10 May 2017, the European Commission published its final report on the E-commerce Sector Inquiry ("the Sector Inquiry") which was launched on 6 May 2015 as part of the Digital Market Strategy. The Sector Inquiry aimed at obtaining an insight into the prevailing market trends, the potential barriers to competition and the possible restrictive practices on the online market(s). In September 2016 the Commission published its Preliminary Report on the Sector Inquiry (see our News Update).The Preliminary Report was followed by a public consultation and a stakeholder conference ending in November 2016.
The final report incorporates the comments submitted by stakeholders and summarizes the Commission's main findings from a competition law perspective:
- Selective distribution systems and brick and mortar
The Sector Inquiry demonstrates that manufacturers increasingly seek recourse to selective distribution systems in order to better control the quality of the distribution and prices. The findings do not call for a change to the Commission's general approach to qualitative and quantitative selective distribution as reflected in the Vertical Block Exemption Regulation ("VBER"). According to the Commission the frequently used restriction requiring distributors to have a brick and mortar shop ("B&M"), is generally covered by the VBER. However, the obligation to operate at least one B&M shop without any apparent link to distribution quality and/or other potential efficiencies may require further scrutiny in individual cases.
- Pricing restrictions/recommendations
The frequently used price recommendations are in principle exempted from competition rules on the basis of the VBER. Although such recommendations may not result in a minimium or fixed sale price, it follows from the Sector Inquiry that retailers stick to the recommended prices, partly due to pressure by the manufacturer. In that regard, the Commission is concerned about the increasingly used software to monitor prices. This software could facilitate manufacturers to retaliate against retailers that deviate from the desired price level or collusion between retailers.
- Dual pricing
The final report clarifies that charging different (wholesale) prices to different retailers is generally allowed. Although, dual pricing for one and the same (hybrid) retailer is in principle considered as a hardcore restriction under the VBER, the final report points to the possible individual exemption for dual pricing arrangements that are indispensable to address free-riding.
- Bans on selling on online marketplaces
The findings of the sector inquiry indicate that an absolute online marketplaces ban should not be considered as hardcore restriction under the VBER. However, the Commission is of the opinion that such bans cannot generally be considered compatible with the competition rules. The Coty-case (C-230/16) currently pending before the Court of Justice of the European Union, which is dealing with the ban on sales through third party platforms, is likely to clarify the competition assessment of such bans.
- Digital content
The main competition concerns regarding digital content relate to contractual restrictions in licensing agreements. Such restrictions consist of different licencing practices, such as the bundling of licensed online rights, which could hinder market access for providers of innovative services and could restrict output. Furthermore, the final report states that almost 60% of the content providers use geo-blocking measures which restrict access to digital content for users from other Member States. Geo-blocking measures may be objectively justified and do not necessarily raise competition concerns especially not if these measures are based on unilateral decisions by non-dominant companies. The Commission has already proposed specific legislation to ensure the protection of consumers against unjustified and/or discriminatory geo-blocking measures.
Review of contracts
Manufacturers should be aware of the fact that their agreements with distributors will receive extra attention from the competition authorities. In February 2017 the Commission opened three investigations regarding online sales practices in the consumer electronics, video games and hotel accommodation sectors.
Click here for the full version of the report.