European Union: European Commission Publishes Its Final Report On The e-Commerce Sector Inquiry (Digital Content)

On 10 May 2017, the European Commission published its final report on its e-commerce sector inquiry (the "Report") in which it identifies business practices that may restrict competition and limit consumer choice in relation to consumer goods and digital content. The Report is accompanied by a voluminous Staff Working Document, which summarises the main findings of its sector inquiry and incorporates comments submitted by stakeholders during the public consultation. The findings of the Report largely mirror those of the Commission's initial findings which were published in September 2016 (See VBB on Competition Law, Volume 2016, No. 9, available at www.vbb.com).

The Commission's findings are based on evidence gathered from nearly 1,800 companies operating in e-commerce of consumer goods and digital content and involve around 8,000 distribution contracts.

Consumer goods are discussed in the section of this newsletter covering vertical agreements.

With respect to digital content, the Report focuses on the online provision of audio-visual and music products. It focuses on the relationship between digital content providers, which offer digital content to consumers or provide services for third parties to offer content to consumers, and right holders. The availability of attractive licensed content is found to be the main driver of competition among digital content providers, and the terms of content licenses define the main parameters of competition among the digital content providers. The Commission focused its findings on the following licensing practices, which it considers raise potential concerns:

Territorial restrictions and geo-blocking: Territorial restrictions relate to the geographic area or areas in which the digital content providers may lawfully offer the licensed product. The Report finds that rights are to a large extent licensed on a national basis and, apparently as a consequence of the territorial restrictions included in licences, a majority of digital content providers use geo-blocking measures to restrict access to their online digital content services from another Member State. It also noted that the extent to which online digital content service providers resort to geo-blocking varies considerably from one Member State to another (ranging from 46% in Italy to 83% in the UK), as well as from one category of content to another (e.g., TV, series, films or sporting events). While the Commission does not draw any specific conclusions in the Report as regards the legality (or not) of geo-blocking, the Commission considered in its initial findings on geo-blocking (See VBB on Competition Law, Volume 2016, No.3, available at www.vbb.com) that geo-blocking may create barriers that may hinder cross-border e-commerce. Furthermore, digital geo-blocking is currently subject to competition law enforcement action in the areas of Pay-TV (See VBB on Competition Law, Volume 2017, No. 2, available at www.vbb.com) and video games (See VBB on Competition Law, Volume 2016, No. 8, available at www.vbb.com), as well as legislative initiatives in the form of the Portability and Geo-blocking Regulations.

Duration of licensing agreements: The Report reveals that licensing agreements of relatively long duration are common (50% of the agreements last more than three years and 23% of them more than five years). According to the Commission, the long duration of these agreements may make it more difficult for new players to enter the market or for existing players to expand their current commercial activities.

Technological scope of licensed rights: The Report indicates that the rights licensed to the digital content provider may be split according to the transmission technology (such as online, mobile or satellite) and the reception technology (such as TV sets, computers and streaming devices). Licences may also include usage rights' limitations (such as at home use, mobile use and streaming). The Report also notes that the bundling of technology is common (i.e., rights for online transmission of digital content are commonly licensed together with the rights for other transmission technologies). According to the Commission, this may hinder existing operators and new entrants from competing and developing new services. Bundling may be a particular concern where it leads to a restriction of output, i.e. where acquired rights are not exploited.

Payment structures: The Report analyses the various payment structures applied by right holders, including minimum payments which may, on the one hand, serve as a barrier to smaller providers and new entrants, but which may nonetheless sometimes enable right holders to share risks more efficiently.

The Commission also found that exclusivity is often used in relation to the licensed rights, but expressed the view that this is not problematic in and of itself. However, when coupled with contractual restrictions on cross-border passive sales, it might be detrimental to competition. Any assessment of these licensing practices under EU competition rules would have to take into account the characteristics of the content industry, the legal and economic context of the licensing practice and / or the characteristics of the relevant product and geographic markets.

On the basis of its findings, the Commission will seek to enforce EU competition law rules against the most widespread and problematic business practices that have emerged as a result of the growth of e-commerce The Commission also plans to broaden the dialogue with national competition authorities within the European competition network to ensure a consistent application of EU competition laws with respect to e-commerce business practices.

The Commission's final Report on its e-commerce sector inquiry is available here.

The Commission's accompanying Staff Working Document is available here.

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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