The EU E-commerce Sector Inquiry – something to worry about?

August 2015  |  EXPERT BRIEFING  |  COMPANY LAW

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On 6 May 2015, the European Commission announced the launch of an inquiry into the e-commerce sector in the European Union (EU). This inquiry, based on Article 17 of Regulation 1/2003, allows the Commission to conduct an antitrust investigation into a particular sector of the economy or into a particular type of agreements across various sectors, when the trend of interstate trade, the rigidity of prices or other economic circumstances suggest that competition might be restricted or distorted. Albeit portrayed as part of the Commission’s legislative and regulatory strategy with regard to the Digital Single Market, also adopted on 6 May, this inquiry still uses a tool of EU antitrust enforcement. Therefore, it can have important consequences for companies’ operating in the online sphere, including the potential initiation of antitrust investigations into individual companies.

The Commission has started to send out questionnaires (so-called Requests for Information, or RFIs) to a large number of companies at the end of June, with additional RFIs following in July. Addressees include owners of digital content rights (movies, TV shows, music and sports), broadcasters, online retailers, as well as suppliers of goods and services sold online throughout the EU, such as clothes, shoes and accessories, consumer electronics and household appliances, books, healthcare products, travel services, etc. Moreover, companies operating in the e-commerce sector that have not received a questionnaire, but have an interest in the inquiry may request the Commission to be involved in the process.

Why a sector inquiry?

The Commission considers e-commerce to be a vital part of a true digital single market in Europe. It thus wants to understand it better and address any potential barrier that impedes cross-border e-commerce. The Commission believes that private undertakings are deliberately erecting barriers – particularly contractual and technological restrictions – that prevent e-commerce from taking place across the EU borders. This would include, for example, territorial or pricing restrictions imposed by suppliers in distribution agreements.

The aim of the inquiry will be to determine whether such barriers exist and whether they raise antitrust concerns. To this end, the focus will be on those goods and services that are subject to widespread e-commerce, such as consumer electronics, fashion goods and digital content. It will be carried out in parallel to various existing Commission antitrust investigations of restrictions in licensing agreements between major US film studios and European broadcasters, restrictions on online pricing and sales of electronic products, and restrictions on cross-border access to online video games.

The Commission is sending out lengthy questionnaires requesting copies of distribution contracts and data. In addition, questions include: how companies manage the online distribution of their goods and services; whether the distribution agreements contain restrictions for certain territories and whether there are technical measures to implement this (e.g., blocking IP addresses, domain names of users based on nationality or credit-card details); how content owners monitor compliance with the rules and if there are sanctions; how attempts to stream or download content from another country are filtered, and how requests are blocked; if restrictions were removed, how this would affect revenues, business models or the kind of content offered; and which countries are the most important for content streaming and downloads, and what kind of business models are used.

What are the implications for companies?

In the course of the inquiry, the Commission may send additional requests for documents and data from companies. In previous sector inquiries, it also carried out dawn raids. A preliminary report on the findings of the inquiry is expected to be published for consultation mid-2016, giving interested parties the opportunity to comment. Publication of the final report is expected in the first quarter of 2017.

The European Commission has previously conducted similar sector inquiries in the energy, food and pharmaceuticals industries. Experience has shown that inquiries can have a major impact on the sector under investigation – and not just in terms of reputation.

The Commission has already indicated that the knowledge gained through the inquiry could lead to support legislative or regulatory initiatives to boost cross-border e-commerce in the context of the digital single market strategy. But also in the antitrust sector, the findings could be used to review and eventually change the block exemption regulation dealing with distribution agreements (Regulation 339/2010), or the accompanying vertical guidelines. Even if the Commission decides not to modify the current rules on vertical agreements at this stage, it is very likely that supplementary guidelines or explanatory documents are issued to deal with antitrust issues in cross-border e-commerce.

In addition, previous inquiries in the energy, pharma and financial services sectors have triggered formal antitrust infringement investigations of individual companies. The Commission has also confirmed that if it comes across anti-competitive barriers to the development of online cross-border sales, it will not hesitate to step up in the enforcement action related to e-commerce. It is therefore of the essence that companies carefully craft their responses to the Commission’s questionnaires. Moreover, it may now be a good time to review existing distribution contracts and online sales practices affecting the EU.

Dr Salomé Cisnal de Ugarte is a partner at Crowell & Moring. She can be contacted on +32 2 214 2837 or by email: scisnaldeugarte@crowell.com.

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Dr Salomé Cisnal de Ugarte

Crowell & Moring