The online retail market may be the next major area for scrutiny by the European Commission (the Commission) under EC competition rules. On September 17, 2008, Neelie Kroes, the European Commissioner responsible for European competition law enforcement, hosted a roundtable event to discuss issues connected with obstacles to online trade in the EU. This meeting followed on from Commissioner Kroes’ decision earlier in the year to establish a group of advisers from a range of business and consumer interests to collaborate on a report that would guide the Commission’s thinking on how to deal with issues in the online market.

The event was attended by CEOs of companies such as EMI, Apple, eBay and LVMH (the Working Group) and, in the wake of the discussion, Commissioner Kroes emphasized that the Commission is not satisfied with the way online commerce operates in the EU. She referred to the fact that “[f]ar too often [consumers] do not even have pan-European commerce”. Although Commissioner Kroes recognizes that there may be reasons outside the antitrust sphere that may explain this pattern, she added that she will make sure that competition rules will be respected in this area.

One particular focus is likely to be online distribution agreements that (i) restrict cross-border sales or (ii) exclude online distribution. As regards (i), Commissioner Kroes’ team is likely to take a particular interest in whether manufacturers restrict so-called “passive sales” – sales that are not solicited by distributors via active marketing, but which result from unsolicited orders from customers. A rule of thumb under EC competition law is that distributors can never be prevented from passively selling to their customers. In this context, certain practices such as website redirections of consumers’ orders or credit card checks could infringe EC competition rules if they were part of an agreement between manufacturers and online distributors to limit passive selling.

As regards (ii), Commissioner Kroes’ team may investigate to what extent the outright exclusion of online distribution from certain distribution networks is compatible with EC competition law, even if companies may argue that it is necessary to protect a brand image or because online distribution does not fit with the requirements of their own distribution systems. Commission officials may also investigate whether online distributors in certain sectors face stricter requirements than physical distributors and, if so, if such requirements can be justified.

Commissioner Kroes added that the Commission is also looking at online distribution in the music industry and alleged obstacles that consumers face in downloading music on a pan- European basis. The Commission has noted that consumers face territorial barriers in buying digital downloads that do not exist for the same music in physical format. Commissioner Kroes nevertheless noted that the situation in the music industry is far more complicated than in other sectors but wants “to hear more about whether the current system really helps the artists and whether it serves the consumer”.

An issues paper has been published by the Commission in connection with the roundtable event it held with members of the Working Group. The paper is opened to comments from interested parties with a deadline of October 15. The working group will publish their own report by mid-October and this report will form a basis for the Commission to decide how it will proceed further.

It is also important to point out that the Commission Regulation that regulates compliance of distribution agreements with EC competition law (Commission Regulation 2790/1999 of 22 December 1999 on the application of Article 81(3) of the Treaty to categories of vertical agreements and concerted practices) expires in May 2010. Before expiry, the Commission will launch a public consultation process on what the terms of the replacement regulation should be. The outcome of this process may well be influenced by the conclusions that the Commission draws from its investigation of online distribution in the coming months.