Summary and implications
Regulatory barriers and business practices which restrict
cross-border online trade will be subject to vigorous scrutiny by
the European Commission as part of its sector inquiry into
e-commerce, launched on 6 May.
The inquiry is expected to give rise to a wave of enforcement
activity and legislative reform across the EU e-commerce
sector. Whether e-commerce is the principal focus of your
activities or just one channel for distributing goods and services,
the inquiry could have serious implications for the way you do
business in the future.
As a result, these early stages of the inquiry represent an
important opportunity for you to help shape the Commission's
findings over the coming year.
Below, we address five important questions
relating to the new inquiry.
1. What is a sector inquiry?
Sector inquiries arise when the Commission believes that markets
are not functioning as well as they should from a competition
standpoint, and where regulatory barriers, pervasive business
practices, or wide-scale breaches of the competition rules might be
a contributory factor.
Sector inquiries are therefore not wholly concerned with unlawful
conduct, and may focus on scrutinising practices that are
lawful, but prevent markets from functioning competitively.
The Commission has extensive information gathering powers when
conducting such inquiries. In addition to formally requiring
businesses in member states to respond to its inquiries, it has the
power to conduct mandatory site inspections.
2. How could the inquiry affect your online business?
In the coming months the Commission will be busily gathering
stakeholder evidence to develop its emerging thinking. This
evidence will take the form of submissions volunteered to the
inquiry team, and the Commission has indicated that around
2,000 organisations can also expect to receive a
request for information. Online merchants, platform providers,
manufacturers, wholesalers, distribution businesses, content-rights
holders and broadcasters, among others, can all expect to be
targeted.
Handling such information requests will require careful
consideration and planning, as it is likely to require extensive
data trawls by targeted businesses and the provision of
commercially sensitive information. These information
requests could involve sales and pricing data, as well as
contractual terms with customers, suppliers and distributors.
Looking ahead, the Commission has made no bones about the fact
that its inquiry could culminate in wide-scale legislative
reform to aid cross-border e-commerce within the EU. Such
reforms could dramatically impact your operating conditions, for
example, by redefining the terms in which businesses contract with
online consumers, affecting everyday distribution agreements /
practices, or reshaping how businesses protect their intellectual
property rights.
Another aim of the inquiry is to shine a light on anti-competitive
practices pervading the single market. In the light of the multiple
antitrust investigations sparked by the Commission's
pharmaceutical sector inquiry in 2008–09, it would be
unsurprising if this inquiry similarly kick-started targeted
antitrust enforcement action across the EU.
3. What is the background to the inquiry?
A catalyst for the inquiry is the EU's digital single market
strategy. A core pillar of the strategy, unveiled on 6 May 2015, is
improving cross-border access to online goods and services.
The Commission noted that only 15 per cent of
consumers shop online from another EU country and
only seven per cent of SMEs in the EU
sell cross-border. Furthermore, over a fifth of wholesale and
retail businesses have reportedly stated that supplier restrictions
on selling abroad represented a problem. These numbers have alarmed
the Commission, as it has made it a strategic priority to
"tear down regulatory walls" and transform 28 national
markets into a single digital EU market.
The inquiry also comes against a backdrop of enforcement activity
focused on cross-border e-commerce. For example, the Commission is
undertaking investigations into:
- licensing arrangements between film studios and broadcasters that potentially restrict access to online and satellite pay-tv services;
- the online trade of consumer electronic products; and
- alleged "geo-blocking" practices in the online video games sector.
4. Which sectors and practices are under the spotlight?
The potential scope of this inquiry is very wide ranging. To prioritise its resources, the Commission has indicated that it will target specific sectors that account for the lion's share of e-commerce in the EU, including:
- clothing, shoes and accessories;
- consumer electronics and household appliances;
- digital content (e.g. music, film and television content);
- travel services; and
- healthcare products.
The Commission is expected to narrow down on markets with a
notable absence of cross-border EU trade or where significant price
discrepancies arise between member states.
While EU competition law currently requires that distributors be
allowed to use the internet to sell products and services, the
Commission feels there is more work to be done. Specifically, the
Commission will examine those practices and contractual
arrangements that restrict online consumers from purchasing goods
or services from a merchant based in another member state. Such
"geo-blocking" practices can occur where, for example, an
online consumer is re-routed to the website of a specific merchant
based in that consumer's member state (potentially denying them
a better price).
Other practices likely to be investigated include those relating
to copyright protection, the levying of VAT, and the distribution
of goods. It is the latter area, concerning "vertical
agreements", which will be the focus of the investigation. The
Commission has indicated that it will take issue with
"platform bans", where distributors are prevented from
using online platforms to market goods, and with territorial
restrictions that limit the cross-border sale of digital
content.
5. What happens next?
While there is no formal deadline, the Commission has set itself a target of publishing its final report by the first quarter of 2017.
In the meantime, the Commission has indicated its intention to:
- launch a first round of approximately 2,000 information requests to businesses in mid-June;
- issue further rounds of information requests between July – September;
- publish its preliminary findings by mid-2016; and
- finalise its report in the first quarter of 2017.
The completion of the inquiry is expected to lead
to multiple enforcement actions (by the Commission and
national competition authorities) in priority sectors and
legislative recommendations to remove barriers to the single EU
digital market. Given the potential for reform, the inquiry will
serve as an important forum for all stakeholders to have their say
on the scope and terms of the coming changes.
In the meantime, businesses that believe they are likely to
fall within the scope of the inquiry should take the opportunity
to:
- set up an internal response team with allocated responsibilities, and ensure that finance, commercial and IT teams are fully briefed about the need to assist in the response to information requests;
- take stock of existing agreements and online business practices to see if there are any which might raise compliance issues; and
- consider raising concerns in your sector, for example, if you believe your business is being hindered by regulatory obstacles or anticompetitive practices by other traders or in other Member States.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.