in a speech on the desired approach of the CMA relating to the enforcement of competition law in online markets. He added that the CMA gave the highest priority to anti-competitive conduct in online markets. According to its draft annual report, CMA will continue focusing on online and digital markets in 2016 and 2017. Examples of this pro-active approach are the infringement decision on mobility scooters in which Pride Mobility Products Limited (“Pride”) had entered into arrangements with eight of its UK-wide online retailers which prevented them from advertising online prices below Pride’s recommended retail price for certain mobility scooters. In the final order with regards to the private motor insurance market, the CMA stated that it would ban agreements between price comparison websites and insurers which stop insurers from making their products available more cheaply on other online platforms. CMA is currently investigating possibly anti-competitive arrangements for online sales by Trod, a retailer of toys and sports. CMA also fined a fridge and bathroom supplier for introducing minimum advertised prices for internet sales.
However, a report by Oxera (March 2016) is critical of the ultimate effects of stopping companies from the restriction of online distribution. The business survey confirms that the CMA’s actions may have short-time positive effects on the price, but also warns for a decrease in quality, service and availability in the long term. It remains to be seen whether this report will alter CMA’s approach to internet distribution.
Another national competition authority that has shown an active approach when it comes to e-commerce is the French Competition Authority. In September 2012 it published its findings of the sector inquiry into e-commerce. The authority was also one of the leading national competition authorities (“NCAs”) (together with the Swedish and Italian authorities) in the investigation of the online hotel booking sector. The French Competition Authority also investigated the online sales of Adidas.
Finally, the Austrian competition authority published a report on resale price maintenance in July 2014. One year later, Austria's cartel court imposed a 1.05 million fine on Samsung Electronics for vertical pricing agreements with retailers.
6. What does the European Commission’s sector inquiry mean for (current) distribution agreements?
Current and former distribution agreements could be subjected to this inquiry. Competition law can be enforced on infringements that took place in the past or that are currently taking place.
7. What laws are affected by the sector inquiry into e-commerce?
As the sector inquiry is first and foremost intended to detect anti-competitive behaviour, the European Commission could enforce the European competition rules (Articles 101 and 102 TFEU) in case of competition concerns.
8. What is click and brick?
Brick and mortar stores that also sell via the Internet.
9. Does the sector inquiry impact the regulation of e-books?
Agreements on the sale of e-books regularly contain most favoured nation (“MFN”) clauses. For platforms, these clauses are usually referred to as Across Platform Parity Agreements (“APPAs”). These clauses prevent the seller of e-books from offering its e-books at a lower price on platforms of competitors. APPAs may be considered pro-competitive as well as anti-competitive. However, wide APPAs – which apply to all competing platforms – run a higher risk of being considered anti-competitive. These possible restrictions of competition have the attention of competition authorities. Next to its e-commerce sector inquiry, the European Commission has opened an investigation into the distribution of e-books by Amazon. In its investigation, the European Commission will also look into the APPAs that Amazon uses in its agreements with publishers.
10. Is the prohibition of internet sales allowed?
In general it is not allowed to prohibit internet sales under the Guidelines on Vertical Restraints. This is in line with the Pierre Fabre case of the Court of Justice. In this case the Court of Justice decided that a clause in an agreement prohibiting distributors of a cosmetics products company from selling its products via the Internet amounts to a restriction of competition ‘by object’, which is not justified by the need to provide the customer with individual advice or by that of maintaining the prestigious image of the products at issue. In a selective distribution system, a supplier may, however, demand of its distributors that they have at least one brick and mortar store. Furthermore, it is allowed to impose restrictions on promotion on the Internet or use of the Internet if this would lead to active selling in, for instance, other distributors' exclusive territories or customer groups, such as territory-based banners on third party websites, specific efforts in a certain territory or by a certain customer group, online advertisement specifically addressed to certain customers and paying a search engine or online advertisement provider to have advertisements displayed specifically to users in a particular territory.
11. Is dual pricing allowed?
An agreement that the distributor shall pay a higher price for products intended to be resold by the distributor online than for products intended to be resold offline is generally considered a hard core restriction of competition and is therefore not allowed. This does not exclude the supplier from agreeing with the buyer on a fixed fee to support the latter's offline or online sales efforts. The German competition authority has indicated in the Dornbracht case that a rebate scheme that favours offline sales is not allowed, unless it can be demonstrated that “online sales result in substantially higher costs for the manufacturer than the offline sales”. On 6 August 2015, the Hungarian competition authority fined CIBA/Alcon and Alcon Hungária for using a rebate scheme that disadvantaged online retailers of CIBA contact lenses and care products.
12. Are minimum prices allowed?
No, in practice these lead to resale price maintenance which is a hard core restriction to competition law. However, maximum prices are allowed under European competition law, as well as recommended resale prices.
13. Is geo-blocking allowed?
According to the European Commission geo-blocking is one of the main barriers relating to the development of the e-commerce sector since it is contrary to the principles, such as the free movement of goods, of the EU Treaty. Moreover, preventing unjustified geo-blocking has been identified by the European Commission as one of the priorities of the Digital Market Strategy which it issued on 6 May 2015. The only exceptions are made or will be made for cases in which a different treatment is due to objective and verifiable differences in the customers’ situations.The European Commission has opened a public consultation on geo-blocking in September 2015. On 18 March 2016, the European Commission published its initial findings on geo-blocking. The replies from more than 1400 retailers and digital content providers from all 28 EU Member States show that geo-blocking is widespread throughout the EU. On 25 May 2016, the Commission proposed legislation that prevents geo-blocking and other forms of discrimination based on nationality or place of residence. The European Commission has also published a roadmap that includes proposals.
14. What are Internet Minimum Advertised Prices (“IMAPs”)?
IMAPs are restrictions on the prices an online retailer or distributor can advertise with. IMAPs only extend to the advertised price. Nevertheless, parallels have been drawn with Resale Price Maintenance (RPM). IMAPs may violate competition law since they reduce price transparency and increase search costs for consumers. Especially the UK competition authority, the CMA, has concerns about the use of IMAPs. In October 2014 CMA published a decision, which found that Pride, a manufacturer of mobility scooters, infringed competition law by preventing online retailers to advertise online prices below Pride’s recommended retail price for certain mobility scooters. In 2016, the CMA also started investigating whether fridge and bathroom suppliers have violated competition law by introducing a minimum advertised price for internet sales.
15. What are Across-Platforms Parities Agreements (“APPAs”)?
APPAs are most favoured nation (“MFN”) clauses in agreements between platforms (such as Amazon e.g.) and sellers (e.g. publishers). APPAs are assessed along the same lines as MFN clauses.
16. Are MFN clauses allowed?
MFN clauses may be considered both anti-competitive and pro-competitive. A distinction is made between narrow MFNs (normal MFNs) and wide MFNs (retail MFNs). The latter are usually regarded as more likely to have anti-competitive effects.
Several NCAs have individually and jointly conducted investigations on the use of MFN clauses in agreements, in particular in agreements between platforms and sellers. During the past years NCAs have investigated in particular the online hotel booking sector. One of these investigations was conducted against online hotel booking platform Booking.com in a joint European approach led by the French, Swedish andItalian competition authorities. This led to Booking.com making the commitment to the NCAs to stop using MFN clauses in 2015. Meanwhile in Germany, an even stricter approach was executed by the German competition authority. The Bundeskartellamt prohibited MFN clauses used in agreements between a competitor of Booking.com, Hotel Reservation Service, and hotels. As a consequence of this approach the hotel booking site could no longer agree with individual hotels that they would obtain prices that were at least not higher than the prices that individual hotels charge to their clients. The Düsseldorf Higher Regional Court confirmed the legality of the approach of the Bundeskartellamt. In December 2015, the Bundeskartellamt decided that the ‘best price’ clauses from Booking.com should be removed from its website by 31 January 2016. The online booking platform announced that it will appeal the decision.
In France a different approach has been taken. In 2015 a new law, the Macron Law, entered into force. One of the major changes this law introduces is a prohibition of rate parity clauses in agreements concluded between hoteliers and online travel agents. In October 2015, the Swiss competition authority decided that Booking.com, Expedia and HRS are not allowed to use MFN-clauses in agreements. In 2015, French, Italianand Swedish probes ended with commitments by Booking.com. In 2016, Italian and Austrian probes ended with commitments by Expedia (and also by Booking.com in Austria). In July 2016, ten different NCA's and the European Commission have started an examination of the effects of the commitments and remedies. In this respect, they submitted questionnaires to hoteliers.
So far, ACM has not fined any companies in respect of e-commerce, let alone APPAs. It did, however, clarify its position by publishing the paper on its supervision and enforcement of vertical agreements. In this paper ACM discussed the issue on under what circumstances APPAs are harmful or beneficial and concludes that APPAs have the potential to increase prices across the market. However, APPAs may also generate efficiencies, such as solving a free rider problem. Therefore ACM will analyse APPAs case by case. ACM will ultimately give priority to those situations where there is a high risk of consumer harm. Examples of situations where this is more likely are (1) where vertical agreements are used as an instrument to facilitate collusion between producers; and (2) where inter-brand competition is already limited and vertical agreements are used as an effective means to exercise market power. In practice, ACM reported that it actively participated in the investigations regarding Booking.com led by other NCAs. These investigations ended with commitments by Booking.com, which will also be implemented in the Netherlands. Besides, ACM is one of the NCA's that is involved in the abovementioned examination.
17. Are any fines being imposed related to e-commerce and what can one do to limit risks?
In most countries no fines have yet been imposed for restrictions relating to e-commerce. As previously explained in this blog and this blog, however, the competition authorities in other Member States are taking a different approach. There are exceptions though. For instance, Bang & Olufsen has been fined by the French competition authority (Autorité de la concurrence) for excluding the online sale of its products. In addition, the Polish competition authority fined Swatch Group Polska and its retailers for agreeing on minimum retail prices for the online and offline sale of its watches.
Investigations into restrictions to e-commerce occur more frequently. The Bundeskartellamt is particularly active in this respect. In July 2014 the Bundeskartellamt reported it had closed its proceedings against Adidas after the company abandoned its ban on sales via online market places for retailers. Another sporting goods manufacturer, ASICS, was also investigated by the Bundeskartellamt. The authority concluded in August 2015 that ASICS’s online sales policy unlawfully restricted competition. In November 2015, Asics announced that it is appealing this decision. This could be interesting, because the Frankfurt Higher Regional Court ruledearlier that Deuter did not violate competition law by prohibiting online sales via Amazon’s platform. At the same time, the court upheld the finding that Deuter violated competition law by restricting the use of price-comparison websites. It is understood that the judgement of the Frankfurt Higher Regional Court has been appealed with the German Supreme Court. In April 2016, the Frankfurt Higher Regional Court asked the European Court of Justice to give a preliminary ruling on the legality of online platform bans by perfume maker Coty.
Furthermore, the Bundeskartellamt reported in October 2013 that Sennheiser had decided, in order to put an end to an investigation of its European e-commerce policy, to no longer prohibit its distributors from reselling Sennheiser products via Amazon. In November 2013, the Bundeskartellamt closed an investigation into Gardena’s distribution system after Gardena had promised that its distributors would qualify for the same discounts regardless of whether they sell Gardena products online or offline. According to the Bundeskartellamt, Gardena applied a dual price system that discriminated against Internet sales because, unlike in the case of offline sales, distributors did not qualify for the maximum discount in online sales. In December 2013 Bosch-Siemens-Hausgeräte also managed to end an investigation by the Bundeskartellamt by giving a similar commitment.
Make sure your employees are aware of competition law and have your distribution agreements and/or systems checked by a specialized lawyer before application. Please also check our Tips & Tricks here.
18. What could be the commercial risks of e-commerce?
Price erosion is to be thought to be one of the main economic risks of e-commerce. Please see our earlier blog on how price erosion may be avoided here. However, discussion exists on whether this is true or not. The European Commission has taken the stance that there is no connection between internet and price erosion.
19. What are the most recent European developments?
In a speech on 7 September 2015, EU Commissioner Ansip announced that the Commission will investigate online platforms such as social media (Facebook), film and music (Deezer and Spotify), e-commerce (Amazonand Ebay) and search engines (Google) and gather evidence following concerns from many quarters about their control of data, market strength and bargaining power, as well as various aspects related to access. Ansip continued that the “accumulation and use of data by certain platforms can contribute to their market power, particularly in their relationship with data suppliers”. A total of 11 European governments (amongst others the UK, Poland and Sweden) have sent a letter to Ansip in which they underline that the arrival of online platforms is a positive development and that those platforms are already heavily regulated. The petitioners are afraid that new legislation may “act as a barrier to the development of new digital business models and create obstacles to entry and growth in the European digital market”.
In December 2015, EU Commissioner Vestager indicated that the national competition authorities together with the European Commission will continue to monitor the effects of the already imposed remedies in the online booking sector.
The European Commission announced in September 2015 that it will also look into issues such as access and openness. In this light the Commission will consult extensively with all parties involved until spring 2016. The Commission will also consider whether new measures are needed and what impact they might have on incentives to innovate and deliver new services.
Vestager announced in a speech that the Commission is collecting information from companies of all sizes in every European member state. In case of agreements between companies that restrict e-commerce across Europe’s national borders, competition enforcement should be expected. When constraints are due to unjustified regulatory barriers it is a matter for other areas of policy, such as copyright.
On 18 March 2016, the European Commission published its initial findings on geo-blocking. In the accompanying press release, the Commission restated that the Preliminary Report on the e-commerce sector inquiry will be published mid 2016. The Final Report is scheduled for the first quarter of 2017.
On 25 May 2016, the Commission presented a “three-pronged plan to boost e-commerce”. The proposal contains:
- “A legislative proposal to address unjustified geoblocking and other forms of discrimination on the grounds of nationality, residence or establishment;
- A legislative proposal on cross-border parcel delivery services to increase the transparency of prices and improve regulatory oversight;
- A legislative proposal to strengthen enforcement of consumers' rights and guidance to clarify, among others, what qualifies as an unfair commercial practice in the digital world.”
A new European e-commerce topic of interest is the online sale of airline tickets. In April 2016, it became clear that the European Commission has sent questionnaires to the travel sector due to concerns that carriers may be favouring their own websites over other online platforms. These concerns raised after complaints by travel agents.