Following a year of e-commerce sector inquiry, on 10 May 2017 the European Commission published its Final report on the e-commerce sector inquiry ("Report") outlining prevailing market trends and competition concerns linked to e-commerce, ultimately identifying priorities for enforcing the competition rules. Companies that are active in the e-commerce sector may wish to pay a due attention to, assess and possibly reconsider their current practices in order to minimize any competition law exposure. Below we provide typical trends and main competition concerns under the Report for your convenience.
E-commerce has had a significant impact on companies' distribution strategies and consumers' behaviors. The most typical trends are:
- Increased price transparency leading to
- Consumers finding best (price/product) options;
- Free-riding behavior, since consumers may use presale services of 'offline' shops before purchasing the product online, or search and compare products online before purchasing in 'offline'/traditional shops;
- Increased price competition affecting both online and offline sales in terms of price, as well as quality, brand, and innovation; and
- Increased price coordination due to the ability to monitor competitors' prices (with special software) and adjust own prices accordingly.
- Easier access of retailers to customers by selling products through third party platforms.
- Increased recourse to vertical restraints, such as pricing restrictions, marketplace (platform) bans, restrictions on the use of price comparison tools, and exclusion of pure online players from distribution networks.
- The key determinant for competition in copyright-protected digital content markets is the availability of the relevant rights, which have to be acquired in order to lawfully market/transmit the content. Complex licensing practices with various contractual restrictions have developed.
MAIN COMPETITION CONCERNS
- Vertical restraints in selective distribution agreements. Requiring for at least part of manufacturer's products being sold via 'offline' shops has a potential of excluding pure online players from the distribution of the products. While such 'offline' requirement is normally covered by the vertical block exemption regulation (and may be justified by the qualitative and quantitative selective distribution), if there is no apparent link to distribution quality/other efficiencies, such clause may require further scrutiny on a case-by-case basis.
- Retail price maintenance. Manufacturers should refrain from interfering with the retailers' freedom to set their final prices by imposing minimum retail prices or recommended retail prices and monitoring compliance with them. With the e-commerce, deviations from such price 'recommendations' are currently easier to monitor/detect by manufacturers (often by means of pricing software) and consequently to retaliate against such 'non-complying' retailers. This limits incentives for retailers to deviate from such price recommendations. This also leads to price collusion among retailers, which all together raise competition concerns.
- Dual pricing. Charging different wholesale prices to different retailers is generally considered a normal part of the competitive process. At the same time charging different wholesale prices for the same product to the retailer depending on whether the products are sold online or offline may is generally considered as a hardcore restriction under the block exemption regulation. Hence, such dual pricing agreements shall be individually assessed, e.g. when such practice is indispensable to deal with the free-riding.
- Marketplace restrictions/platform bans are mostly found in selective distribution agreements in relation to branded, complex or technical goods. They range from absolute bans to restrictions on selling on marketplaces that do not fulfil certain quality criteria. Marketplace bans do not generally amount to a de facto/hardcore prohibition. It may be justified by the product category in question. This is without prejudice to the pending preliminary ruling before the Court of Justice of the EU (Case-230/16 Coty Germany).
- 'Geo-blocking' by way of blocking website access of customers abroad, re-routing customers to websites targeting other member states, refusing to deliver cross-border (most common measure in the EU) or to accept cross-border payments (second most common measure in the EU) may trigger competition concerns. Geo-blocking measures based on unilateral decision by non-dominant companies fall outside the scope of article 101 TFEU, while geo-blocking based on concerted practices between distinct companies may be caught under article 101 TFEU. Hence, contractual cross-border restrictions may raise competition concerns, if they (i) restrict the territory into which a distributor may sell goods (passive sales restrictions are more problematic; in selective distribution systems, neither active nor passive sales restrictions are legal); and/or (ii) limit retailers' ability to actively and passively sell to customers outside their member state.
- Big data issues related to collection, processing and use of large amounts of data, and exchange of competitively sensitive data (on prices and sold quantities) between competing marketplaces and third party sellers/manufacturers with own shops and retailers are always problematic from competition law perspective.
- Contractual restrictions in licensing agreements, such as territorial restrictions and geo-blocking, as well as duration of licensing agreements/automatic renewal, which makes it difficult for new players to enter the market constitute main competition concerns in relation to digital content/online provision of audio-visual and music products.
With the development of online trade certain e-commerce related business practices that raise competition concerns have emerged. It is expected that European Commission will target the most widespread business practices outlined above in order to promote competition and cross-border trade. This may also influence approach of competition authorities in other jurisdictions in relation to their assessment of compatibility of e-commerce related business practices with competition rules. Companies that are active in the e-commerce may wish to pay a due attention to, assess and possibly reconsider their practices in order to minimize any competition law exposure.
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.