Competition Policy in the EU Digital Single Market: Part 1
It’s a truism to say that the global economy is now digital; from business, to education, to community, technology underpins the way individuals and companies work. However, while markets may have shifted online, there is concern in Brussels that the fundamental EU principle of the single market has not transitioned as effectively. To address this, the European Commission (the “Commission”) has announced that it intends to tackle a number of barriers to online cross-border trade.
But how does the Commission intend to achieve this goal? And what impact will its efforts have on businesses and consumers? This two part series explores the Digital Single Market Strategy which was launched on 6 May 2015 by the President of the Commission, Jean-Claude Junker. This first post looks at what the strategy aims to achieve, particularly from a competition law perspective. The second post will focus on a particular strand of the Commission’s strategy, the e‑commerce sector inquiry being conducted by DG Competition.
Digital Single Market Strategy
The Commission recognises that the digital market provides significant opportunities for ‘innovation, growth and jobs’ for the EU. It sees the creation of a single online market in the EU as fundamental to unlocking those opportunities. Since the big policy push on removing barriers to trade in the early 1990s, the creation of a single market in respect of physical goods and services has been relatively successful; the same is not necessarily true in the digital market. The Commission estimates that only 4% of the EU online market is made up of EU cross-border services, whilst US-based and national services make up 54% and 42% respectively [1]. This data indicates another, less advertised, motivation for fostering a single EU digital market; it is argued that it will enable European technology companies to compete more effectively with their US counterparts.
The Commission’s strategy has three key objectives. They are ambitious:
- to create better online access to digital goods and services across Europe;
- to foster the right environment for digital networks and innovative services to flourish;
- to maximise the growth potential of the digital economy
To achieve these objectives the Commission has outlined sixteen initiatives to be delivered on a relatively short time scale, by the end of 2016. These initiatives aim to tackle a broad range of barriers to cross-border online trade, from addressing the phenomenon of geo-blocking to creating affordable cross-border parcel delivery to a wholesale reform of copyright law. Although the initiatives announced by the Commission focus largely on public (i.e., regulatory) barriers, the Commission also intends to investigate the impact of private (i.e., contractual) barriers, particularly from a competition law perspective. A core part of that aspect of the Commission’s plans is DG Competition’s wide ranging investigation into the e-commerce sector.
E-commerce sector inquiry
On 6 May, the Competition Commissioner, Margrethe Vestager, launched an inquiry to review the digital market from a competition law perspective. The Commission acknowledges that differences in language and culture, as well as consumer preference, may discourage cross-border trade but is concerned that private restrictions, brought about by the practices of individual companies, are also contributing to the relatively slow growth of the EU digital market. In a recent report 32% of retailers cited contractual restrictions in their distribution agreements as the reason for refusing to supply cross-border services [2]. With this in mind, DG Competition hopes that the sector enquiry will help it identify whether such restrictions may give rise to breaches of competition law which it may be in a position to remedy.
To summarise what this involves, it is worth noting what a sector enquiry is and what powers DG Competition has. A sector inquiry is an investigation carried out by the Commission into a sector of the economy when it has reason to believe that the market is not working as it should. The inquiry itself is not a formal investigation into any individual company but instead an opportunity for the Commission to understand a particular market better and identify any competition law concerns. The Commission can require companies to provide information, documents and data to facilitate its inquiry, and can also carry out inspections if necessary. Where a company is uncooperative, or provides incorrect or misleading information, the Commission has the power to impose fines. The inquiry can be a fact-finding exercise on the part of the Commission, sparking separate enforcement action if there are grounds to do so. For example, following the pharmaceutical sector inquiry carried out in 2008/9, the Commission launched investigations into ‘pay-for-delay’ settlement agreements and subsequently fined a number of pharma companies for infringing competition law.
The e-commerce sector inquiry team is currently collecting information about behaviour across all EU Member States, focusing on the goods and services where e-commerce is most widespread such as consumer electronics, accessories and digital content, although other areas are not excluded. The Commission has indicated that it will focus on two particular types of potentially anti-competitive behaviour. First, it will investigate contractual provisions between individual companies which hinder cross-border trade such as: bans on sales via online platforms (e.g. eBay or Amazon marketplace); resale price maintenance in novel online business models; and most favoured nation clauses (MFNs). Secondly, it will investigate technical practices which restrict cross-border trade. The Commission has focused on the impact of geo-blocking which prevents consumers from accessing online content outside their Member State of residence based upon their location or credit card details.
Comment
The e-commerce sector inquiry looks set to have far-reaching consequences when taken alongside existing competition investigations in the sector so far, into the likes of Amazon, Hollywood studios and online betting platforms; a fairly thorough review of online business practices is on the cards. Looking forward, the new director-general of DG Competition, Johannes Laitenberger, has made it clear that the inquiry will help to determine the Commission’s competition enforcement priorities. The second post in this two-part series will explore in more detail the types of behaviour we expect the Commission to cover in its inquiry and the likely impact on those involved.
Part two of this mini-series can be found here.
