European Commission announces competition inquiry into the e-commerce sector
7 May 2015
Mayer Brown Legal Update
Margrethe Vestager, the EU Commissioner in charge of competition, announced yesterday the opening of an inquiry into the e-commerce sector. The announcement identifies a political desire to examine and likely break down what the Commission regards as business practices that limit or restrict the operation of the "digital" Single Market, such as geo-blocking, by which a consumer can only access a company’s website in the country where the consumer is located. The inquiry will examine industry practices and likely involve all the major players in the sector, although there is to be a focus on the consumer electronics industry, clothing sector and creative industries, through information requests and consultation on provisional findings.
Companies that would likely receive the antitrust questionnaires are holders of content rights, broadcasters, manufacturers with own-selling operations, merchants of goods sold online and the companies that run online platforms such as price comparison and marketplace websites.
DG COMP may undertake a sector inquiry if it concludes that "rigidity of prices or other circumstances suggest that competition may be restricted or distorted within the common market" per Article 17(1) of Regulation 1/2003. This can be more broadly expressed as a concern that there exists market failure in the sector. In a sector inquiry DG COMP can request and demand information from market participants. It can even undertake "dawn raids" and did so in the pharmaceutical sector inquiry.
Since the creation of implementing powers for DG COMP in 1965 there have been eight sector inquiries, namely in relation to: beer distribution; business insurance; energy; margarine; new media; pharmaceuticals; retail banking; and telecommunications. Most of these sector inquiries resulted in either or both legislation being adopted by the EU and competition cases being brought by DG COMP against particular companies. For example, in relation to the most recent sector inquiry, which concerned the pharmaceutical sector, DG COMP found commercial strategies by originator companies to prolong the commercial life of their medicines under exclusive terms and delay generic medicines entry on the market (most notably by patent litigation and agreements) affecting competition between originator companies, and competition between originator and generic companies. Subsequent actions by DG COMP were three competition cases for delay of generic entry against respectively Servier, Lundbeck and Cephalon in each case in relation to a particular medicine. Additionally a competition case was brought against Servier for providing misleading or incorrect information in the course of the sector inquiry. Further, DG COMP imposed a monitoring exercise on market participants engaged in patent settlements. Finally, the EU proposed in 2011 legislation to implement enhanced cooperation in the area of the creation of unitary patent protection.
The e-commerce inquiry need not be limited in scope, despite the announced focus of the inquiry. Thus DG COMP may consider areas where it and/or the competition authorities of the EU Member States are already active, such as digital platforms (e.g. music and book digital platforms, hotel booking) and licensing of standard essential patents (the Samsung and Motorola cases are examples), and even areas where it is merely speculated that there are broader issues to address, such as the fact that many significant acquisitions in the digital space fall below the EU Merger Control regime because the target typically has a level of sales well below the current relevant financial thresholds.
The questionnaires will typically be business oriented and intended to fill-in or expand DG COMP’s knowledge of the sector (how it works, why it works that way…). However, DG COMP and some Member States' competition authorities (for example, the French authority's consideration of the e-commerce sector, the German authority's consideration of hotel e-booking and the UK authority's consideration of e-publishing) have experience and so the Commission is reasonably well informed. Consequently, companies should consider carefully the potential implications and impact on their businesses before freely responding. In-house counsel obviously has an important role, but it should be recalled that DG COMP does not recognise in-house counsel as having legal privilege. Consequently, where questions raised touch upon potentially sensitive or core business matters it would be appropriate to engage external EU counsel. As the inquiry proceeds and focuses on particular business practices or aspects of the sector, very detailed and exhaustive questionnaires will be issued, requiring significant resources to be devoted to responding. Whilst companies are used to enquiries of various sorts from government agencies and regulators, the potential importance of how a company engages in the inquiry should not be regarded as a “business as usual” activity. By the same token, whilst relevant trade associations will also be engaged in the process, a company should consider carefully the extent that it can rely on trade associations to protect and promote its individual interests vis-à-vis other sector players. The sector inquiry may also lead to findings by the Commission that require changes to existing business practices/models.
DG COMP expects to publish a preliminary report for consultation in mid-2016. The final report is expected in the first quarter of 2017.