Amazon questions the EU system for allocation of cases within the ECN
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Article Summary:
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1. The revolution of digital platforms
Digital platforms have burst onto the market in recent years. There is no doubt that their ability to offer a large variety of products and services, the ease of use by retailers and consumers, and the reduction of investment and search costs involved, provides them with a preferential and privileged position as a distribution channel.
Undoubtedly, one of the main players that has emerged as a result of market digitization is Amazon. The growth of the US company in recent years has been very significant; in 2020 it became the fourth largest company in the world by market capitalization, overtaking one of its main competitors, Alibaba, which ranked sixth.
Moreover, the Covid-19 pandemic has led to a decline of purchases in brick and mortar stores favouring online shopping, which has consolidated Amazon's marketplace service as the most important in the world. Indeed, for a while, Amazon has not been acting only as a marketplace, but also as a retailer by selling a large number of products directly through its own platform and, therefore, becoming a major competitor to the sellers using its marketplace.
However, the behaviour of digital platforms in general, and Amazon in particular, has sometimes clashed with competition rules. This article deals with a conflicting situation, which arose when two Competition Authorities within the European Competition Network were investigating the same matter.
2. The “Buy Box” as a competitive advantage
As a marketplace service provider, Amazon has access to non-public business data of third party sellers including, among others, the number of ordered and shipped units of products, the sellers’ revenues on the marketplace, the number of visits to sellers’ offers and the sellers’ past performance.
In order to enhance retailers’ sales through its platform, Amazon provides the popular “Buy Box” tool, which is placed on the right-hand side of the page of any product sold through Amazon.
Generally, the product in question is offered by several sellers on Amazon, thus whoever obtains the "Buy Box" acquires high visibility and, therefore, a greater advantage over the rest of competitors. In fact, studies show that more than 80% of transactions on Amazon’s platform are done through this tool.
However, the European Commission has recently stated that large volumes of non-public seller data are available to employees of Amazon's retail business, which flow directly into the automated systems of that business. The Commission has opened an investigation with the aim of examining more deeply this matter and, according to its preliminary findings, Amazon could have aggregated this data and used it to calibrate and improve its own retail offers and strategic business decisions, to the detriment of the other marketplace sellers.
It should be noted that this is not the only conflict with competition authorities that Amazon faces, with regards to its "Buy Box" tool, as the company is also being investigated for an alleged anticompetitive use of the tool by the Italian Competition Authority (the “AGCM”).
3. The AGCM’s investigation of the "Buy Box" tool
In April 2019, the AGCM launched an investigation regarding Amazon's utilization of this tool. According to preliminary findings, Amazon would favour the awarding of the "Buy Box" to its own retail offers and those of sellers that use the platform's own logistics and delivery services. Thus, when a seller subscribes to the Fulfilment by Amazon (“FBA”) service, which includes Amazon managing, among others, the storage of the product, packaging, shipping to the customer or some pre-sale and post-sale services, it is favoured to be awarded the "Buy Box".
This practice leads to greater visibility and positioning in search rankings of those sellers than others who use their own or third-party logistics and fulfilment services, as it allows customers to choose that product more easily, without taking into account other elements such as the performance or price of products from other competing sellers.
According to the AGCM, Amazon's discrimination against sellers that use its own or third-party logistics service means that competition among sellers is not based on the quality or price of the product, but on the fact of subscribing to the FBA service. This way, Amazon would be abusing its dominant position in the Italian market for services on generalist e-commerce platforms to extend its dominance also to the complementary markets of e-commerce fulfilment and logistics services, where Amazon is present through its FBA service.
Initially, the time limit for the AGCM to complete the investigation was April 15, 2020. Nevertheless, due to the complexity of the case and the need to conduct further investigations, it has been decided to extend the deadline to conclude the procedure until April 30, 2021.
4. The parallel investigation by the European Commission
Last November, the European Commission announced that it had sent a Statement of Objections to Amazon for an alleged abuse of dominant position due to the potential preferential treatment of Amazon's own retail offers concerning the use of the "Buy Box" tool.
As in the case of the AGCM, the European Commission’s preliminary view is that Amazon has breached EU antitrust rules by distorting competition in online retail markets, and the company has been accused of artificially favouring its own retail offers and those of sellers using Amazon's FBA services. For example, this conduct would have allowed Amazon to focus its offers on the best-selling products across product categories and to adjust its offers in view of non-public data of competing sellers.
In this regard, Executive Vice President Margrethe Vestager explained that: “(…) The conditions of competition on the Amazon platform must also be fair. Its rules should not artificially favour Amazon's own retail offers or advantage the offers of retailers using Amazon's logistics and delivery services. With e-commerce booming, and Amazon being the leading e-commerce platform, a fair and undistorted access to consumers online is important for all sellers.”
The investigation covers the European Economic Area (“EEA”), with the exception of Italy, due to the ongoing AGCM investigation. This is certainly remarkable as it means having two open proceedings for the same facts, by the European Commission and a National Competition Authority ("NCA"). The European Commission seems to justify this possibility by stating that the AGCM is examining "partially similar concerns", noting that there will be close cooperation between both authorities during the whole investigation period.
5. Amazon complains before the EU General Court
This approach has not convinced Amazon, who has decided to sue the European Commission before the EU General Court for allowing the AGCM investigation to continue in parallel with the EEA investigation. This procedure is registered under the reference number T-19/21.
In this regard, Amazon has argued that in accordance with Article 11(6) of Regulation 1/2003: “When the European Commission decides to investigate a matter, European law says that national competition authorities cannot investigate the same topic. This did not occur in this instance, as the Commission’s opening decision attempts to exclude Italy”.
Amazon is now seeking an annulment of the European Commission's decision excluding Italy from the EEA investigation. Meanwhile, the European Commission has announced that it will defend its case in court.
6. The allocation system of cases between competition authorities
The coexistence of the different NCAs with the European Commission, as well as the increasing cross-border effects of many anticompetitive conducts, make it necessary to understand how the allocation of cases between competition authorities works.
To this effect, Council Regulation (EC) No 1/2003 establishes a system whereby the NCAs, together with the Commission, have competence for the application of EU competition rules in joint cooperation within the European Competition Network (“ECN”). The functioning of this cooperation was reflected in the Commission Notice on cooperation within the ECN.
Regarding the allocation of cases, the Commission Notice establishes that investigations may be handled by:
- a single NCA, possibly with the assistance of NCAs of other Member States;
- several NCAs acting in parallel; or
- the European Commission.
The fundamental principle is that the case must be handled by the authority that is best placed to do so, which is the case when the following three cumulative conditions are met:
i) the infringement has or may have direct and substantial effects, is carried out in or originates from the territory of the NCA;
ii) the NCA can terminate and sanction the infringement adequately; and
iii) the NCA is able to gather all the evidence necessary to prove the infringement.
ii) the NCA can terminate and sanction the infringement adequately; and
iii) the NCA is able to gather all the evidence necessary to prove the infringement.
Generally, the NCA that receives a complaint or starts an ex-officio procedure remains in charge of the case, as it is usually their territory that is affected by the anticompetitive behaviour in question. However, if an NCA considers that it is not well placed to investigate the case or if other NCAs consider that they are also in a good position to carry out the investigation, a different allocation may be adopted on a case-by-case basis.
In the event that an anticompetitive conduct has direct and substantial effects in different territories where two or three NCAs have competence and the action of only one NCA is not sufficient to bring the infringement to an end or to be adequately sanctioned, parallel actions may be appropriate.
Notwithstanding the foregoing, if the infringement has effects in more than three Member States, the European Commission is considered to be in the best position to terminate and sanction the infringement.
7. Conclusions
There is no doubt that this situation highlights the importance of the existing procedure in the European Union for the allocation of cases between competition authorities within the ECN.
The case raised by Amazon is complex as the Commission Notice does not provide the possibility of an investigation being conducted by both the European Commission and an NCA at the same time. Furthermore, this seems to be precisely the situation which Article 11(6) of Regulation 1/2003 is supposed to avoid. It will therefore be very interesting to see how the European Commission argues, before the General Court, that its investigation and the one launched in 2019 by the AGCM are not about identical facts, but about "partially similar concerns".
For this purpose, it will be necessary to wait and closely follow the proceedings before the EU General Court.
For further information, please refer to the press release published by the European Commission available here and the preliminary findings of the AGCM available here (in Italian).
