For twenty years or more, the European Commission (EC) has taken little or no formal enforcement action against anticompetitive distribution practices. However, the recent fines on Nike, Guess and others mark a dramatic change of policy. In the latter half of 2018, the EC imposed fines totalling over €150 million in relation to online distribution practices. And its recent antitrust fine on Nike – €12.5 million for restricting cross-border and online sales – continues the trend.
All of these developments can be traced back to the EC’s 2017 e-commerce sector inquiry report. In our second blog post about antitrust and e-commerce in Europe, we look back at that report, what’s behind it, and what it tells us about antitrust risk for those engaged in e-commerce in Europe going forward.
1. The EU E-Commerce Sector Inquiry
Cross-border sales have been traditionally viewed as an important tool for European integration and, as a result, enjoy special protection under EU antitrust rules. Under the so-called single market objective, restrictions on trade between EU/EEA Member States are treated as per se unlawful. Furthermore, e-commerce is considered an important mechanism for allowing consumers in one Member State to approach suppliers in another and, therefore, most restrictions on online sales in distribution agreements are treated as per se infringements.
That was the theory. However, in practice, the EC had failed to take enforcement action to back it up. In 2015, the EC launched an inquiry into what it called the e-commerce sector. When the results were published in May 2017, they identified a range of potentially problematic distribution strategies in online distribution. The EC highlighted four main areas of concern:
- cross-border sales and advertising restrictions (so-called geo-blocking);
- restrictions on online pricing;
- the use of selective distribution systems to limit online commerce; and
- restrictions on the use of online marketplaces (such as Amazon).
As stated, contractual restrictions on cross-border and online sales have long been regarded as per se unlawful, so in principle, little changed here. (The EU has, nonetheless, now adopted a Geo-Blocking Regulation, which specifically prohibits certain types of geo-blocking.)
Similarly, fixed and minimum resale prices are well-established per se infringements under EU antitrust rules. What the e-commerce sector inquiry highlighted was that online markets are particularly sensitive in this regard; as prices are transparent and are easier to monitor through tools such as pricing software. At the same time, suppliers sometimes wish to protect their brick and mortar stores from aggressive online competition by controlling online pricing.
Selective distribution systems are those where the supplier sells only to particular retailers or distributors, which are selected on the basis of specified criteria. In these distribution systems, sales outside the authorised network are prohibited. Such systems are typically used for luxury and high-value branded goods. The concern identified in the EC report was that pure online players were being excluded from selective distribution systems without justification.
The final priority concern identified by the EC report was contractual restrictions on the use of online marketplaces, such as Amazon and eBay, by retailers and distributors. These are viewed as partial restrictions on online sales and are, therefore, presumptively unlawful – although potentially justifiable in the context of selective distribution or otherwise. (This is an issue explored further by the EU Court of Justice decision in Coty which will be the subject of a later post in this series.)
2. EU Action Following the E-Commerce Sector Inquiry
The importance of the sector inquiry report lies not so much in its description of the law as in the fact that it has triggered actual enforcement by the EC – an action that led to very large fines. In July 2018, the Commission imposed fines totalling €111 million on four manufacturers of consumer electronics – Asus, Denon & Marantz, Philips and Pioneer – for imposing resale price constraints on online retailers. In December 2018, the Commission fined Guess €40 million for imposing geo-blocking and advertising restrictions on its distributors and retailers in relation to online sales.
All of these cases have been expressly identified by the EC as arising out of the sector inquiry. And more will follow. In April 2019, the Commission sent a charge sheet (SO) to Valve and five video game publishers in relation to their agreements concerning the Steam video game distribution platform. An investigation into online hotel booking arrangements between individual hotels and the largest European tour operators including Kuoni, REWE and Thomas Cook is also ongoing; as is an investigation of the licensing and distribution practices of Sanrio (owner of the Hello Kitty brand) and Universal Studios.
3. National Developments
The EU e-commerce sector inquiry both reflected and inspired similar action by national antitrust authorities in Europe. The French Competition Authority had already issued an Opinion on the functioning of competition in e-commerce in 2012. In 2017, the UK CMA published a Market Study on online price comparison tools. In February 2019, the Dutch Competition Authority published new guidelines on vertical agreements and announced it would be more vigorous vis-à-vis vertical restraints and online sales. In April 2019, the German Federal Cartel Office (FCO) published a report on its sector inquiry into comparison websites.
These national publications have also been accompanied by enforcement action. In 2015, the FCO took infringement action against Adidas and Asics in relation to their online sales policies, in particular by removing the ban on the use of online marketplaces. In the UK, the CMA imposed a £1.45 fine on Ping for prohibiting the online sales of golf clubs. And most recently, in October 2018, the French Competition Authority imposed a €7 million fine on Stihl, a manufacturer of chainsaws, for requiring its distributors to hand-deliver its products to customers so that they could receive safety instructions.
Unfortunately, these blossoming national actions have also led to inconsistencies. The position taken by the German FCO in relation to online marketplace bans in cases like Asics is stricter than, and not fully consistent with, that taken by the EC. And in the Stihl case, the behaviour condemned by the French authority had been informally cleared by the German, Swedish, and Swiss authorities, which had each been consulted by Stihl. (The French decision is currently under appeal before the French courts).
European national antitrust authorities have also expanded the range of priority issues for enforcement. The French Opinion of 2012, the UK Market Study of 2017, and the German Asics case of 2015 all identified restrictions on the use of brand names in online advertising (e.g. the use and acquisition of Google AdWords) as a potentially anticompetitive restriction. In its Guess decision last year, the EC followed suit, finding that such restrictions constitute another (new) form of per se infringements.
4. Where Does This Leave Us?
The combination of (i) active enforcement including the imposition of fines of tens of millions of Euros and (ii) a complex, inconsistent, and still evolving set of legal rules creates a high risk environment in relation to online distribution in Europe.
However, it is possible to identify key areas of risk. Any of the following restrictions in the context of online distribution currently attracts significant enforcement risk in Europe:
- restrictions on the ability of retailers or distributors to make online sales or sell online to any and all territories in the EEA;
- online pricing restrictions;
- the exclusion of online retailers from distribution networks, absent careful justification;
- prohibitions on the use of online marketplaces, absent careful justification; and
- restrictions on the use of brand names in online advertising.