EU findings could drive e-commerce antitrust probes

The European Commission looks likely to open case specific investigations into price restrictions and online sales bans in the e-commerce industry after finding over two in five online retailers experience restrictions from manufacturers on the prices they offer consumers.

The European Commission last week published a detailed 290 page preliminary report on its e-commerce sector. The inquiry confirmed the fast growth of e-commerce in the European Union (EU), but also identified business practices that might restrict competition and limit consumer choice.

Following the release of the report, EU Competition Commissioner Margrethe Vestager stated that the report should be “a trigger for companies to review their current distribution contracts and bring them in line with EU competition rules if they are not”. She also intimated that the information from the sector inquiry could help the Commission identify, and if necessary, take action on potential cases of competition law infringement.

Historic foundation
While ever increasing volumes of goods and services gets traded over the internet, growth rates for cross-border online sales within the EU remains relatively low.

The Commission launched its Digital Single Market strategy an initial antitrust competition inquiry into the EU e-commerce sector in mid-2015 with the goal of identifying possible competition concerns affecting European e-commerce markets. It also aimed to focus on potential barriers erected by companies to cross-border online trade in goods and services.

Earlier this year in March, the Commission released findings on the prevalence of “widespread” geo-blocking practices throughout the EU, especially for digital content. Last week’s Commission findings based on analysis of 8,000 distribution contracts involving 1,800 companies reselling electronic and digital goods across the EU represents the second release in that 18-month investigation of e-commerce.

Present report findings
The Preliminary Report confirms the growing significance of e-commerce in the EU, which today is the largest e-commerce market in the world. In fact, the report notes the percentage of adults in the Member States that have ordered goods or services online has continuously grown from 30 % in 2007 to 53 % in 2015.

E-commerce has developed as an important driver of price transparency and price competition, increasing consumers' choice and ability to find the best deals. That transparency also works on the supply side: the report finds, for instance, that 53% of retailers track competitors' prices and the vast majority (78%) respond to competitors' price changes.

The report also found that more than 40 % of retailers faced some form of price recommendation or price restriction from manufacturers, 20% were contractually restricted from selling on online marketplaces, 10% were contractually restricted from submitting offers to price comparison websites, and more than 10% report suppliers impose contractual restrictions on cross-border sales.

All these types of contractual sales restrictions may, under certain circumstances, make cross-border shopping or online shopping in general more difficult and ultimately harm consumers by obstructing the benefit of greater choice and lower prices in e-commerce.

Digital content
When it comes to digital content, contracts often mandate geoblocking, the commission said. More than 60% of the licence agreements submitted by copyright holders limit the territory to a single country. In terms of digital content, 59% of providers of television, films, and sports content were contractually obliged by suppliers to restrict sales to consumers in other countries.

If geo-blocking is the result of agreements between suppliers and distributors it may restrict competition in the Single Market in breach of EU antitrust rules. However, any competition enforcement measure against geo-blocking would have to be based on a case-by-case assessment, which would also include an analysis of potential justifications for restrictions that have been identified.

Next steps
The Commission has released the Preliminary Report for open consultation over the next two months. Stakeholders are invited to comment on the findings of the sector inquiry, submit additional information and raise further issues.

Businesses should be aware that this is not only relevant for EU-based entities, but for all companies selling online or distributing content in the EU, including many American- and Asian-based companies.

The Commission expects to publish the Final Report in the first quarter of 2017.

Tags: European Commission

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