alerts & publications
European Commission: Target Practices in the E-Commerce SectorSeptember 19, 2016
On September 15, 2016, the European Commission (the “Commission”) published its preliminary report with its initial findings on the European e-commerce sector. The report aims to provide an overview of the prevailing trends and business practices in the e-commerce sector, identifying business practices that may amount to restrictions of competition on the market. The Commission has stated that its findings may lead to specific investigations to ensure compliance with EU antitrust rules. It is therefore worthwhile for companies to consider if any of the highlighted practices are used in their business.
The Commission launched the e-commerce sector inquiry in May 2015 as part of its Digital Single Market strategy. During the period of inquiry, the Commission gathered information, through questionnaires, from nearly 1,800 companies in 28 Member States and analyzed approximately 8,000 distribution contracts. The scope of the inquiry included companies active in consumer goods and digital content markets, aiming to achieve a comprehensive overview of the e-commerce market.
Price transparency and price competition
The sector inquiry report finds that increased price transparency online leads to increased price competition, affecting both online and offline sales. This improved transparency increases consumer choice, allowing consumers to easily obtain and compare product and price information. They are free to choose the best deal available online or in a store, however, this may result in free-riding across sales channels and lead to retailers losing the incentive to invest in high quality retail services. Increased price transparency also allows retailers to track prices online and according to the report, nearly 80% of retailers that use software to track prices consequently adjust their own prices to those of their competitors.
Online distribution models
Online distribution models have evolved in recent years with online marketplaces facilitating access to large customer bases for many smaller retailers. The report shows that sales via marketplaces generate high shares of online revenues for smaller retailers but, nevertheless, the majority of retailers generate most of their sales from their own websites.
Increase in contractual sales restrictions
The sector inquiry reveals that half of retailers are affected by at least one contractual sales restriction. Manufacturers are using vertical restraints in e-commerce markets to maintain control over the distribution of their products. These restraints include restrictions on price, marketplace, cross-border sales and price comparison tools.
Price restrictions or recommendations are the most widespread restrictions according to the report, with 42% of retailers experiencing some form of this practice. Price recommendations could raise concerns if it amounted to an agreement between a retailer and a manufacturer to set the price for customers at the recommended price. The report shows that almost a third of respondent retailers normally comply with the price indications given by the manufacturers, while over a quarter state that they never comply and the remainder take a decision on whether to follow the recommendation based on specific circumstances.
Marketplace restrictions are reportedly imposed on 18% of retailers across the EU. The proportion of marketplace restraints varies across Member States with the highest instances occurring in Germany (32%) and France (21%). Restrictions are mostly found in selective distribution agreements, including outright bans on the use of marketplaces or marketplaces that do not fulfil certain requirements. Manufacturers reported that these restrictions are necessary to protect the image and positioning of a brand; to combat the sale of counterfeit products; to ensure sufficient pre and post-sale services; to protect against free-riding; and, concerns over the lack of relationships with customers on certain marketplaces. A case-by-case analysis of the impact of marketplace restrictions on competition is necessary due to the differences between approaches across Member States and in product categories.
Restrictions on cross-border sales
Contractual cross-border restrictions limit retailers from selling in certain territories. In practice, online retailers must take actions such as blocking access to websites from outside the Member State of that website and refusing delivery in certain territories. The report states that 11% of retailers face these contractual limitations. A further 38% of retailers use geo-blocking in order to restrict cross-border online sales.
Restrictions on price comparison tools
The sector inquiry reports that price comparison tools are used widely in the EU market, with over a third of retailers reporting that they supplied data to price comparison tool providers in 2014. These tools allow potential customers to compare prices across retailers, increasing transparency and allowing retailers to increase their visibility on a price comparison website, often generating traffic for their own website. Some manufacturers impose contractual restrictions on retailers, limiting their ability to provide information or promote their product with price comparison tools, with one in ten retailers reporting to having this kind of restriction imposed on them. The report suggests that absolute bans on price comparison tools which are not linked to quality criteria may restrict competition.
Competition in the digital content market is largely determined by the licensing arrangements for content from copyright holders. The report states that more than 60% of respondent digital content providers have implemented geo-blocking measures to restrict access to their online content for users from other Member States. This follows the publication of the Commission’s findings on geo-blocking, published in March 2016, which found that the practice was widely used across the EU for digital content. The Commission will assess any geo-blocking measures on a case-by-case basis with regard to the characteristics of the market to determine whether any restriction of competition is taking place.
The Commission has invited interested stakeholders to submit their comments and views on the findings of the preliminary report. Parties will have two months to raise additional issues and provide information to the Commission, before the deadline of 18 November 2016.
The Final Report is expected to be published in the first quarter of 2017.
This memorandum is a summary for general information and discussion only and may be considered an advertisement for certain purposes. It is not a full analysis of the matters presented, may not be relied upon as legal advice, and does not purport to represent the views of our clients or the Firm. Christian Riis-Madsen, an O'Melveny partner licensed to practice law as an Avocat in Belgium and as an Advokat in Denmark, and Kate Stokes, an O'Melveny associate licensed to practice law as a Barrister-at-Law in Ireland and in the Brussels-Capital Region, contributed to the content of this newsletter. The views expressed in this newsletter are the views of the authors except as otherwise noted.
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