UK: Level Playing Field

Last Updated: 17 March 2017
Article by ICSA  

Fair retail e-commerce in the EU single market and minor merger referral threshold changes in the UK

Hot on the heels of an EU Commission follow-up report on its e-commerce inquiry, the Commission announced on 2 February the initiation of three separate competition law investigations into online sales restrictions in the EU.

In what is seen as a major development for antitrust analysis in the e-commerce field, these cases will serve as a testing ground for how effectively competition law can be successfully deployed to open up online markets still very much the subject of alleged resale pricing and geo-blocking restrictions.

In my last article, 'The challenge of the digital economy', we reported how just over a year ago the Commission had launched a consultation on its digital single market initiative, the principal purpose of which was to ensure that the EU's single market was fit for the new digital age.

In that report it singled out as barriers to the creation of the single market, among other things, the practice of geo-blocking and limitations on access to online market platforms as widespread throughout the EU.

"The Commission has proposed a specific geo-blocking regulation that is before the European Parliament"

Geo-blocking is the practice whereby manufacturers or retailers use certain contractual or other sales restrictions on their websites to limit cross-border online shopping.

Access to online platforms is becoming an interestingly important way for dealers and distributors to reach customers. These can benefit customers by driving down prices and improving consumer choice.

Contractual restrictions

This was followed up last September by a Commission preliminary update report regarding tracing. This report highlighted the trend among manufacturers to sell more of their products directly to consumers using their own websites. In doing so, some were resorting to contractual and other sales restrictions which could lead to a restriction in cross-border online shopping.

However, despite identifying potential barriers to e-commerce, there was debate about whether competition law could successfully attack express contractual restrictions. This was because these were being imposed upon consumers which were not regarded as undertakings under Article 101(1) of the Treaty for the Functioning of the European Union (TFEU). Nor would competition law bite to regulate unilateral conduct of manufacturers or retailers if they were not in a dominant position under Article 102 TFEU.

As a consequence legislators were sufficiently concerned to demand a response to plug what they deemed to be a loophole in the law. The Commission has since proposed a specific geo-blocking regulation that is before the European Parliament.

The new cases

Given that background, the three new cases involving competition law investigations launched by the EU Commission in February into online sales restrictions in the EU are all the more interesting. These investigations will assess if certain online sales practices prevent consumers from enjoying keener prices and greater cross-border choice in breach of EU competition rules.

The sectors involved are consumer electronics, video games and hotel accommodation and are brought under Article 101(1) of TFEU. The allegations focused on potential anti-competitive agreements (and not abuses of a dominant position under Article 102 TFEU) relating to:

  • The imposition of retail price maintenance (RPM). This could involve the setting of minimum or fixed resale prices or measures which may directly or indirectly enforce through sanctions or incentives a specific resale price.
  • Discrimination on the basis of location and geo-blocking. This type of behaviour can include refusing to take orders using credit cards registered to an address outside a given territory or referring consumers outside a given territory to a website set up specifically to serve that territory.

It will be particularly interesting to understand whether these potential proceedings relate to consumer contracts and, if so, how the Commission argues its case on jurisdiction under Article 101 TFEU.

Online market platforms

Another area for possible regulatory action under the competition rules relates to limitations placed by manufacturers upon dealer and distributor's access to online market platforms.

The EU has not been alone in taking action in relation to e-commerce restrictions. In the UK the Competition and Markets Authority (CMA) remains strongly committed to the enforcement of its competition law powers to deal effectively with competition concerns relating to e-commerce.

In January, the CMA took action against attempts by a leading car manufacturer to limit its dealers' access to a new online market platform. As mentioned earlier, online comparison tools can help promote competition in a number of markets and assist consumers to make informed choices.

As the Commission report on e-commerce highlighted, an increasing number of customers look to online channels to make purchases. Internet commerce is an increasingly important route to market.

"The CMA believes these changes to the de minimis financial thresholds will reduce the CMA's costs and the burden on businesses"

Last year, new car portal Carwow, which introduces customers to dealers for the purchase of cars, complained to the CMA that BMW UK was prohibiting BMW dealers from listing their new BMW and Mini cars on the portal. It asked the CMA to launch an investigation into whether this restriction was anti-competitive and breached EU or UK competition law.

The CMA policy, as shown in previous cases, is to attack restrictions imposed upon internet commerce as being in breach of the rules under EU and UK competition law. Placing barriers on dealers to limit their use of internet platforms or online market places is regarded as a ban on passive sales. These are restrictions by object within the meaning of Article 101(1) TFEU and Chapter I of the Competition Act 1998. This means they are viewed as serious infringements of the competition rules without needing to demonstrate that the conduct in question has anti-competitive effects.

The CMA carried out a preliminary assessment of the complaint and met with Carwow and BMW UK. Following this initial investigation, BMW UK offered commitments to the CMA to change its policy to enable its UK retailers to work with Carwow and similar internet-based new car platforms. The CMA welcomed BMW UK's change of policy.

These commitments were made without any admission of liability on BMW's part and the CMA decided not to initiate any formal investigation into BMW UK at the present time, though it reserved its position to review its decision should facts change.

Threshold changes

On 23 January, the CMA published a consultation on proposed amendments to its guidance on the application of the exception to the duty to refer a merger in markets of insufficient importance (the de minimis exception).

The CMA has responsibility to review mergers under the Enterprise Act 2002. Under the Act, the CMA has a duty to refer a merger for Phase 2 investigation where it believes there to be a realistic prospect that the merger will result in a substantial lessening of competition.

However, in sections 22(2)(a) and 33(2)(a) of the Act there are discretionary exceptions which relieve the CMA of its duty to refer if it believes the market concerned is not of sufficient importance to justify its referral to a Phase 2 investigation, in the case of completed and/or anticipated mergers.

The CMA is proposing to update its existing guidance, which was originally published by the Office of Fair Trading in 2010.

The plan is to increase the market size threshold over which the CMA considers that the market or markets concerned will generally be of sufficient importance to justify a reference from £10 million to £15 million; and the threshold below which the CMA will generally not consider a reference justified from £3 million to £5 million.

The CMA believes these changes to the de minimis financial thresholds will reduce the CMA's costs and the burden on businesses. These changes were also considered appropriate by the CMA following a review of past case practice.

The CMA is not proposing to make any other substantive changes to the de minimis guidance at this time. It will retain its cost/benefit approach underpinning the choice of these thresholds and the application of the de minimis exception more generally.

In addition the CMA states in its consultation paper that it will, in any case, remain committed to reviewing the application of the de minimis exception regularly, with a view to changing or raising thresholds further in the future.

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.

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