European Union: European Commission Prioritizes Completion Of Digital Single Market

In Short

The Background: The European Commission is working towards the completion of the Digital Single Market, which will provide better access to online goods and services across EU Member States for both consumers and businesses.

The Action: The Commission has launched a sector inquiry into potential anticompetitive barriers to the growth of e-commerce, and is conducting investigations into whether the online sales practices of select industries unlawfully prevent consumers from purchasing goods across borders at competitive prices.

Looking Ahead: Regulations on the cross-border portability of online content services in the EU are expected to go into effect in EU Member States by early 2018.


Since May 2015, the European Commission ("Commission") has identified the completion of the Digital Single Market as one of its top-ten political priorities. The Digital Single Market Strategy ("Strategy") aims at ensuring better access for consumers and businesses to online goods and services across EU Member States. The Strategy includes both regulatory initiatives and a competition law enforcement dimension. This Commentary provides an update on the Commission's latest initiatives.

Investigations into Suspected Anticompetitive E-Commerce Practices

In May 2015, the Commission launched a sector inquiry into e-commerce in the EU, aimed at gathering evidence on potential anticompetitive barriers to the growth of e-commerce. The preliminary results of the Commission's inquiry, released in September 2016, showed widespread contractual restrictions on the online distribution of digital content. Furthermore, the large majority of providers have agreed with right holders to use geo-blocking to restrict access to their online digital content services by users from other Member States. Under certain conditions, such arrangements may harm competition and infringe competition laws. The Commission's concern is that businesses obstruct cross-border online trade and fragment the EU's Single Market along national borders.

In February 2017, the Commission launched three separate investigations against consumer electronics manufacturers (including Asus, Denon & Marantz, and Pioneer); the video game industry (distributor Valve Corporation, as well as game publishers Bandai Namco, Capcom, Focus Home, Koch Media, and ZeniMax); and the travel industry (large tour operators Kuoni, REWE, Thomas Cook, TUI, and Meliá Hotels). The investigations aim at assessing if certain online sales practices prevent, in breach of EU competition law, consumers from enjoying cross-border choice and the ability to purchase consumer electronics, hotel accommodations, and video games at competitive prices. The three investigations tackle, in particular, the issues of retail price restrictions, discrimination on the basis of location, and geo-blocking.

Regarding the specific issue of geo-blocking, the Commission is investigating bilateral agreements concluded between Valve Corporation, owner of the game distribution platform, and the five PC video game publishers. The investigation focuses on whether the agreements require the use of "activation keys" for the purpose of geo-blocking. Such keys can be used to grant access to a purchased game only to consumers in a particular EU Member State, and can therefore prevent individuals from purchasing video games because of their location or country of residence. The Commission believes that this may amount to a breach of EU competition rules, by reducing cross-border competition as a result of restricting parallel trade within the Single Market and preventing consumers from buying cheaper games available in other Member States.

These investigations are the first follow-up to some of the issues identified in the Commission's competition inquiry into e-commerce. In each of the three cases, the Commission will assess whether the practices restrict competition and whether Commission or national competition authority enforcement is required. The assessments will take place in view of the characteristics of the specific product and geographic markets.

Agreement on Proposed Regulation on Portability of Online Content Services

With respect to the Strategy's legislative package, the Commission is also working on diverse regulatory projects, such as the rules for contracts for the supply of digital content and the online sales of goods.

Also in February 2017, the Commission, European Parliament, and Member States agreed on the proposal for a Regulation on EU cross-border portability of online content services, in addition to reaching the first agreement on the modernization on EU copyright rules. The proposed Regulation focuses on online content services protected by copyright and related rights, as well as audiovisual media services. These can include video-on-demand platforms (Netflix, Amazon Prime), online TV services (Sky's Now TV, Voyo), music streaming services (Spotify, Google Music), and game online marketplaces (Steam, Origin).

Under the proposed rules, service providers of paid online content must enable subscribers to access and use the online content service when such subscribers are temporarily in another Member State. The objective is to ensure that EU users who buy or subscribe to online content services providing access to films, sports broadcasts, music, e-books, and games at home are able to access and fully enjoy these when traveling in other EU countries. Provided that the service provider acquired the necessary licenses and rights in the subscriber's country of residence, such provider will be deemed to have all rights needed to provide access to the service to its subscriber in other EU Member States. Online content service providers will verify the subscriber's country of residence through means such as payment details, the existence of an internet contract, or by checking the IP address.

The proposed rules would apply to all providers who offer paid online content services in the EU. Non-remunerated services (such as the online services of public TV or radio broadcasters) will also have the possibility to provide portability to their subscribers. If such free services decide to opt-in and provide portability under the eventual Regulation, the rules would apply to them in the same manner as for paid services.

What Next?

The agreed upon rules of the draft Regulation must now be formally confirmed by the Council of the EU and the European Parliament. Once adopted, the rules will become applicable in all EU Member States by early 2018. The draft Regulation grants providers and right holders a nine-month period from its entry into force to prepare for the application of the new rules. This will be necessary because Regulations, unlike Directives, are directly applicable. Implementing the Regulation across the EU may be challenging and requires careful preparation. Although contractual provisions contrary to the Regulation will be deemed unenforceable, some license agreements may require re-negotiation. For example, holders of copyrights and related rights may require the service providers to do the necessary to verify the Member State of residence of the consumers.

Andrus Ansip, Vice-President in charge of the Digital Single Market, welcomed the agreement on the proposed Regulation, stating: "This is a new important step in breaking down barriers in the Digital Single Market. Agreements are now needed on our other proposals to modernize EU copyright rules and ensure a wider access to creative content across borders. I count on the European Parliament and Member States to make it happen."


THREE KEY TAKEAWAYS

  1. Restricting access to digital content services based on consumers' locations or countries of residence may, under certain circumstances, violate competition laws.
  2. Under the proposed rules, service providers of paid online content will be required to allow subscribers to use their services while traveling in other EU Member States.
  3. Some license agreements between copyright holders and service providers may need to be renegotiated to comply with the new Regulations.

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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