The European Commission recently opened investigations into the distribution practices of Guess, Nike, Sanrio and Universal Studios, the latest in the series of probes into the e-commerce sector. These investigations come shortly after the conclusion of the Commission’s two-year inquiry into the e-commerce sector, which was aimed at identifying potential barriers to competition following an extensive fact gathering exercise. The Commission’s final report was published on 10 May 2017.
The e-commerce sector final report
The final report notes that the growth of online trade has brought increased price transparency and price competition to the sector, but has also prompted manufacturers and retailers to reconsider their distribution strategies. The Commission identified a number of trends in the e-commerce sector which affect the business practices of online retailers:
(i) Increased direct retail activities by manufacturers, with many manufacturers now competing directly with their distributors by also selling their products through their own online retail shops;
(ii) Expansion of selective distribution, as manufacturers seek to better control their distribution network, in particular in terms of the quality of distribution; and
(iii) More contractual sales restrictions in agreements between manufacturers and distributors, such as pricing restrictions or restrictions on cross-border sales.
Over the course of the inquiry, the Commission examined over 8,000 contracts from 1,900 companies selling consumer goods and digital content online in the EU. The final report sets out the Commission’s position on a number of potentially anti-competitive practices, notably (i) geo-blocking measures, (ii) restrictions on the use of online marketplaces, (iii) requirements for brick and mortar shops, (iv) restrictions on price comparison tools, and (v) dual pricing. A full summary of the Commission’s findings can be found in our Competition Law in the Digital Age newsletter.
The Commission’s findings broadly follow those set out in the Commission’s preliminary report on the e-commerce sector, which was published in September 2016. Our briefing on the preliminary report can be found here.
The preliminary report had already prompted the Commission to open three investigations in February 2017 into potential anti-competitive online pricing practices of a number of companies active in the consumer electronics, video games and hotel markets. The Commission also, unusually, identified a number of companies, such as Mango, Pull & Bear, Dorothy Perkins and De Longhi, that reviewed their commercial agreements on their own initiative to ensure that they were in line with the Commission’s preliminary findings.
Commission opens investigations into Guess, Nike, Sanrio and Universal Studios
On 6 June 2017 the Commission opened a formal investigation into the distribution practices of the clothing and accessories designer, distributor and licensor Guess. The investigation aims to determine whether Guess’s distribution agreements impose cross-border sales restrictions on retailers, preventing them from making online sales to consumers in other Member States (or preventing wholesalers from selling to retailers in other Member States). Competition Commissioner Margrethe Vestager commented that "…. one of the key benefits of the EU's Single Market is that consumers can shop around for a better deal." Distribution agreements that prevent cross-border sales may breach Article 101 of the Treaty on the Functioning of the European Union, as agreements that prevent, restrict or distort competition within the internal market.
On 14 June 2017 the Commission announced that it had launched three further investigations into the licensing and distribution practices of Nike, Universal Studios and Sanrio, in their roles as brand licensors. These three companies license intellectual property rights to manufacturers of merchandising products such as the Fútbol Club Barcelona, Minions and Hello Kitty merchandise. The Commission is concerned that consumers may have had less choice and paid higher prices for merchandised products as a result of restrictions on cross-border and online sales imposed by Nike, Sanrio and Universal Studios on the manufacturers.
The four investigations are part of a wider Commission crack down on anti-competitive business practices in the e-commerce sector. Further Commission investigations can be expected, and these investigations may whet national competition authorities’ appetite to open their own investigations in the e-commerce sector.