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E-commerce - breaking down barriers

Nick Pimlott
16/09/2016
Over a year after the Commission launched its e-commerce sector inquiry of consumer goods and digital content, the preliminary verdict is out. The key message is that suppliers of goods and services are regularly infringing competition law by imposing overly restrictive conditions in their sale arrangements with distributors. Antitrust enforcement against online sales restrictions is set to increase substantially.

Over a year after the Commission launched its e-commerce sector inquiry of consumer goods and digital content, the preliminary verdict is out. The key message is that suppliers of goods and services are regularly infringing competition law by imposing overly restrictive conditions in their sale arrangements with distributors.  Antitrust enforcement against online sales restrictions is set to increase substantially.

Background

In May 2015, the Commission launched a sector inquiry into e-commerce, as part of the Digital Single Market strategy, one of the key focuses being to ensure better access for consumers and businesses to goods and services across borders in the EU.  The two main objectives for the sector inquiry are: to obtain an overview of the prevailing market trends and to allow the Commission to identify possible competition concerns in the European e-commerce markets.

Thousands of questionnaires were sent to companies selling products and content online, across industries as diverse as computer games and software, sports and outdoor equipment and online payment services providers. The Commission has now released a lengthy (291 pages) preliminary report of its findings.

Preliminary findings

The preliminary results show that the growth in e-commerce has increased price transparency and competition, which should have increased consumers' choice and allow them to find the best deal.   However, in direct response to the growth of e-commerce, suppliers are seeking to exercise tighter control over distribution.  In the past decade suppliers have largely sought this control by relying on selective distribution models or more commonly, cutting out the middle-man-retailer and 'setting up shop' online.

The findings reveal that across Member States suppliers are implementing highly restrictive conditions in distribution agreements for consumer goods and digital content.  

In respect of consumer goods this includes practices such as imposing restrictions on where, in what manner and for how much their goods are sold.

For digital content, the Commission found that there are key licence contract restrictions to the scope of the technology, language, territory and timeframe in which digital content may be used, and the widespread use of territorial exclusivity agreements in licensing arrangements.   Further details on the Commission's findings in relation to digital content can be found in a separate blog.

To illustrate the extent of anti-competitive practices imposed by suppliers on retailers:

  • over two in five retailer face some form of price recommendation or price restriction from suppliers;
  • almost one in five are contractually restricted from selling on online marketplaces;
  • almost one in ten are contractually restricted from submitting offers to price comparison web sites;
  • over one in ten report that their suppliers impose contractual restrictions on cross-border sales.

With the publication of the preliminary report, Competition Commissioner Margrethe Vestager said: "E-commerce has become important for consumers and it has significant impact on the business and strategies of companies. Businesses should have the freedom to determine their sales strategies online. At the same time, antitrust authorities must ensure that they do not engage in anti-competitive business practices. These practices can prevent European consumers from reaping the full benefits of e-commerce in terms of greater choice and lower prices." This appears to be a notion that resonates through to national competition authorities.

In the UK, the Competition and Markets Authority (CMA) continued to pursue its focus on the online and digital marketplace, with recent issue of a statement of objections to Ping, a sports and outdoor equipment supplier, in June 2016.  The statement of objections sets out the CMA's set case against Ping's ban on retailers selling its products online. The announcement was coupled with the message that e-commerce is "an increasingly important distribution channel" and to prevent retailers' ability to supply in this way can be restrictive of competition.   National regulators in other EU Member States, notably France and Germany, are also actively pursuing cases in this area.

Enforcement activity by the Commission against online sales restrictions is likely to increase substantially in the light of the Preliminary Findings.  The Commission has warned that, in the light of the findings, it may open investigations against specific companies for possible breaches of competition law in connection with their online sales practices.   Fines for breaching competition law can be up to 10% of worldwide group turnover.

All businesses selling online would be well-advised to review their distribution arrangements to ensure that they are in line with EU competition rules.

Stakeholders are invited to submit comments on the preliminary findings by 18 November 2016.  The final report is expected to be published in the first quarter of 2017.

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