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Competition compliance in the e-commerce sector

Woman handing over a red shopping bag Print publication

17/10/2016

On 15 September the European Commission (the Commission) published its provisional findings on the e-commerce sector inquiry.  The Commission launched the inquiry in May 2015 with a view to identifying possible competition concerns in European e-commerce markets.  The focus of the sector inquiry is on those goods and services in which e-commerce is most widespread, such as electronics, clothing and shoes as well as digital content.  The inquiry applies to all (currently) 28 Member States.

The Commission had previously published provisional findings in respect of geoblocking, the practice by which online providers prevent users from accessing and purchasing goods or digital content services based on their Member State location being different from that of the provider (See our separate article on geoblocking for more on this).  The latest publication is more wide-ranging.

Key provisional findings in respect of goods sold online

  • E-commerce has been beneficial in leading to an increase in price transparency (and therefore price competition) generally.
  • The Commission found more use was being made of selective distribution systems in both the physical and online environments, particularly in respect of clothing and shoes. The use of selective distribution networks is particularly high among manufacturers with relatively high annual turnovers. The Commission considers that certain clauses in selective distribution agreements warrant closer scrutiny to establish their anti-competitive effect, such as the requirement for retailers to operate at least one bricks and mortar shop.
  • The Commission found that increasingly manufacturers are selling directly to consumers online, so in effect competing with their own distributors. According to the Commission, this has been one of the most prominent reactions to the development of e-commerce. Manufacturers are also more frequently admitting online-only distributors to their distribution networks. This creates commercial pressures within the network but the Commission does not explore these (or the commercial implications) in its provisional findings.
  • An increase in “free-riding” where customers use pre-sales services at a bricks and mortar shop but then make their actual purchase online (often at a discount).

Particularly noteworthy is the other key provisional finding, namely that manufacturers are making increasing use of contractual sales restrictions in their distribution contracts as to where, in what manner and for how much goods may be sold. In addition to restrictions on cross-border sales, the Commission found:

  • More than two-fifths of respondent retailers said their contracts contained contractual restrictions, or at least recommendations, as to resale price. Such restrictions risk contravening Article 101 of the EU Treaty unless the re-price is genuinely only a recommendation; and
  • Restrictions on the use of on-line marketplaces, ranging from absolute bans to restrictions based on qualitative (e.g. “look and feel”) criteria.

Pricing practices

Pricing practices appear to be a particular problem for manufacturers and retailers operating in the e-commerce sector. The UK has already seen evidence of this; for example, the investigation by the Office of Fair Trading (the predecessor to the Competition & Markets Authority (the CMA)) into Amazon’s platform, including its “price parity” requirements, which restricted sellers from offering lower prices on other online sales channels. The investigation closed when Amazon announced a change in its policy.  The CMA has since imposed fines for online resale price maintenance in respect of products as diverse as mobility scooters, commercial fridges and bathroom fittings, prompting it to write an open letter to suppliers and business in June this year warning about restricting online sales prices.  The CMA has also recently announced the launch of its market study into the use of digital comparison tools (DCTs) which aims to maximise the potential benefits of DCTs for consumers, and reduce any barriers to how DCTs operate in wider markets.

Digital content

With respect to digital content, the key factor in ensuring effective competition in the market identified by the Commission in its provisional report is the availability of licences from content copyright holders. The Commission considers that copyright licences are complex, often exclusive and of long duration – the Commission intends to assess on a case-by-case basis, having regard to the specific product and geographic market, whether certain licensing practices are impeding the development of competition.

Next steps

The provisional report, which can be accessed here, remains open for responses until 18 November 2016.  The Commission expects to be in a position to publish its final report in the first quarter of 2017.  It is possible, in view of the provisional findings, that the Commission may launch separate lines of inquiry against specific companies or practices that it considers may have breached EU competition law.

How we can help

If your business is likely to be affected by the Commission inquiry, Walker Morris can help. A Competition law review of your Terms and Conditions for internet sales and contractual arrangements with distributors may put your mind at rest. We regularly advise companies on commercially sensitive issues raised by internet versus bricks and mortar resellers and we have extensive expertise in advising our clients on competition law compliance, including the provision of training and drafting policies, so that staff know what they can and cannot include in arrangements with resellers. We defend our clients against competition investigations and are familiar with the nuances of external engagement with competition authorities, sector regulators and other stakeholders on competition issues.

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