Competition Policy in the EU Digital Single Market: Part 2
This is the second of two related posts looking at the European Commission’s Digital Single Market Strategy and in particular, the e-commerce sector inquiry launched by DG Competition. The first post summarises what the Commission is hoping to achieve. This post explores in more depth the types of restriction the Commission is likely to investigate as part of its inquiry. The Commission has indicated that it will focus on two types of potentially anti-competitive behaviour which could hinder online cross-border trade: contractual arrangements between individual companies, and technical practices.
Contractual arrangements
The Commission will review contractual arrangements between companies which hinder online cross-border trade. In particular, vertical restrictions in distribution agreements will be carefully reviewed as these can lead to a reduction of competition and price differences across territories.
As long ago as 2010, the Commission took steps to discourage anti-competitive agreements in the digital market when providing guidance on the approach it would take to outright restrictions such as bans on online sales and agreements to re-route customers to their ‘home’ providers[1]. However, the guidance given did not address less obvious restrictions that can arise such as restrictions on sales via online platforms (e.g. eBay or Amazon marketplace), resale price maintenance in novel online business models (which may fall outside the traditional agency model, such as hotel booking platforms); and other restrictions that indirectly affect sales online. It is expected that the Commission will now turn its attention to such restrictions.
In particular, the Commission’s inquiry will examine the prevalence and effects of most favoured nation clauses (MFNs) in online distribution arrangements. MFNs can take various forms but often guarantee a specific distributor the best available price/terms, both versus other distributors and versus the supplier’s own website. There have already been investigations relating to MFNs across several sectors including online motor insurance, sports goods retail, e‑books and online hotel bookings. These investigations have generally acknowledged that MFNs can be pro-competitive, providing efficiency benefits to consumers, but have also raised serious concerns that in some circumstances they can lead to a softening of competition. The approach of the national competition authorities in the online hotel booking cases reflects the difficulty of analysing such clauses consistently.In 2013, the German Federal Cartel Office found that use by online travel agents of MFNs in contracts with hotels should be treated as hardcore restrictions of competition, only occasionally justifiable. In contrast, other national authorities have, in particular, suggested that ‘narrow’ MFNs (which only provide an MFN guarantee versus the supplier’s own website) are acceptable in some circumstances. DG Competition may seek to provide a framework to help reconcile the various approaches.
Technical practices
The Commission will also review technical practices that hinder cross-border online trade such as geo-blocking where a consumer is prevented from accessing online content based upon residence. In some instances there may be legitimate reasons to block access to online content from other territories such as excessive delivery costs, differences in language or obligations to comply with national laws (including copyright). The Commission has stated a concern that unjustified geo-blocking fragments the market along national borders and limits the portability of online content (i.e., where content legitimately purchased in one territory cannot be accessed in another).
From a competition law perspective, the Commission will consider the use of geo-blocking to facilitate agreements among competitors to share markets, or in vertical agreements for territorial distribution of rights. In fact, outside the context of the e‑commerce sector inquiry the Commission has already started looking at geo-blocking in vertical agreements. On 23 July 2015, it sent a statement of objections to six major Hollywood studios and Sky UK in relation to licence agreements which prevent Sky UK from offering pay TV services to territories outside of the UK, even in response to unsolicited requests (i.e., passive sales). This investigation follows the Murphy case [2] which held that although exclusive territorial licensing is justifiable in some circumstances, absolute territorial protection is not.
In this area, the Commission appears to recognise that the competition rules are only a part of the solution to the problem it has identified. It also plans to address geo-blocking in the context of consumer protection rules (with reform of the e-Commerce Directive and Services Directive) and in the context of intellectual property law (with reform of copyright law). In particular, the Commission is concerned that restrictions in copyright licences, often granted at a national level, are used to create barriers to online cross-border trade dampening the growth of copyright-intensive industries and restricting users access to creative works. The Commission therefore proposes to harmonise copyright law across Europe to facilitate cross-border licences, particularly of audiovisual content. Some are concerned, however, that such reforms will have unintended consequences such as damaging the market for audiovisual content, which relies on the value of separate territorial licences to raise funds, and dampening cultural diversity as a pan-European industry develops. What is clear from the Commission’s proposals is that when it comes to striking a balance between the rights of content providers and the desire for consumption of content across borders, the Commission’s focus has shifted to the latter.
Comment
The Commission’s sector inquiry is already well underway; it has sent thousands of requests for information to various stakeholders in the digital market including suppliers, wholesalers, online platforms and online retailers including price comparison websites and marketplaces. The Commission will publish a preliminary report of its findings in mid-2016 and a final report in the first quarter of 2017. Combined with the existing competition investigations which DG Competition has instigated, the next eighteen months or so promise to be a time of interesting developments for those involved in digital markets. The overall drive to create the Digital Single Market, which expands beyond competition policy and enforcement into fields such as data privacy; consumer protection; intellectual property and delivery mechanisms has the potential to be one of the most significant policy initiatives by the Commission since the Single European Act almost thirty years ago and the Europe 1992 programme to complete the ‘physical single market’.
Part one of this blog can be found here.
