On May 6, 2015, European Commissioner for Competition Margrethe Vestager announced that the European Commission (EC) competition directorate plans to conduct an 18-month "sector inquiry" into e-commerce. The inquiry will focus on barriers to cross-border online sales allegedly put in place by businesses to fragment the European single market and to stifle competition. Targets that can expect to receive a questionnaire include "holders of content rights, broadcasters, manufacturers, merchants of goods sold online, and the companies that run online platforms."1
Described by The New York Times as possibly an attempt to "throttle" American tech firms,2 the antitrust investigation is one of a volley of initiatives announced as part of the EC's far-reaching "Digital Single Market" strategy3 that seeks to: (1) ensure better access for consumers and businesses to digital goods and services across Europe; (2) create a level playing field and the right conditions for digital networks and innovative services to flourish; and (3) maximize the growth potential of the digital economy.
The precise contours of the antitrust sector inquiry are not yet known, but Commissioner Vestager has singled out4 three areas of e-commerce (electronics, clothes and shoes, and digital content) and one commercial practice (geo-blocking) as the primary candidates for in-depth review. In short, Commissioner Vestager is seeking to establish a level playing field by "making sure that the Digital Single Market is a place where all players—large and small—can compete on the merits of their products."5
It is expected that a first round of questionnaires will imminently be sent to stakeholders in these sectors and that the EC will fine-tune the scope of its investigation in the course of the next six months. The EC has indicated that it expects to publish a preliminary report for consultation in mid-2016 and a final report in Q1 2017.
What Mischief Is the EC Trying to Fix?
Commissioner Vestager likes to quote official Eurostat data showing that in 2014 around 50 percent of European citizens shopped online, but that less than one in six shopped online from a trader of goods or services based in another member state. She has expressed her frustration with the geo-blocking of digital content, whereby sellers prevent or restrict access to products or services depending on the location of the customer. A recent survey of European retailers also revealed that 32 percent cited contractual restrictions in their distribution agreements as the reason for refusing to supply goods or services across borders.
As a matter of policy, the EC is anxious to ensure that the benefits of the single market are available to all European consumers. The fact-finding phase of this new sector inquiry will allow the EC to examine copies of agreements between suppliers, intermediaries, value-added distributors, and retailers, and to collect financial and other strategic data from stakeholders to help it ascertain whether contractual arrangements or unilateral practices might run afoul of Europe's antitrust rules.
Why Is the EC Focusing on Electronics and Geo-Blocking?
The EC's decision to target the electronics industry appears to have been driven by the findings of a 2013 report that revealed that nearly 74 percent of all complaints about price or service discrimination in the European Union concerned electronic items, clothes, books, and music or data downloads.6 The EC settled an antitrust case involving e-books at the end of 2012,7 but having been sidelined in relation to various national investigations into online sales of certain goods and services, it has decided to turn the EU's spotlight on e-commerce.
Consumer complaints about the use of sophisticated automatic geo-location techniques (e.g., hard and soft redirection) to dissuade consumers from buying products from cheaper online retailers in other EU member states have encouraged the EC to earmark geo-blocking for critical antitrust review. This part of its inquiry will run in parallel with an ambitious legislative initiative to overhaul Europe's fragmented copyright regime and ultimately prohibit content providers from blocking cross-border access to content, such as apps, video, games, and music.
Will the Sector Inquiry Include Other Businesses?
Constraints on EC resources mean that it is possible that only corporations (suppliers and platform providers alike) involved in electronics and in "clothes and shoes," as well as companies active in businesses where geo-blocking is commonplace (notably digital content owners), will be hit with the first wave of questionnaires. Other corporations should, however, follow the inquiry carefully,8 as there is a better-than-even chance that the EC will in due course cast the investigatory net wider to catch other Internet-dependent parts of the economy and commercial practices other than geo-blocking.
How Will the Sector Inquiry Be Conducted?
Sector inquiries are predominantly in writing and can be data intensive. Corporations active in electronics, for instance, should expect to be required to disclose to the EC details of their distribution networks in Europe (both brick-and-mortar and over the Internet), the role of value-added distributors or service providers, their pricing strategies, the criteria used to distinguish buyers in one member state from another, and their Internet policies (including passive online sales). The EC will also request that the targets of the inquiry provide copies of their most significant commercial agreements with partners serving the European market.
Based on past experience with sector inquiries in the EU, enterprises should expect to receive one or more sets of follow-up questionnaires from the EC, as it ingests their replies to earlier questionnaires and explores how markets work in greater detail.
The deadlines to reply to questionnaires are likely to be tight—perhaps no more than four to six weeks—and there is a legal obligation on businesses (whether located in Europe or elsewhere) not to supply incorrect or misleading information, on pain of fines. While the exact scope of the inquiry is currently unclear, past sector inquiries, which have sometimes been criticized as "fishing expeditions," indicate that respondents will need to devote significant resources to the investigation.
What Are the Implications for Businesses Targeted by the Sector Inquiry?
The e-commerce investigation is not the first of its kind and there is no presumption that the businesses that will be consulted by the EC have infringed Europe's antitrust rules. However, the experience of practitioners who worked on the inquiries into pharmaceuticals or the energy sector is that, having published its interim findings, the EC will then identify a handful of arrangements or types of conduct that it believes harm competition and bring test cases to persuade corporations to amend their commercial agreements and change their business practices. We expect the EC to follow broadly the same course in the e-commerce investigation, which could force corporations to change the way they do business online.
