As reported by our European colleagues, the Court of Justice of the European Union (CJEU) recently decided that discounting restrictions on an online booking platform used by a number of online travel agents (OTAs) in Lithuania could amount to cartel conduct, in breach of Article 101(1) of the Treaty on the Functioning of the European Union (TFEU).
An online platform facilitator had disseminated what was found to be an anticompetitive proposal to a broad group of travel agent recipients and, while the recipients did not expressly respond to the proposal, none had taken decisive steps to distance themselves from it. This case provides further guidance on how EU competition law applies to digital markets and online platforms (as opposed to traditional bricks and mortar businesses).
Eturas UAB (Eturas) licenses and administers an online booking system for travel packages, E-TURAS, which is used by multiple OTAs in Lithuania. The Lithuanian Competition Council (LCC) investigated whether OTAs using the platform were co-ordinating the amount of discounts offered to consumers on tours purchased through the platform.
The LCC found that the director of Eturas had emailed participating OTAs via E-TURAS asking them to vote on whether the offered discounts should be reduced. Some, but not all, OTAs responded. Subsequently, a notice was sent by the system administrator via the platform’s internal messaging system which informed the OTAs that, based on the feedback, Eturas would ‘cap’ online discounts at 3%. Discounts offered in excess of 3% would be automatically reduced to 3%, through technical modifications made to the E-TURAS system, meaning that participating OTAs had to take additional steps to apply a higher discount on an individual basis.
The LCC found that 30 OTAs, with Eturas as a facilitator, had participated in concerted practices that amounted to a cartel-type infringement of both EU and national competition laws, imposing penalties totalling approximately €1.5 million on the OTAs that used the E-TURAS online platform. The LCC considered that OTAs could reasonably have assumed that other OTAs (whilst their identity was unknown) would have received the same notice from E-TURAS and followed the proposal, and that they could have publicly distanced themselves from the capped discounting scheme. The LCC found that the failure of the OTAs to publicly distance themselves from the scheme meant that they had tacitly consented to the scheme. Some of the OTAs tried to argue that they were not aware of the notice or did not sell any packages on the E-TURAS system during the relevant period, but these arguments were not accepted by the LCC.
On appeal, the Vilnius District Administrative Court upheld the actions in part and reduced the fines imposed by the LCC. Both applicants and the LCC lodged a further appeal with the Lithuanian Supreme Administrative Court, which then referred two related questions to the CJEU for preliminary ruling under Article 267 of the TFEU. It asked the CJEU to decide:
- Whether the sending of a computerised message by an administrator of an online travel booking system is sufficient to presume knowledge and tacit consent by participants, where they failed to take any acts to publicly distance themselves?
- If the sending of such a message is not sufficient to establish a concerted practice, what factors should be taken into account in deciding whether undertakings made by participants of a common online system amount to taking part in a concerted practice?
A link to the CJEU decision from 21 January 2016 is available here.
Awareness of an anticompetitive proposal by participants
The CJEU highlighted that the ‘mere dispatch’ of an administrator’s notice cannot support an inference that the recipients were aware or ought to have been aware of its content. It noted such a finding would be contrary to the presumption of innocence. In a world where individuals may receive hundreds of emails per day, it would be unreasonable to expect that a person would open, let alone read, every email received.
However, the CJEU did find that a rebuttable presumption of knowledge may arise where ‘other objective and consistent indicia’ suggest that the communication was in fact received and read. It is unclear what the CJEU intended by ‘objective and consistent indicia’. Surely, where a recipient responds or forwards a message, or replicates its content in other communications, then this would be clear evidence. But it is unclear whether merely opening a message, whether by accident or not, would suffice.
Public distancing from an anticompetitive proposal
The CJEU made it clear that the national court should not make it excessively onerous for parties to rebut a presumption of knowledge (e.g. where objective and consistent indicia suggest the recipient read the message). Alternatively, the CJEU highlighted that parties may rebut the presumption of concertation by publicly distancing themselves from a proposal they have received and read. To be effective, such distancing must be communicated externally, in clear and unambiguous terms.
Here, the cartel participants did not know who else was party to the proposed arrangement. In such circumstances, the CJEU pragmatically suggested that a party should expressly tell the administrator that it wants nothing to do with the proposal (or report the matter to a competition authority). The CJEU further noted that, in practice, a party could have avoided liability by breaking the causal link between the proposal and its conduct, through systematically applying a discount in excess of the 3% cap imposed by the system administrator.
Implications of CJEU decision
The CJEU decision was a preliminary ruling on how EU competition law should be applied. In light of the CJEU’s guidance, on 4 May 2016 the Lithuanian Supreme Administrative Court partially upheld the LCC’s original decision. However, the Court overturned the LCC’s findings in relation to some of the OTAs due to insufficient evidence of their ‘awareness’ of the proposed discounting restrictions, and reduced the fines relating to some of the other OTAs. The Court’s decision is final and cannot be appealed further.
As we previously reported, one of the recommendations made by the Harper Committee in March 2015 is to introduce a concept of ‘concerted practices’ into Australian competition law, as a new civil prohibition (which, amongst other things, would replace the current prohibitions on price signalling by banks). Under the current proposal, if introduced to section 45 of the Competition and Consumer Act 2010 (Cth), a concerted practice would only breach the prohibition it has the purpose, effect or likely effect of substantially lessening competition.
A concerted practice is not defined in the model legislation proposed by the Committee, but it is described in the Final Report as a practice which is “jointly arranged or carried out or co-ordinated” between two or more firms. The Committee did not, however, consider that the cartel conduct prohibitions should be expanded to include concerted practices, as it considered it appropriate that criminal sanctions require proof of a contract, arrangement or understanding between competitors.
EU has been active in investigating online platforms
Countries within the EU have been active in investigating tools used by online platforms for potential competition law infringements. As blogged about here, the UK High Court recently considered a case involving Streetmap (the company behind the online maps provider streetmap.co.uk) and Google. Streetmap claimed Google engaged in anticompetitive conduct by using its search dominance to promote Google Maps, by providing a thumbnail map which linked to Google Maps (known as Maps OneBox), at the top of each Google search result. The UK High Court found that Google had not abused its dominant position in relation to its Maps OneBox feature, concluding that the introduction of Maps OneBox was not reasonably likely to appreciable affect competition in the market for online maps (a market in which Google did not necessarily enjoy dominance). In any event, the High Court found Google’s conduct was objectively justified.