This month, The European Commission was joined by key stakeholders from across the e-commerce industry to discuss the preliminary findings of its e-commerce sector inquiry, issued last month (read more here). Representatives from several national competition authorities were also in attendance.
Margrethe Vestager, the European Commissioner for Competition, set the scene, outlining the benefits for businesses and consumers
of a genuine pan-European digital economy.
Commissioner Vestager emphasised that the Commission’s inquiry is still at the “listen and learn” stage, making clear that she and all the Commission staff were adopting a resolutely neutral position throughout the day, while they took feedback from industry.
So, what guidance can we take at this stage – and what should retail businesses be doing now?
Online content distribution
The panel on online content was noticeably missing a Pay TV representative, perhaps an indication that the Commission does not want to pre-empt the outcome of the on-going Pay TV investigation (read more here). Nonetheless, the debate between the panel members was lively, focusing on the balance to be struck between, on the one hand, consumer access to content and, on the other, reducing piracy and protecting the production of content, which currently relies on territorial licensing.
Consumer goods and the use of online marketplaces
The panel on consumer goods generated vigorous debate, with industry pointing to the challenges of complying with fragmented national legislation when selling cross-border, as well as the cultural and economic differences between Member States, justifying the decision to operate on a territory-by territory-basis.
Much of the debate focused on whether, and to what extent, suppliers should be permitted to restrict resellers’ use of online marketplaces – a topic which is explored in detail in the Commission’s preliminary findings. In particular, the Commission reports a sharply increased use of selective distribution, which often prohibits resellers using online marketplaces, a trend it believes is driven by the strategic challenges that e-commerce has brought to manufacturers. The Commission found that brand image ranks highest as a parameter of competition for manufacturers, while distributors prioritise price, a discrepancy that drives manufacturers to seek to control the retail of their goods.
These findings were mirrored by the panellists and some respondents in the audience, who emphasised a manufacturer’s right to control the brand image in which it has invested and to set its own criteria for resale – including online. This faced strident pushback from the President of the e-commerce association Bundesverband Onlinehandel however the panellists seemed to agree that qualitative criteria that do not go further than those applied to in-store should be justified. Business also welcomed the Commission’s confirmation that restrictions on the use of online marketplaces are not “hardcore” restrictions of competition.
The strength of feeling in this debate demonstrated the delicate balance that the Commission needs to strike in achieving its aim of eliminating unjustified restrictions on online selling without harming the development of e-commerce – with many participants questioning the need to regulate what is already a highly competitive sector.
National enforcement of competition law
The focus on online marketplaces continued into the final panel debate between national competition authorities (NCAs) – perhaps unsurprisingly, given that the German competition authority (BKA) has, to date, adopted a particularly stringent approach towards restrictions imposed on resellers
using online marketplaces. Andreas Mundt, President of the BKA, said that selective distribution systems of the type they had seen in recent cases were more rigid and complex than any they had historically encountered, with a greater potential to restrict competition.
Each of the represented NCAs, including the Netherlands, Portugal and Sweden, reported that they were also investigating other vertical restrictions, including resale price maintenance and dual pricing between online and offline channels (see, for example, the Lego case here).
The notable divergence in approach between NCAs towards vertical restraints was recognised, with Andreas Mundt calling for NCAs and the
Commission to agree a common approach in evaluating vertical restraints in order to ensure a “level playing field” exists across the Community. It is hoped that the Commission’s ultimate findings in the sector inquiry will provide clarity to the business community on how their distribution arrangements will be assessed across the EEA.
Interestingly, the NCAs reported limited national complaints on geo-blocking. Whilst recognising that geo-blocking could raise competition concerns, they agreed that enforcement should properly fall to the Commission. This may be unwelcome news for the Commission, given its stated position that enforcement responsibility under the proposed Geo-Blocking Regulation should fall to NCAs.
What now for business?
Whilst the Commission’s preliminary findings contained some useful indications of the likely approach to common vertical restrictions in e-commerce, its neutral stance at yesterday’s conference was a reminder that its findings are only preliminary. There is no doubt that key stakeholders are very actively lobbying – both for and against – competition law intervention in this growing sector. It seems clear that they will continue to seize the opportunity to do so until the Commission’s consultation closes on 18 November 2016.
However, Margrethe Vestager was at pains to remind the audience that a key goal of the sector inquiry was to prompt e-commerce businesses to review their existing business practices and assess for themselves whether they complied with EU competition rules, making changes where necessary. The Commission has been clear that individual company investigations are likely to follow the sector inquiry. Accordingly, now is the time to ensure that your risk is minimised – particularly as regards any restriction of online sales, pricing and the use of online marketplaces.
To find out more about the e-commerce sector inquiry and the wider Digital Single Market initiative, click here or contact our experts.