Assessing the competitive impact of online sales restrictions – business practices at risk of investigation in 2017
E-commerce has become a vital mode of distribution, opening new markets for many businesses. Authorities are, however, still working through a wide range of enforcement issues.
Technological developments continue to bring new challenges, as illustrated by recent cases where price-fixing for posters and frames sold through Amazon was carried out by a computer algorithm.
Continued enforcement activity can be expected in 2017 around the world and perhaps increased clarity as to where the frontier between legal and illegal sales restrictions lies.
Online selling and the EU single market: a powerful driver of policy
E-commerce sales in Europe present many traps for the unwary, not least because of the continuing strong EU political drive to create a single market across Europe. To complicate matters further, in recent years enforcement has occurred predominantly at national level, with different European national agencies approaching some of the issues in different ways, most notoriously in the Hotel Bookings cases.
But the European Commission is now much more active and can be expected to provide legal clarity on a number of issues in the next year or two. Its sector inquiry into online commerce will conclude early next year, and it has already identified a number of online business practices that may restrict competition both for consumer goods and for distribution of digital content. It has warned of further investigations of these practices, which include selective distribution networks that exclude or restrict online sellers, restrictions between manufacturers and retailers relating to resale prices, restrictions on cross-border sales or use of online marketplaces, and long copyright licences that may limit entry of new or smaller players.
Resolution of the European Commission’s case on Amazon’s e-book distribution arrangements (see below) is expected soon, and it has proposed controversial legislation that would prohibit certain online barriers to cross-border internet selling. The European Court of Justice will also be contributing to increased legal clarity in the area when it rules in the Coty case on the legality of online platform bans in selective distribution systems.
Diverging national approaches in Europe to issues such as price parity and platform bans have created an increasingly complex regulatory environment for e-commerce players to navigate. Over the coming years we expect more enforcement by the European Commission and decisions by the European courts which will help to clarify and harmonise the legal framework.
Sascha Schubert, Partner, Brussels
Asia: e-commerce coming into focus
In Asia, the number of antitrust authorities has grown rapidly, as has online buying and selling, especially in China, and many of those authorities are aware of the potential competition law issues raised by e-commerce. They are starting to develop policy, and are looking at much the same practices that interest European enforcers.
In China, no cases have been made public, but it is believed that the authorities may have looked into ‘most favoured nation’ clauses (MFNs) in the hotel bookings market. Online selling, including mobile-payments systems, is enormously important to the economy and is likely to be an antitrust policy priority: last year, China’s Ministry of Commerce (MOFCOM) announced measures to enable faster adoption of laws on online retail. In addition, the two other Chinese antitrust authorities warned online marketplace platforms against a wide range of behaviours including restrictions on using rival platforms, and the State Administration for Industry and Commerce (SAIC) has also said it would be stepping up enforcement in this area.
In Hong Kong, the antitrust regime is still new but there have already been calls for the authority to look into the conduct of powerful e-commerce platforms. The Japanese Fair Trade Commission is looking into restrictions placed on online sellers by Amazon, and in Singapore there has been a focus on exclusive agreements in online food delivery.
In Asia, as elsewhere, antitrust enforcers are interested in e-commerce; certainly in China, where both business and consumers do a huge amount of shopping by internet, but a number of other Asian authorities are also looking at intervention in this area.
Alastair Mordaunt, Partner, Hong Kong
The US is another country
Online sales restrictions is one of those areas where US counsel will need to take into account the very different approach in Europe and other parts of the world. Producers and suppliers in the US are used to relative freedom in the way they get their goods and services to the ultimate user. Provided the business in question does not wield market power, almost any restrictive requirement or practice can be included in a distribution system, if it does not involve agreement or collusion between competitors.
This means that US enforcers tend to focus on e-commerce infringements with a horizontal element. In recent proceedings co-ordinated between the DOJ and the UK’s CMA, the DOJ brought criminal antitrust proceedings and the CMA imposed a fine for an online price-fixing cartel concerning posters and frames sold through Amazon. A novel feature of this case was that a computer algorithm had been set up to co-ordinate changes in price so as to maintain the cartel without ongoing human intervention. Similarly the E-books case in the US was essentially a question of whether or not there had been collusion between competing publishers, whereas the European Commission extracted a number of commitments based on vertical concerns.
A little more care is needed around resale price maintenance (RPM). In the US, at federal level RPM is generally evaluated under the ‘rule of reason’, or a balancing of pro- and anti-competitive effects, meaning that in the absence of market power RPM will not normally raise antitrust issues. But several states have enacted contrary legislation, or their state courts have continued a ‘per se’ approach, presenting a concern if a company wants to adopt a national distribution and pricing policy.
US counsel need to be aware that the European approach to restraints in distribution and supply chains is much stricter than the ‘light touch’ they are used to in the US.
Terry Calvani, Of Counsel, Washington DC
Hot topic: ‘most favoured nation’ clauses
MFNs will remain an enforcement focus across much of the globe in 2017 and beyond. The European Commission is investigating Amazon’s contracts with e-book publishers, which include requirements that publishers inform Amazon about more favourable or different terms offered to Amazon’s competitors and make them available to Amazon. National enforcers in the EU continue to be active in this space too: the UK’s CMA has just opened an investigation into online auction services, citing suspicions of illegal pricing practices and restrictive clauses including MFNs that may have excluded competitors. MFNs are also raising interest in Asia, as mentioned above.
The Hotel Bookings cases illustrate the very different attitudes in the US and elsewhere to MFNs. In the US, class actions based on MFNs imposed on hotels by online booking platforms failed in the absence of evidence of concerted action. In the EU, very similar factual situations led to many national competition authorities requiring commitments by the platforms to change the terms on which they contracted with hotels. But even within the EU, authorities have taken different approaches, with Germany banning these provisions outright, a stance significantly stricter than elsewhere in Europe. And on top of that, in countries including Austria, France and Italy the legislature has intervened, in some cases reversing the settlement concluded by their national competition agencies. Ten national agencies are together now carrying out research into the market effects of their enforcement action and the results should be available early in 2017.
Looking ahead in 2017
Given the continued regulatory focus in this area, businesses engaged in e-commerce are advised to examine their practices closely:
- to design compliance programmes to take into account the significant differences in approach between authorities in Europe, the US and Asia;
- to ensure that those in the US know that EU and some other laws limit the ability of sellers to chart their own sales strategy and that e-commerce vendors doing business in Europe need to be very sensitive to these restrictions;
- for global compliance, to consider whether the convenience of a ‘one-size-fits-all’ approach outweighs the benefits available from taking advantage of the lighter touch applied in some jurisdictions;
- to make it a priority to review any European distribution contracts in the light of the findings of the EU e-commerce sector inquiry once these come out and keep up with other relevant EU developments, such as the proposed Regulation on online selling; and
- to keep up with rapidly developing law and policy on ‘most favoured nation’ and other price parity clauses between retailers and marketplaces, as these may have far-reaching implications for businesses that either are subject to them or rely on them.