E-Commerce Distribution Policies under EU Antitrust Scrutiny

June 20, 2017

This month, the European Commission (“Commission”) has started the already expected initiative to open formal investigations into the e-commerce practices of companies active in the European Union.

The Commission’s investigations inter alia focus on potentially illegal restrictions imposed by manufacturers of consumer goods on retailers regarding the online distribution of products to consumers or to retailers in other EU Member States, and whether wholesalers are illegally restricted from selling to retailers in other EU Member States. Another focus of the Commission’s investigations lies on the licensing and distribution of merchandising products, namely whether the licensors have restricted their licensees’ ability to sell licensed merchandise cross-border and online.

1.1     Policy Background

These recent investigations are a direct follow-up from Commission’s e-commerce sector inquiry, which the authority launched in May 2015 as part of its Digital Market Strategy. In the inquiry, the EU competition watchdog analysed the market practices and potential competition barriers in e-commerce of consumer goods and digital content in the EU by gathering evidence from nearly 1,900 companies operating in e-commerce of consumer goods and digital content and analysed around 8,000 distribution and license contracts.[1] In the final report, the Commission particularly highlighted two market trends:

  1. Consumer Goods: Many manufacturers sell products through their own online retail shops, thereby competing increasingly with their distributors. There is also an increased use of selective distribution systems, where the products can only be sold by pre-selected authorised sellers, and an increased use of contractual restrictions to better control product distribution, such as pricing restrictions, marketplace (platform) bans, restrictions on the use of price comparison tools and exclusion of pure online players from distribution networks.
  2. Digital content: Almost 60% of digital content providers who participated in the inquiry have contractually agreed with right holders to “geo-block”, which might constitute an unlawful vertical territory restriction.

When the Commission published the final report on the inquiry on 10 May 2017, Commissioner Margrethe Vestager stated:

“Certain practices by companies in e-commerce markets may restrict competition by unduly limiting how products are distributed throughout the EU. Our report confirms that. These restrictions could limit consumer choice and prevent lower prices online. At the same time, we find that there is a need to balance the interests of both online and brick-and-mortar retailers. All to the benefit of consumers. Our findings help us to target the enforcement of EU competition rules in e-commerce markets”.[2]

Given the growing importance of cross-border e-commerce and b2c or b2b digital platforms as well as the potential e-commerce has to disrupt traditional distribution, recently, Member State competition authorities had already made a push to scrutinise vertical market behaviour in e-commerce more closely. A few examples:

  • Asics, regarding distribution on third party online platforms and engagement with price comparison websites (German Bundeskartellamt);[3]
  • Ford, Opel, Peugeot Citroën, regarding limitation of online sales via car portals (German Bundeskartellamt);[4]
  • BMW, regarding restriction of online sales via car portals (UK Competition and Markets Authority);[5]
  • HRS, regarding best price clauses on hotel portals (German Bundeskartellamt);[6]

Now, the Commission has opened its own investigations:

  • A formal antitrust investigation into the distribution agreements and practices of a fashion clothing manufacturer and retailer as to whether it illegally restricts retailers from selling cross-border to consumers within the EU Single Market;[7]
  • A formal antitrust investigation against a sports equipment manufacturer, a film studio and a manufacturer of gifts/design company into whether they, in their role as licensors of rights for merchandising products, may have breached EU competition rules by restricting their licensees’ ability to sell licensed merchandise cross-border and online.[8]

1.2     Legal Context

Article 101(1) TFEU inter alia prohibits agreements between undertakings and concerted practices which affect trade between Member States and which have as their object or effect the prevention, restriction or distortion of competition within the internal market. This provision also catches anticompetitive vertical distribution agreements, such as vertical price fixing (resale price maintenance) or certain territorial or customer restrictions. In that context, it should be recalled the territory of the EU forms a common market, which is understood as a multinational integration process, aiming to remove all barriers to intra-Union trade with a view to the merger of national markets into a single market giving rise to conditions as close as possible to a genuine internal market.[9]

A vertical restraint of competition (like a horizontal cartel) can be fined with up to 10% of the total worldwide group’s turnover. However, while in horizontal cartels, authorities usually seek to penalize past conduct, vertical cases may qualify for a decision whereby the company under investigation commits to change its commercial behaviour going forward.

Unlike for horizontal cartels, there is no leniency programme available for vertical restraints of competition. Also, companies cannot notify their distribution practice to the Commission or Member State competition authorities for clearance. Moreover, they must self-assess whether their agreements or distribution systems violate Art. 101(1) TFEU or whether they fall under any of the many complex exemptions, e.g., under Vertical Block Exemption Regulation.[10]

The results of the e-commerce sector investigation and the additional expertise the Commission and Member State competition authorities will gain from the most recent investigations will likely lead to a series of additional investigations into cross-border (online) distribution and licensing policies.

[1]    Commission Press Release of 10 May 2017 (IP/17/1261): http://europa.eu/rapid/press-release_IP-17-1261_en.htm.

[2]   Commission Press Release of 10 May 2017 (IP/17/1261): http://europa.eu/rapid/press-release_IP-17-1261_en.htm. The full report can be found at: http://ec.europa.eu/competition/antitrust/sector_inquiry_final_report_en.pdf.

[3]   A case summary can be found here: http://www.bundeskartellamt.de/SharedDocs/Entscheidung/EN/Fallberichte/Kartellverbot/2016/B2-98-11.pdf?__blob=publicationFile&v=2.

[4]   A case summary can be found here: http://www.bundeskartellamt.de/SharedDocs/Entscheidung/EN/Fallberichte/Kartellverbot/2015/B9-28-15.pdf?__blob=publicationFile&v=2.

[5]   See press release here: https://www.gov.uk/government/news/bmw-changes-policy-on-car-comparison-sites-following-cma-action.

[6]   A case summary can be found here: http://www.bundeskartellamt.de/SharedDocs/Entscheidung/EN/Fallberichte/Kartellverbot/2016/B9-121-13.pdf?__blob=publicationFile&v=2.

[7]   See press release here: http://europa.eu/rapid/press-release_IP-17-1549_en.htm.

[8]   Commission Press Release of 14 June 2017 (IP/17/1646): http://europa.eu/rapid/press-release_IP-17-1646_en.htm.

[9]   Judgment of the Court of the EU of 5 May 1982, in case 15/81 – GASTON SCHUL DOUANE EXPEDITEUR BV, para. 33.

[10]   Commission Regulation (EU) No 330/2010 of 20 April 2010 on the application of Article 101(3) of the Treaty on the Functioning of the European Union to categories of vertical agreements and concerted practices.

The following Gibson Dunn lawyers assisted in preparing this client update: Jens-Olrik Murach and Balthasar Strunz.

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