Competition Law
Newsletter Issue #1 2015

E‐commerce in the spotlight of EU antitrust law

EU Competition Commissioner announces proposal for e‐commerce sector inquiry

On the international cartel conference in Berlin end of March 2015, the European Commissioner in charge of competition, Margrethe Vestager, announced a proposal to launch a union wide sector inquiry in the e‐commerce sector. There are indications that companies may be taking measures to restrict cross‐border e‐commerce. According to Vestager, in 2014 one European consumer in two shopped online. However, only about one in seven bought something from across a border. This cannot be due to language barriers, consumer preferences and differences in legislation across member States only.

Background

Based on Article 17 of Regulation 1/2003 (“antitrust regulation”) the Commission may conduct sector inquiries when there are indications for a restriction or distortion of competition within a particular business sector. According to this provision the Commission may request the undertakings concerned to supply information and may carry out unannounced inspections (dawn raids) if necessary for the purposes of the sector inquiry. If the suspicion is confirmed, the Commission may initiate formal proceedings because of restrictions of competition or abuse of a dominant market position. The Commission has in the past conducted similar sector inquiries in various sectors, including energy, financial services and pharmaceuticals. Therefore, sector inquiries usually are the first step to extensive antitrust investigations against individual companies. The sector inquiry aims at identifying competition concerns within the e‐commerce sector. At the same time, the Commission hopes to make more uniform the action taken by the national competition authorities against restrictions of online sales. The sector inquiry is part of the “Digital Single Market Strategy” announced by the Commission.

Besides the sector inquiry the Commission is already investigating several cases of alleged restrictions of competition within the e‐commerce sector. In March 2015 and already in December 2013 the Commission carried out inspections at several companies active in the online trade of consumer electronic products, including Philips, Samsung and the Metro‐subsidiary Redcoon, because of alleged restrictions to cross‐border sales. Since early 2014 the Commission is examining in a formal antitrust investigation the licensing agreements between several major US film studios and various European broadcasters, including pay‐TV broadcasters such as Sky Germany, because of alleged restrictions to cross‐boarder sales.

Geo‐blocking

The sector inquiry will in particular focus on reviewing existing distribution agreements between manufacturers and distributors on the one hand and traders on the other hand with respect to barriers on cross‐border e‐commerce in digital goods and digital content.

According to the announcement, the Commission will take a closer look in particular at technical barriers such as geo‐blocking. By way of geo‐blocking, the customer who intends to buy a certain product online is prevented from accessing certain websites on the basis of residence or credit‐card details and will be redirected to a business channel exclusively open to customers from the respective Member State. In this context, the Commission will have to investigate whether this technique allows upholding different price levels in the Member States.

  • For the purpose of illustration, Mrs Vestager refers to the example of a French tourist, who buys a pair of Italian shoes in Rome. If the tourist intends to buy the same pair of Italian shoes online from her computer in France, she will be redirected by way of geo‐blocking to a business channel for French customers.
  • With respect to digital content e‐commerce, the Commissioner refers to the fact that it is possible to watch certain contents on electronic devices only within the Member State where the content was bought.

Practical relevance

The Commissioner intends to propose the inquiry to the Commission in May 2015. As soon as the inquiry is formally adopted the Commission will send voluminous questionnaires to the undertakings concerned. According to the information available, preliminary findings are not to be expected before mid‐2016.

Companies which are active in the e‐commerce sector should, as a matter of precaution, review their distribution system under the auspices of antitrust law. This applies not only to the issue of geo blocking, but also to restrictions which require a case‐by‐case analysis, including selective distribution systems, dual pricing or most‐favored‐nations clauses used by online platforms. In case of indications for prohibited practices, appropriate measure will have to be adopted. When replying to a request for information by the Commission, it has to be taken into account that sector inquiries can be expanded to formal antitrust proceedings. For this reason, companies should also be prepared for unannounced inspections by the competition authorities (by means of dawn raid guidelines, antitrust workshops, etc.).

The sector inquiry may concern undertakings on all market levels active in the e‐commerce business (e. g. consumer electronic, consumer goods, cosmetics, pharmaceuticals, fashion, and household goods) as well as internet dealers and online platforms. In so far as the sector inquiry also will cover online sales of digital contents, the respective rights owners may be also concerned.

Contacts

Dr Andreas Rosenfeld, Prof Dr Peter‐Andreas Brand, Andreas Okonek, Sabine Wildfeuer, Dr Caroline Hemler, Dr Sebastian Steinbarth