Analytics, EU – Baltic States, Internet, Markets and Companies, Modern EU, Taxation, Technology

More and more goods and services are traded over the internet but cross-border online sales within the EU are only growing slowly. The Commission's Digital Single Market Strategy identifies a number of regulatory barriers that hinder cross-border e-commerce. It proposes to address these and create an area where citizens and businesses can seamlessly access and exercise online activities under conditions of free competition, irrespective of their nationality or place of residence.

The Commission launched the e-commerce sector inquiry already in May 2015 in the context of the newly launched EU Digital Single Market strategy. One of the idea of the new “digital single market strategy” was to ensure better access for consumers and businesses to goods and services. The main objective of the sector inquiry was to allow the Commission to identify possible competition concerns in European e-commerce markets. During the inquiry, the Commission has gathered evidence from nearly 1 800 companies operating in e-commerce of consumer goods and digital content and has analysed around 8 000 distribution contracts.

Commenting on the report’s publication, Competition Commissioner Margrethe Vestager underlined that e-commerce had become important for consumers a significant impact on the business and corporate strategies. She argued however that companies and businesses in general should have the freedom to determine their sales strategies online.

At the same time, she added, antitrust authorities must ensure that they do not engage in anti-competitive business practices. These practices can prevent European consumers from reaping the full benefits of e-commerce in terms of greater choice and lower prices.

Short history

The European Commission launched an initial antitrust competition inquiry into the EU e-commerce sector in mid-2015. The inquiry’s aim was to identify possible competition concerns affecting European e-commerce markets and focus particularly on potential barriers erected by companies to cross-border online trade in goods and services. Most widespread spheres were electronics, clothing and shoes, as well as digital content. Knowledge gained would contribute to better enforcement of competition law in the e-commerce sector.

A year ago, Margrethe Vestager, European Commissioner in charge of competition mentioned that European citizens faced too many barriers to accessing goods and services online across borders. Quite notable that some of these barriers, she argued, were “created” by companies themselves.

The initial sector’s inquiry would determine how widespread these barriers were and what effects they have had on competition and consumers. If they were anti-competitive, the Commission promised to take enforcement action under EU antitrust rules and EU rules on restrictive business practices and abuse of dominant market positions (Articles 101 and 102 of the Treaty on the Functioning of the European Union - TFEU).

There are also indications that businesses themselves establish barriers to cross-border online trade; these barriers may include contractual restrictions in distribution agreements that prevent retailers from selling goods or services purchased online or cross-border to customers located in another EU country.

Source: http://europa.eu/rapid/press-release_IP-15-4921_en.htm

In March 2016, the Commission published initial findings on geo-blocking, which found that the practice was wide spread in e-commerce throughout the EU especially for digital content. More than 60% of the license agreements submitted by rights holders were limited to the territory of a single state. Almost 60% of responding digital content providers contractually agreed with right holders to geo-block.

The sector inquiry has found that 38% of the responding retailers selling consumer goods, such as clothes, shoes, sports articles and consumer electronics online use geo-blocking. For these products, geo-blocking mainly takes the form of a refusal to deliver abroad. Refusals to accept foreign payment methods, and, to a lesser extent, re-routing and website access blocks are also used. While a majority of such geo-blocking results from unilateral business decisions of retailers, 12% of retailers report contractual restrictions to sell cross-border for at least one product category they offer.

As regards online digital content, the majority (68%) of providers replied that they geo-block users located in other EU states. This is mainly done on the basis of the user’s internet protocol (IP) address that identifies and gives the location of a computer/smartphone. About 60% of the responding content providers indicated that they are contractually required by suppliers to geo-block. There are significant differences as regards the prevalence of geo-blocking between different digital content categories and EU states.

Source: http://europa.eu/rapid/press-release_IP-16-922_en.htm

Main present report’s findings

The new preliminary report published on 15 September 2016 identifies business practices that may raise competition concerns. The Commission may open case specific investigations to ensure compliance with EU rules on restrictive business practices and abuse of dominant market positions.

The Preliminary Report confirms the growing significance of e-commerce. The report indicates that more than half of EU adults have ordered consumer goods or services online in 2015, with the figure rising to more than eight in ten people in some EU states.

E-commerce is an important driver of price transparency and price competition, increasing consumers' choice and their ability to find the best deals. This transparency also works on the supply side: the report finds, e.g. that over half of retailers track competitors' prices and the vast majority responded to competitors' price changes.

The Preliminary Report also identifies certain business practices that may limit the online competition. The report should be a reason for companies to review their current distribution contracts and bring them in line with EU competition rules if they are not.

Online sale of consumer goods

Manufacturers have responded to the growth of e-commerce by adopting a number of practices in order to better control the distribution of their products and the positioning of their brands. Selective distribution systems in which the products can only be sold by pre-selected authorized sellers are used more widely and manufacturers increasingly sell their products online directly to consumers.

Manufacturers also increasingly use contractual sales restrictions in their distribution agreements. The report finds that:

· over two in five retailers face some form of price recommendation or price restriction from manufacturers;

· almost one in five retailers are contractually restricted from selling on online marketplaces;

· almost one in ten retailers are contractually restricted from submitting offers to price comparison web sites;

· over one in ten retailers report that their suppliers impose contractual restrictions on cross-border sales.

All these types of contractual sales restrictions may, under certain circumstances, make cross-border shopping or online shopping in general more difficult and ultimately harm consumers by preventing them from benefiting from greater choice and lower prices in e-commerce.

Digital content

The availability of licenses from the holders of copyrights in content is essential for digital content providers and a key determinant of competition in the market.

The report finds that copyright licensing agreements are complex and often exclusive. The agreements foresee what territories, technologies and release windows digital content providers can use.

If geo-blocking is the result of agreements between suppliers and distributors it may restrict competition in the Single Market in breach of EU antitrust rules. Any competition enforcement measure against geo-blocking would have to be based on a case-by-case assessment, which would also include an analysis of potential justifications for restrictions that have been identified.

The preliminary report is now open to public consultation for a period of two months to comment on the findings of the sector inquiry, submit additional information and raise further issues. The Commission expects to publish the final report in the first quarter of 2017.

http://europa.eu/rapid/press-release_IP-16-3017_en.htm