E-commerce: Competition law sector inquiry by the European Commission

11 May 2015

Richard Eccles

Inquiry will focus on contractual and other barriers to cross-border e-commerce

The European Commission has launched a competition law inquiry into the e-commerce sector in the European Union. This was announced by the Competition Commissioner Margrethe Vestager on 6 May 2015, following an initial announcement of the proposal for such an inquiry on 26 March 2015. The sector inquiry will focus on potential barriers, caused by companies, to cross border online trade in the EU in products for which e-commerce is used the most widely. Electronics, clothing, shoes and digital context are given as examples. The Commission is expected to use the information and knowledge gained through the sector inquiry in enforcing competition law in the e-commerce sector, including individual anti-trust proceedings against companies in the sector.

Sector-wide inquiries

The Commission has the power to conduct sector inquiries under Article 17 of Regulation 1/2003, in situations where the trend of trade between member states, the rigidity of prices or other circumstances suggest that competition may be restricted or distorted within the EU.  Due to the scale of such inquiries, they have historically been relatively unusual, although Commissioner Vestager has now launched two in quick succession – the other in relation to electricity markets the previous week.  Previous sector inquiries (in energy and pharmaceuticals) have resulted in a number of individual anti-trust proceedings being brought, some ending with heavy fines.  It can be expected that anti-trust proceedings against individual companies will similarly eventually follow the present sector inquiry.  The nature of such proceedings would depend upon the types of issues revealed in the inquiry, but might, for example, concern territorial restrictions on internet sales, restrictions on the use of the internet and resale pricing restrictions imposed through contractual terms.

Next steps

The sector inquiry will take almost two years, with the Commission's final report expected in the first quarter of 2017 and a preliminary report for consultation to be issued in mid-2016. As a first step, the Commission will send information requests to a large number of stakeholders throughout the EU, including companies which hold content rights, broadcasters, manufacturers, traders of goods sold online, companies running online platforms, including price comparison websites and e-commerce retailers. The Commission can impose fines on companies which provide incorrect or misleading information in response to such information requests. Where such a request is made by decision rather than by a simple request, fines can also be imposed for providing incomplete information. Questionnaires sent out in previous inquiries have required significant quantities of information within short timescales.

Commissioner Vestager has stated that the Commission has designed the sector inquiry with the main goal being "to identify what hampers competition in e-commerce when sales straddle national borders", with the intention of focusing "on the barriers to the cross-border sale of goods and digital content erected by private companies, especially in their distribution contracts". The Commission has also indicated that geo-blocking of access to websites will be an important feature of the inquiry. This could cover contractual clauses requiring a reseller to geo-block certain data products or services, but it could also cover unilateral geo-blocking content by companies holding a dominant market position. 

The competition context

The main specific EU competition rules on agreements for the resale of products, including via the internet, are the Commission's Vertical Agreements block exemption Regulation and the related Guidelines on Vertical Restraints. The Regulation permits (under specified criteria) some restrictions on active sales across national borders within the EU but disallows all restrictions on passive sales (sales in response to unsolicited borders) across such borders. The Guidelines make it clear that internet selling is generally passive sales and therefore cannot be restricted; rather such provisions are prohibited as hard-core restrictions. The Guidelines also make clear that various related contractual measures also infringe the competition rules, such as clauses concerning differential prices for internet sales as compared with sales in physical outlets. It is a fundamental principle of the rules that every distributor must be allowed to use the internet to sell its products.

The Commission is already investigating various cases of alleged infringements in online selling, including an investigation of restrictions on pricing and cross-border trading via the internet of consumer electronics products and, separately, alleged geo-blocking of video games sold online. Google is subject to investigations by the Commission concerning alleged preferential treatment of its own online services through its search engine operations. The Commission is also investigating US film studios and European broadcasters concerning territorial restrictions in licensing contracts affecting the ability of existing and new subscribers to access online pay TV outside an allocated territory.

Relationship with the Digital Single Market

Also on 6 May 2015, the Commission launched a Digital Single Market Strategy, under which a wide range of legislative measures will be proposed to remove obstacles to cross-border e-commerce trading within the EU. The present competition law sector inquiry complements the actions launched by the Digital Single Market Strategy by focusing on barriers to internet selling that resulted from commercial operations. 

During the sector inquiry, companies likely to be impacted by it have some months ahead of them to review the potentially conflicting issues (and if possible modify their agreements or practices). Bird & Bird's Competition & EU Team is ideally placed to help them with this task.

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