The Digital Single Market

The creation of a Digital Single Market is set to be the new priority for the European Commission (the “EC“). In the past week the Commission has been more vocal about its desire to see more cross-border activity in the digital world.  Half of all European consumers shopped online in 2014 but only 15% purchased goods from another Member State.  The Commission is looking to see if there are  barriers in place which are preventing goods and services from being traded online across the EU.

For example, the Commission wants to establish what the impact is of factors such as language barriers and consumer preference for local products or whether there are technical barriers such as high delivery costs or the use of (illegitimate) geo-blocking which restricts access to certain websites by recognising a consumer’s nationality, residence or credit-card details.

Margarethe Vestager the Competition Commissioner has commented that : “A well-functioning Digital Single Market could add about €250 billion to the GDP of the Union”

Key Drivers of the Review

On 25 March 2015, Andrus Ansip the Commission Vice President for the Digital Single Market speaking to the EU Parliament stressed the Commission’s view of the importance of fostering an innovative online market that can flourish across the EU and help to stimulate growth in slower Member States such as Portugal, Bulgaria or Finland.

The Commission has said it will focus on three main areas that it considers necessary to achieve the Digital Single Market:

  1. Better access for consumers and businesses to digital goods and services by: harmonising contract rules, making parcel deliveries more affordable, tackling barriers to cross-border trade and simplifying VAT arrangements;
  2. shaping the environment for digital networks and services to flourish by: encouraging investment in infrastructure for online platforms and ensuring that they are safe for users; and
  3. creating a European digital economy and society with long-term growth potential.

The next day, on 26 March 2015, in a speech delivered in Berlin, Margaethe Vestager announced that she is proposing a competition sector inquiry into the e-commerce sector. Her plan is as follows: “We are designing this sector inquiry with one main goal in mind. We intend to identify what hampers competition in e-commerce when sales straddle national borders”. The inquiry will look at a number of issues, and in particular, whether  contractual barriers exist to cross-border online purchasing in areas where e-commerce is most prevalent.  It is not an enforcement investigation but a market investigation and so individual companies will not be targeted.

However, in practical terms, in order to collect data for the review, the Commission will need to gather information from a large number of stakeholders in the various Member States which will include entities such as holders of content rights, broadcasters, manufacturers, merchants of goods sold online, and companies that run online platforms such as price-comparison and marketplace websites.

Following its inquiry, if the Commission identifies competition concerns it could decide to open individual competition law enforcement investigations.

The UK Authorities

It is not only the European authorities that are picking up on the issues relating to the e-commerce market. In its Annual Plan 2015/16 presented to Parliament[1], the Competition and Markets Authority (the “CMA“) explicitly stated that it will be paying particular attention to the digital economy.

Ofcom has also announced that ten years after its initial study, it will carry out a review[2] of all digital communications in the UK to identify and analyse issues relating to infrastructure and competition.

Next Steps

In the wider context, this proposal by the Commission for a sector inquiry into e-commerce comes at a time when the Commission is also investigating Hollywood studios distribution agreements, Google’s business practices and looking at other online platforms.  Margarethe Vestager has commented that she would like to gain a better understanding of ‘what an online platform is’[3] and whether there are commonalities between social media sites like Facebook, an online auctioneer like eBay or a music provider such as Spotify. Furthermore, the French, Italian, Swedish and UK authorities have been investigating the practices of online hotel booking portals Booking.com and Expedia[4] further highlighting the general regulatory appetite for looking at online activities.

The proposed inquiry into the e-commerce sector will cut across a broad spectrum of industries and businesses as a majority of companies now sell their services or goods online. It will be particularly interesting to see what direction the sector investigation will take and whether further related issues will be identified in particular industry sectors as the net is cast so widely.

Given that both European and national authorities are showing their commitment to reviewing the digital market, businesses across industries and Member States should be aware that they could be called upon to provide information to the authorities in this context.