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European Commission investigates e-commerce sector

On 6 May 2015, the European Commission announced [1] that it has opened an inquiry into the e-commerce sector.  This is a sector-wide investigation, covering the whole EU.  The Commission hopes to gain more market knowledge in order to better understand restrictions on cross-border online trade within the EU and then assess these restrictions in the light of the EU competition rules. This is one of a number of initiatives with which the Commission hopes to create a Digital Single Market in the EU.

We explain here the background to and scope of the investigation, as well as the Commission’s concerns and possible outcomes.

What is a sector inquiry? 

The sector inquiry is an investigative tool available to the Commission which enables it to gather information about a particular sector of the economy or about certain types of agreements.  The Commission has long been able to carry out these inquiries but, since gaining enhanced powers on 1 May 2004 (under Article 17 of Regulation 1/2003), the Commission has relied on sector studies and inquiries and market investigations much more often. This is the fifth time the Commission has used its powers under Article 17 of Regulation 1/2003 to conduct a sector inquiry [2].

The Commission uses sector inquiries to assess the evolution of key industry sectors and to detect obstacles to competition. Carrying out a sector inquiry does not mean that there are grounds for enforcement action against specific businesses.  However, the Commission will typically launch a sector inquiry when it believes that a market is not working as well as it should, and that breaches of the EU competition rules might be a contributory factor – for example where there is evidence of limited trade between Member States, a lack of new entrants on the markets, or limited price competition.  These could suggest that there have been breaches of the EU competition rules against anti-competitive agreements and practices (Article 101 of the Treaty on the Functioning of the EU (TFEU)) or the abuse of a dominant market position (Article 102, TFEU).

The background to this inquiry

The Commission has had concerns about cross-border e-commerce for a while.  The sector inquiry is the latest in a series of reviews of e-commerce in recent years within the EU, including:

  • The 2009 Commission report on barriers to online shopping, which noted the strong potential for cross border trade in online commerce but warned that barriers to cross-border trade were holding back its development [3]. 
  • The Commission’s 2010 Digital Agenda, which acknowledged consumer concerns about, and the need to encourage cross-border online shopping to support the EU's economic growth [4].
  • In August 2010, the Commission opened a consultation on e-commerce [5].  This sought information on experiences of, and views on a range of issues, including the implementation of the Directive on electronic commerce, which had set out a framework for electronic commerce within the EU [6].
  • That consultation informed the Commission’s Communication on e-commerce and online services, published in January 2012 [7].  This recognised the enormous potential for e-commerce to boost growth and create jobs but reported that the EU Single Market for e-commerce was still not functioning as it should.  The Commission drew attention to significant differences in the rules, standards and practices applied to e-commerce within the Member States, which meant that companies found it difficult to supply online goods or services across EU borders, and consumers missed out on buying from websites based in other EU countries. It put forward an action plan to boost cross-border access to online products and content.   The Commission reported on the progress made to date in implementing this plan in April 2013 [8].

The Commission’s concerns

The Commission notes that the e-commerce sector within the EU has grown steadily in recent years but cross-border e-commerce remains limited. For example, in 2014, about 50% of EU consumers shopped online during 2014 yet only 15% of EU citizens shopped online from a trader or service provider based in another Member State.  This, the Commission says, indicates that significant cross-border barriers to e-commerce still exist within the EU [9].

The Commission accepts that there are a number of reasons for the slow uptake of cross-border e-commerce, including language barriers, consumer preferences and different national legislation.  The Digital Single Market Strategy also highlights a number of regulatory barriers that hinder cross-border e-commerce (see below). 

However, the Commission thinks that some companies may be taking deliberate measures to restrict cross-border e-commerce.  It points to contractual restrictions in distribution contracts and suppliers’ restrictions affecting sales on online platforms.  The Commission has also previously raised concerns about technical barriers, such as geo-blocking, which may prevent consumers from accessing certain websites on the basis of their residence or credit-card details.

These arrangements fall under EU competition law.  In particular, Article 101 of the TFEU prohibits agreements that appreciably restrict or distort competition within the EU.  The Commission has made clear that, in principle, every distributor must be allowed to use the internet to sell its products. Contractual bans of so-called “passive” online sales (in other words, responding to unsolicited orders) are considered hard-core restrictions of competition and are likely to infringe Article 101. The Commission therefore wants to understand the nature, prevalence and effects of these and similar barriers to cross-border e-commerce and assess them in light of the EU competition rules.

This inquiry will focus on potential barriers to cross-border online trade in goods and services where e-commerce is most widespread (e.g. electronics, clothing and shoes), as well as in digital content. It will initially cover all 28 EU Member States.

How does this inquiry fit within the Commission’s Digital Single Market strategy?

The e-commerce sector inquiry complements the Digital Single Market (DSM) Strategy, also adopted on 6 May 2015 [10].   Online commerce is a crucial area for the DSM.

The Commission states that the digital market today is made up of national online services (42%) and US-based online services (54%) but that EU cross-border services represent only 4%.  Only 7% of SMEs in the EU sell cross-border.  Moreover, the Commission estimates that EU consumers could save EUR11.7 billion each year if they could choose from a full range of EU goods and services when shopping online. 

The Commission’s roadmap for completing the DSM therefore includes the following measures to make cross-border e-commerce easier:

  • A competition sector inquiry into e-commerce, relating to the online supply goods and services (in 2015).
  • Legislative proposals for simple and effective cross-border contract rules for consumers and businesses (2015).
  • A wide-ranging review to prepare legislative proposals to tackle unjustified geo-blocking (2015).
  • Legislative proposals for reform of the copyright regime (2015).
  • Review of the Satellite and Cable Directive (2015/2016).
  • A review of the Regulation on Consumer Protection Co-operation (in 2016).
  • Measures in the area of parcel delivery (2016).
  • Legislative proposals to reduce the administrative burden on businesses arising from different VAT regimes (2016)

In launching the current sector inquiry, the Commission embarks on the first of these initiatives.

Potential outcomes from this inquiry

The Commission will usually publish a report on the results of its inquiry, identifying any specific concerns with recommendations for action.  It will invite comments from interested parties. 

If there are specific competition concerns, the Commission cannot impose fines on companies or require commitments from them as part of a sector investigation but it can then open a competition investigation and, if necessary, take enforcement action under EU competition law against those involved. 

Recommendations from a sector inquiry can also be used as the basis to identify other instruments of competition policy that can be used to tackle problems – such as regular monitoring, issuing guidance, or introducing specific regulation. For example, the pharmaceuticals sector inquiry, launched 2008, led to competition investigations and enforcement action, including fines against a number of companies active in the sector, as well as annual monitoring of patent settlement agreements by the Commission [11]. 

However, the Commission could decide to take no action – for example, if it finds no specific issues.  It could just decide to let the package of measures proposed within DSM take effect before intervening further in the sector.

What will happen next?

Under Regulation 1/2003, the Commission can ask companies and trade associations to supply information, documents and statements.  It can also carry out inspections if necessary. Fines may be imposed on organisations that supply incorrect or misleading information. The Commission may also seek input from EU national governments and any relevant regulators. 

The Commission states that it will send requests for information in the first few weeks of its inquiry to a large number of stakeholders throughout the EU – such as manufacturers, wholesalers, and e-commerce retailers.  The Commission has indicated [12] that these will include holders of content rights, broadcasters, manufacturers, merchants of goods sold online, and the companies that run online platforms such as price-comparison and marketplace websites.

The Commission expects to publish a preliminary report for consultation in mid-2016.  The final report is expected in the first quarter of 2017. 

For more information, please contact Calum Murray or Rachel Iley.

 

[1] See http://europa.eu/rapid/press-release_IP-15-4921_en.htm

[2] The Commission has also conducted inquiries into the following sectors under Article 17 of Regulation 1/2003: the provision of sports content via new media (launched 2004); retail banking (2005); business insurance (2005); the energy sector (2005); and pharmaceuticals (2008). 

[3] http://europa.eu/rapid/press-release_IP-09-354_en.htm?locale=en

[4]  http://europa.eu/rapid/press-release_IP-10-581_en.htm?locale=en

[5]  http://ec.europa.eu/internal_market/consultations/2010/e-commerce_en.htm

[6] Directive 2000/13 on certain legal aspects of information society services, in particular electronic commerce, in the Internal Market, outlined at http://ec.europa.eu/internal_market/e-commerce/directive/index_en.htm

[7] http://europa.eu/rapid/press-release_IP-12-10_en.htm?locale=en

[8]http://ec.europa.eu/internal_market/e-commerce/docs/communications/130423_report-ecommerce-action-plan_en.pdf

[9] See Commission press release announcing the proposal for an e-commerce sector inquiry: http://europa.eu/rapid/press-release_IP-15-4701_en.htm; as well as the speech by Margrethe Vestager, EU Commissioner for Competition, on Competition policy for the Digital Single Market: Focus on e-commerce: http://europa.eu/rapid/press-release_SPEECH-15-4704_en.htm

[10] http://europa.eu/rapid/press-release_IP-15-4919_en.htm

[11] For example, in July 2014, the Commission announced that it had fined Les Laboratoires Servier and five generic competitors almost EUR427.7 million for agreements that delayed the entry of generic versions of Servier's bestselling blood pressure medicine; see http://europa.eu/rapid/press-release_IP-14-799_en.htm

[12] See http://europa.eu/rap1d/press-release_SPEECH-15-4704_en.htm