As Co-Chair of the Antitrust Practice Group, it is my pleasure to bring you a series of articles summarizing some of the seminars presented at the recent ABA Antitrust Section Spring Meeting. The Spring Meeting is the Antitrust Section’s hallmark event and brings together thousands of competition and consumer protection attorneys and related professionals from across the globe. The 2016 Spring Meeting was a great success and kudos to all the organizers and presenters. Several members of our Antitrust Practice attended the meeting and have summarized some of the more interesting topics presented. To start us off, Chris Yook’s article discusses vertical restraints, but from an international angle.
One session from this year’s ABA Section of Antitrust Law Spring Meeting entitled International Perspectives on Online Vertical Restraints focused on competitive concerns arising from the explosion of online sales. Thanks to the robust information available online, consumers are able to easily cross-shop between brands (inter-brand) and between retailers of the same brand (intra-brand). This has heightened the intensity of price competition across nearly all retail markets using online platforms. In response, manufacturers, distributors and retailers have employed various approaches, including restrictive agreements between vertically-aligned firms within a distribution chain.The first panelist was Thomas Kramler, the head of the European Commission’s Digital Single Market Task Force. His presentation focused on “geo-blocking,” referring to an online business preventing customers from purchasing goods from other countries. Geo-blocking is particularly problematic in Europe because it can create economic divisions between member nations and undermine the European Union’s objective of fostering a single cohesive market. Explaining the treatment of geo-blocking by the European Commission, Kramer stated that these practices are generally unlawful, with a few exceptions. One such exception applies to “selective distribution systems,” also referred to as authorized dealer networks. However, Kramler characterized these as narrow exceptions and forewarned that the European Commission will continue to focus on online vertical restraints.
The session also featured a presentation by Andreas Mundt, the president of the German competition enforcement agency, the Bundeskartellamt. Mundt explained that naked resale price maintenance is strictly unlawful under Article 101 of the Treaty on the Functioning of the European Union. Manufacturers under increasing price pressure have thus looked to other creative vertical restraints intended to maintain retail prices. One such example entails manufacturers and distributors charging higher prices to retailers who are known to sell online while charging less to retailers with only brick and motor operations. This “dual-pricing mechanism” was central to the Bundeskartellamt’s investigation of appliance manufacturer, Bosch Siemens. On the other hand, the European enforcement agencies recognize the need for manufacturers to protect their brands and investments made by high-quality retailers. This is partly why the European Commission created an exception for selective distribution systems.
One common theme across the presentations was the current disparity in treatment of online vertical restraints by European competition authorities. A prominent example of divergence involves “most favored nation” (MFN) clauses, which are agreements requiring a seller to provide favorable conditions to a dominant customer. MFNs have come to the forefront in European antitrust investigations with the growing popularity of travel booking online platforms websites such as Expedia, Orbitz, and Booking.com. These firms have come to dominate the travel, including hotel, market and have gained enough market power to force hotels into MFN clauses, by which the hotel is restricted from advertising different prices across other online platforms or offering a lower price on the hotel’s own website. This means that a consumer could be effectively prevented from comparing prices across different platforms.
Many dominant online retailers have sought MFN clauses because they facilitate “best price available” claims. However, such provisions are competitively problematic because they effectively set a floor for prices. In terms of divergent treatment, the German Bundeskartellamt has condemned all MFNs, while French, Italian, and Swedish competition authorities have taken a more permissive view of more limited MFNs in recent investigations.
In light of the different approaches to this emerging topic, there is a need for greater cooperation and consistency across the competition authorities. Additionally, it is critical to engage antitrust counsel early in the process of designing distribution systems to anticipate and address these possible issues.