E-commerce and competition: new regulations and critical authorities

After the European Commission announced for many years that e-commerce as part of the Digital Single Market Strategy (see our earlier blog) is its top priority, this has only become reality these past couple of months. The first highlight was the European Commission’s announcement earlier this year it launched three large-scale investigations into the online sales practices of hotel owners and producers of consumer electronics and videogames. That announcement was followed several months later by the publication of the final report of the sector inquiry by the European Commission. It therefore appears that 2017 will be an important year in the field of competition and e-commerce.

Most Favoured Nation clauses

A great deal of attention was paid to certain forms of vertical agreements in the hotel booking and e-book sector (see also this blog). The European competition network published a monitoring report in April this year regarding the settlements made between several national competition authorities and hotel booking platforms (Booking.com and Expedia). As a result of those settlements hotel booking websites may only agree with hotels that they may offer conditions at least equivalent to the conditions hotels offer themselves, known as “narrow” Most Favoured Nation (“MFN”) clauses. The conclusion of the report is that those settlements have led to an improvement of trading conditions for hotels. Two months later, the French Appeal Court nevertheless imposed a € 1 million fine on Expedia on the grounds of breach of the French Macron Act which provides for a absolute ban on parity clauses. Austria and Italy recently also adopted similar acts which are at odds with the enforcement practices of competition authorities that do allow limited parity clauses. Expedia is appealing the judgment partly for that reason.

Also worth mentioning are the commitments given by Amazon that it would no longer rely on or agree on parity clauses in its distribution agreements with e-book publishers for a period of five years. The Commission declared these commitments binding by its decision of 4 May 2017. In light of the developments described here, it would appear that it has become more and more difficult for (important) platforms to use MFN clauses.

Outcome of e-commerce sector inquiry

The main conclusion in the final report of the e-commerce sector inquiry of May 2017 is that despite the enormous increase in online trade practices, the Commission sees no reason to establish a separate assessment framework for e-commerce cases. This means that any possible breach of competition law in online sales must simply be assessed on the basis of the current legal framework. In its final report the Commission has made few final statements how to apply the framework to e-commerce practices. A few important comments are addressed below (see our e-commerce portal for a more detailed discussion).

In its final report the Commission implies that restrictions on the use of price comparison websites may be permitted, but that an absolute ban may constitute a hard-core restriction if it entirely prevents online sales. That approach appears to be less strict than that applied in Germany. A German Court recently found that the Bundeskartellamt had correctly ruled that Asics could not (in any way) prohibit its retailers from using price comparison websites. Another German court had previously arrived at the same conclusion regarding Deuter, a backpack producer. In both cases the Court considered brand protection insufficient to justify the sales restrictions imposed on retailers. The English competition authority is also addressing price comparison websites. After the CMA had induced BMW in early 2017 to relax its policy regarding the use of car comparison portals, it presented a preliminary report in spring this year regarding the pro-competitive and anti-competitive effects of digital price comparison tools.

Coty case: absolute ban on market platforms permitted

In its final report the Commission also addressed absolute bans on the use of online platforms such as Amazon and eBay. The Commission considers such bans permissible in several cases. If a retailer is not permitted to sell via online market places, for instance due to protection of the product’s luxury image, the product may still be offered on other websites. According to the Commission, an absolute ban on online platform sales therefore does not stand in the way of Internet sales as such.

This notion is supported by the Opinion of Advocate-General Wahl in the much-discussed Coty case which is currently pending before the European Court of Justice. In his Opinion of 27 July 2017, Advocate-General Wahl took the position that the ban on sales via online market places applied by perfume producer Coty as part of its selective distribution system may be justified if the nature of the product so requires. A product’s luxury image, the investments made to build the brand, and the fact that sale via online platforms is currently not the preferred sales channel, mean that Coty’s ban does not conflict with competition law, according to Advocate-General Wahl.

Geoblocking: the next big thing

Whereas Europe is lenient in respect of restrictions or bans regarding market places and comparison websites, it is strict about practices that result in a division of the internal market. Such a strict approach is also in line with the Commission’s objective to stimulate the functioning of the internal market. Along those lines the Commission launched investigations these past few months into possible geoblocking by Guess and Nike, Universal Studios and Sanrio. The Commission’s investigation focuses on the question whether those manufacturers illegally apply geoblocking measures which hinder their customers or licensees to engage in cross-border sales. As stated in the sector inquiry report, the Commission regards the prohibition of active sales, but also the prohibition of passive sales outside an exclusive distribution system, as a possible violation of competition rules.

Whereas the Commission is taking action against bilateral geoblocking measures, unilateral practices do not fall under competition law. The Draft Regulation intended to prevent unilateral restriction of cross-border trade, including online trade, is still in the European legislative process. The Regulation is expected to have drastic consequences for the sales policies (including access to websites and payment and delivery conditions) of online providers. Moreover, in order to specifically promote cross-border access to online content, the Commission recently proposed a new regulation to modernise the legal framework surrounding copyrights (see also this blog).

National enforcement

Meanwhile, at a national level, the German and English competition authorities are in particular active in continuing their efforts to fight restrictions on online sales. This summer clothing retailer Peek & Cloppenburg and clothing manufacturer Wellensteyn were fined € 11 million, and golf club producer Ping was fined £ 1.45 million for blocking online sales by retailers. Even ACM’s presence in the digital economy is gradually increasing. ACM recently published a report on online video platforms and commented on the display of prices by online ticket providers. See this blog on consumer rights for other investigations by ACM regarding practices of web shops.

The increase in the number of investigations, fines and legislative proposals addressed in this blog is most likely only the start of further developments to come. Together this will lead to a permanent change in the e-commerce landscape.

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