European Commission publishes its final report on the e-commerce sector enquiry

On 10 May 2017, the European Commission (the “Commission”) published its final report on the e-commerce sector inquiry. The report deals with factual findings and competition concerns in relation to consumer goods and separately digital content. In very broad terms, the report suggests some fairly concrete concerns in relation to consumer goods markets, but suggests less clarity in the future treatment of digital content.

The report sets out a number of key competition concerns regarding e-commerce in consumer goods. The evidence relied upon and the view of the Commission might be summarised as follows:

• Selective distribution: More than half of manufacturers require the operation of a brick and mortar shop by retailers. This excludes online only retailers and may not actually enhance competition on parameters other than price.  Therefore, requirements to operate at least one brick and mortar shop without any apparent link to distribution quality and/or other potential efficiencies may require further scrutiny in individual cases. 
• Resale price maintenance: The use of price monitoring software means it is now easier for manufacturers to monitor resale prices and retaliate against retailers that deviate from the desired price level, in breach of competition law.
• Online price transparency: Increased online price transparency allows retailers to monitor each other’s pricing and adjust their own pricing accordingly. Two thirds of retailers use automatic software programmes for this purpose, and the use of such software may raise competition concerns.
• Dual pricing: Charging different wholesale prices to different retailers is generally considered a normal part of the competitive process. However, dual pricing for one and the same retailer, depending on whether the product is to be sold online or offline, is generally considered to be a serious infringement of competition law.
• Restrictions on selling on online marketplaces: Online marketplaces (such as Amazon) have made it easier for retailers to access customers. However, the importance of online marketplaces as a sales channel varies significantly depending on the size of the retailers, the Member States concerned and the relevant product categories. Marketplace bans do not generally amount to a de facto ban on selling online and therefore absolute marketplace bans should not be considered as ‘hardcore’ restrictions of competition law (i.e. they will not be generally unlawful). This issue is the subject of proceedings before the Court of Justice of the European Union and judgment is pending (for more information click here).
• Geo-blocking: Cross-border e-commerce may contribute to the integration of the single market, however, it is often not possible for customers to make cross-border purchases online because of geo-blocking measures. Examples include blocking access to websites, re-routing customers to websites targeting other Member States or refusing to deliver cross-border or to accept cross-border payments. Such measures based on unilateral decisions by non-dominant companies fall outside the scope of the competition rules. However, they may be unlawful when the result from agreements or concerted practices between separate companies.

The report sets out a number of key findings regarding e-commerce in digital content. The evidence relied upon and the view of the Commission might be summarised as follows:

• Scope of licensed rights: Right holders tent to split up the rights into several components and license part or all of them to different content providers in different Member States. Bundling of rights is also common, for example bundling rights for online transmission with rights in other transmission technologies provides exclusivity in relation to particular digital content. This may hinder existing operators and new entrants from competing and developing new innovative services, which in turn may reduce consumer choice.
• Territorial restrictions and geo-blocking: Online rights are to a large extent licensed on a national basis or for the territory of a limited number of Member States which share a common language. Digital content providers often use geo-blocking measures to restrict access to their online services because of contractual restrictions in their agreements with right holders.
• Duration of licensing agreements: It is common for licensing agreements to have relatively lengthy terms and contracting parties often decide to contract again or to renew or extend existing contracts. Clauses such as automatic renewal, first negotiation, first refusal and price matching may facilitate this. This may make it more difficult for new players to enter the market or for existing players to expand their operations.
• Payment structures and metrics: Rights holders licensing attractive content tend to use payment structures such as advance payments, minimum guarantees and fixed fees per product irrespective of the number of users. These tend to favour more established content providers, which are typically able to commit to greater levels of investment upfront.

The Commission has warned that in light of the results of the e-commerce sector inquiry. It will “target enforcement of the EU competition rules at the most widespread business practices that have emerged or evolved as a result of the growth of e-commerce and that may negatively impact competition and cross-border trade and hence the functioning of a Digital Single Market”.

As set out here, the Commission has already opened three investigations into suspected competition law infringements in e-commerce and further enforcement action is likely to follow. It would be prudent for businesses to take the opportunity to review their e-commerce arrangements and change their practices if necessary.