The European Commisson's e-commerce market investigation and the Digital Single Market Strategy – what now for your business?

On 6th May 2015, the European Commission launched a competition market investigation into the e-commerce sector. This will affect companies involved in all aspects of e-commerce, from streaming content to selling goods online. A “large number of firms” from every country in the EU can expect a questionnaire in the coming weeks – and those who don’t should consider whether to have their say too.

The Digital Single Market Strategy

The investigation forms part of the Juncker Commission’s flagship project – the Digital Single Market (DSM) – an initiative to break down national borders in digital markets.

Juncker’s vision of the DSM is one in which:

The scope and timetable of the DSM strategy was set out on 6 May – more detail is available on our DSM hub. 

While much of the DSM strategy focuses on breaking down regulatory barriers, competition powers are being used to tackle commercial barriers to cross-border trade. 

The rapid development of the e-commerce sector and the scope for achieving a true single European market is bringing many vertical restraints to the fore. Where agreements with distributors may historically have been considered less risky, anything touching online sales should now been given careful competition law scrutiny.

A key focus is geo-blocking, where the availability of a website, content, products, services – or prices – is dependent on the location of the customer. However, the Commission is looking at all forms of commercial restraint – from restrictions on online distribution, to resale price agreements – bringing the sale of physical products firmly into the spotlight.

Sectors in the firing line

The Commission’s work in this area is already well under-way, with existing investigations in several sectors. These give some indication of its likely focus in the market investigation.

Digital content is high on the agenda and will be a key focus of the market investigation:

Pay TV 

The Commission is investigating the structure of the licencing arrangements in the pay TV market, which prevent subscribers of pay TV services based in one Member State from viewing that content when travelling in another Member State.
Under the present market structure, major US film studios typically grant a licence to distribute the content to a single exclusive distributor in each Member State. The Commission is examining whether the licencing agreements restrict cross-border access to the content. 

Video games 

The Commission has confirmed it is investigating geo-blocking of video games sold online for PCs. 

Music streaming 

It is understood that the Commission has sent questionnaires to major music labels, seeking information on agreements over online streaming services and licensing policies. 

Physical goods will not escape, however, and the Commission has also confirmed there will a key focus on the sale of: 

• electronic goods; and 
• clothing and shoes. 

Consumer electronics 

The Commission is investigating suspected restrictions regarding the online distribution of consumer electronics and small domestic appliances, which it believes may be leading to higher prices. The precise nature of the alleged restrictions has not yet been disclosed. As part of its investigation, the Commission has dawn raided a number of companies, including Media Saturn, Royal Philips, Samsung and, most recently (in March this year), Redcoon. 

Clothing and fashion 

The fashion industry is also under the spotlight in a number of Member States across Europe. In the UK the Competition and Markets Authority, has recently exercised its information gathering powers to probe companies active in the clothing, footwear and fashion sector, and opened a formal investigation in April 2015. Just days after the commencement of the CMA investigation, the Italian competition regulator launched an investigation into a number of fashion agencies and a trade association within the fashion industry.

What will the Commission ask in the market investigation questionnaires?

Aimed at territorial barriers erected by companies through contractual provisions and practices when selling their products on the internet, the Commission is likely to look at:

• geo-blocking – whether based on IP address, postal address, or credit card details;
• restrictions on online sales by distributors;discrimination against the online channel; 
• restrictions on intra-EU cross-border trade (parallel trade); 
• resale pricing agreements; 
• differential pricing across Member States / sales channels; and 
• the use of third party online sales platforms.

Next steps

This investigation is set to have significant and far-reaching concequences and is one that all companies operating in the digital economy need to follow closely.

Companies at all levels of the supply chain, covering both physical as well as digital products, can expect to hear from the Commission in the coming weeks and will need to consider their responses carefully.

Although responding to the Commission may not be compulsory in the first instance, the Commission has already highlighted its powers to compel companies to reply. This is also an opportunity to engage with the Commission to ensure it properly understands the challenges of doing cross-border business online and to influence how competition law should be applied to the digital economy in the future.
If you do not receive a questionnaire but wish to make representations to the Commission, please speak to us. 

Timeline 

May 2015 – Market investigation questionnaires expected to be issued within weeks
End 2015 – The Commission will launch an assessment of the role of platforms and intermediaries. 

Early 2016 – The Commission will make legislative proposals in the first half of 2016 to end “unjustified geo-blocking”. 

Mid 2016 – The Commission will publish a report on its findings in the market investigation, for consultation. 

Early 2017 – The final report is expected in the first quarter of 2017. 

Osborne Clarke’s competition experts will keep you updated as the market investigation progresses. For all companies in the digital economy, particularly the highlighted sectors, now is the time to start considering your strategy in responding to the investigation – and to ensure that your online sales policies are fully compliant with the competition rules.

the free movement of goods, persons, services and capital is ensured and where citizens, individuals and businesses can seamlessly access and exercise online activities under conditions of fair competition, and a high level of consumer and personal data protection, irrespective of their nationality or place of residence.”

Think of a French tourist who buys a pair of Italian shoes in Rome. Why is she re-routed to a French website when she tries to buy them online from home? Restrictions like these are often the result of arrangements that are included in contracts between manufacturers and content owners on one side and their distributors on the other.”

Margarethe Vestager, Competition Commissioner