The European Commission investigates the e-commerce sector | Legal Alert
Last year, the European Commission (EC) launched an inquiry on e-commerce, which aims to gain knowledge of the characteristics of this sector in order to ensure the more effective enforcement of competition law. The recently issued preliminary report includes key findings arising from the inquiry and indicates several business practices that may raise concerns from the perspective of the competition protection authorities. Entrepreneurs are advised to verify whether their activities, in particular any concluded agreements, comply with binding laws in order to secure them from future negative consequences.
Pursuant to the EC’s report, potential barriers for competition have their source not only in written agreements, but also in oral arrangements or instructions of one of the contractual parties.
During the investigation, the European Commission surveyed over 1,800 entrepreneurs and analyzed thousands of agreements. The sector inquiry covered both consumer goods and digital content markets. The outcome of the inquiry may be significant not only for manufacturers and retailers, but also for other entities active in the e-commerce sector, including providers of price comparison tools or multisided platforms connecting different groups of users e.g. sellers and buyers (so called marketplaces).
Consumer goods market
As regards the consumer goods market, the European Commission pays particular attention to the restriction of cross-border online sales via the use of geo-blocking measures. Such practices seem to be especially popular on clothing and shoes or consumer electronics markets. Moreover, although the application of non-binding, recommended price lists is generally permissible, the EC is interested in such practices and any other activities that may aim to restrict the freedom to establish product prices. It seems that this may be caused by the fact that, in reality, the borderline between recommendations and binding instructions may be difficult to draw. The Commission also noted the potential for collusion as regards price fixing, which may be facilitated in the e-commerce sector where prices are transparent and easy to compare.
As it transpires, applying restrictions in agreements between suppliers and retailers may also impact on other entities active in the Internet. The Commission finds, for instance, that some suppliers restrict their contractors from selling their products on multisided platforms in a variety of ways – from provisions enabling to the sole use of particular marketplaces meeting certain requirements to total bans. The same limitations also apply to price comparison tools.
Digital content market
Since licenses of rights to digital content seem to be a key factor for competition, the European Commission is strongly focused on the conditions applicable to such licenses. This results from the simple fact that attractive content is crucial for digital content providers. The report notes that it is actually a common practice to apply different restrictions in this sphere. Such restrictions concern the technology that can be used, the territorial scope or permissible release windows. Furthermore, license agreements often include exclusivity clauses that may impact considerably on market competition, especially in the event that long-term agreements are concluded.
The Commission noted that geo-blocking is also widespread on the digital content market, in particular with respect to movies, TV series or sport events. Violation of prohibitions contained in license agreements is usually tied with sanctions being imposed on licensees. It follows from the report, that the EC is also interested in payment structures for licenses and in splitting-up or bundling rights to digital content.
It should be stressed that the practices described by the Commission are only potential barriers to competition. Basically, this means that the inclusion of such practices in agreements is not automatically tantamount to a competition law infringement. The EC indicated that each case should be analyzed separately. Further actions aiming to examine whether or not particular practices comply with binding laws are expected to be undertaken in the future. Nevertheless, the EC’s remarks made in the report may constitute important guidelines to identify which areas involve particular risk with respect to potential infringements and which areas may be subject to the Commission’s close scrutiny.
Pursuant to the Polish act on competition and consumer protection, in the event that a given practice is deemed to restrict competition, the President of the Office of Competition and Consumer Protection may impose a fine on an entrepreneur at a level up to 10% of its turnover in the preceding business year. Moreover, as regards agreements restricting competition – if certain conditions are met – managers may also be liable and fined up to PLN 2,000,000.
Having the above in mind, we advise entrepreneurs that are active in the e-commerce sector to review their business practices with a view to ensuring their compliance with competition law, particularly as regards provisions concerning agreements that may restrict competition or amount to an abuse of a dominant position. Timely identification of prohibited agreements or provisions will allow entrepreneurs to take advantage of legal remedies to mitigate a fine or even avoid a fine altogether. One such remedy is to file a motion for the waiver or reduction of a fine (the so-called leniency program). Moreover, if it is substantiated during antitrust proceedings that the prohibitions referred to above (i.e. regarding agreements that are anti-competitive or amount to an abuse of a dominant position) have been infringed and an entrepreneur undertakes to take (or refrain from taking) certain actions to bring the infringement to an end or eliminate its consequences, the President of the Office may oblige an entrepreneur to do so. In such an event, no fines are imposed on the entrepreneur or any management staff.
The final version of the EC’s report will be released during the first quarter of 2017.
Jakub Jędrzejewski, Counsel, Attorney at law
Filip Drgas, Junior Associate