On May 10, 2017, the European Commission issued its Final Report on the e-commerce sector inquiry. The e-commerce sector inquiry was launched in May 2015 aimed at identifying market trends and possible competition restrictions in European e-commerce markets as part of the European Digital Single Market strategy. Its initial findings were published in a Preliminary Report in September 2016 (see our post on the Preliminary Report).
The Final Report focuses on e-commerce in two separate sectors: consumer goods and digital content. It includes the responses to questionnaires addressed to a wide range of stakeholders including retailers, manufacturers, e-commerce platforms and payment service providers.
In consumer goods the inquiry covered the product categories most sold online, such as clothing and shoes, consumer electronics, electrical household appliances, computer games and software, toys and childcare articles. The main findings of the Final Report were positive:
- Increased price competition as a consequence of increased online price transparency;
- Increased online retail presence of manufacturers, particularly in the cosmetics and healthcare category;
- Expansion of selective distribution to achieve high quality distribution, a coherent brand image and high quality pre- and after-sales services; and
- A significant number of contractual sales restrictions.
In this latter regard, the Final Report also includes an assessment of the most commonly encountered contractual restrictions:
- (i) Pricing restrictions/recommendations used by manufacturers and retailers in response to increased online price competition and greater price transparency and low search costs for customers online. Almost a third of respondent retailers confirmed that they normally comply with the price indications given by the manufacturers, while more than a quarter said that they never comply.
The Commission is concerned that the increase in the use of pricing software to monitor online retail prices may allow manufacturers to retaliate against retailers that deviate from desired price levels. The Final Report also clarified that dual pricing practices establishing different prices to one and the same retailer depending on whether the product is to be sold offline or online are generally considered a serious infringement, although specific dual pricing agreements could be deemed compatible with competition law if indispensable to address free-rider issues.
- (ii) Marketplace restrictions: ranging from absolute bans to restrictions on selling on online marketplaces that do not fulfil certain quality criteria. Up to 18% of retailers reported marketplace restrictions in their contracts with suppliers.
Without prejudice to the pending preliminary ruling on this question (Case C-230/16, Coty Germany), the findings of the sector inquiry indicate that the marketplace bans should not be considered as very serious restrictions.
- (iii) Restrictions limiting cross-border sales: that limit the ability of retailers to serve customers in other Member States and require retailers to apply geo-blocking measures. Although the majority of geo-blocking is based on unilateral business decisions, more than 11% of retailers indicated that they have contractual cross-border sales restrictions.
As to digital content, the Final Report confirms the initial view that securing attractive digital content is essential for digital content providers that wish to be competitive. The most problematic licensing practices that the Commission has identified in this sector are:
- (i) Bundling of rights, where rights for online transmission of digital content are licensed together with the rights for other transmission technologies. This practice protects exclusive rights to a digital content product and confers on a single content provider the possibility of using alternative technologies for a given content. The Commission considers that bundling online rights in this way may hinder competition between existing operators and new entrants and reduce the incentive to develop innovative services.
- (ii) Territorial restrictions and geo-blocking. Up to 68% of digital content providers restrict access to their online digital content services from other Member States. The Final Report shows that geo-blocking is most prevalent in agreements for TV series (74%), films (66%) and sports events (63% and less prevalent in music (57%), children’s TV (55), non-fiction TV (51%) and news (24%).
- (iii) Duration of licensing agreements. The Commission has observed that licensing agreements are of relatively long duration, with more than 50% of agreements lasting more than 3 years and 23% more than 5 years. Contractual relationships have average durations of more than 10 or even 20 years. These long-term relationships make the entry of new players more difficult and may make it harder for existing operators to expand their current commercial activities.
- (iv) Payment structures: The Final Report observes that rights holders licensing attractive content tend to make use of payment structures such as advance payments, minimum guaranteed payments and fixed fees per product irrespective of the number of users. These practices benefit the more established content providers, which are more capable to commit to greater levels of upfront investment.
Based on these findings the Commission will target the enforcement of EU competition rules on business areas where the identified restrictions are more common and will extend the dialogue with national competition authorities to the field of e-commerce. As such, specific enforcement action is expected, and indeed in February 2017, the Commission launched three investigations into suspected breaches of competition rules in relation to consumer electronics, video games and hotels (see the Commission’s press release of February 2, 2017). In addition, the Commission has pushed seven companies (including clothing manufacturers and electronic appliances producers) to review their commercial practices to comply with EU competition law.
The report, together with all preparatory materials, can be accessed at: http://ec.europa.eu/competition/antitrust/sector_inquiries_e_commerce.html