Commission ups the ante on distribution antitrust
Distribution antitrust law covers the area of supply-chain agreements and is especially relevant in the context of relations between manufacturers and their distribution partners (retailers). Imposing restrictions on retailers as regards the resale of products is only permitted under certain conditions. Most notably, exerting influence on retailers’ resale prices (resale price maintenance) is prohibited, but there are also strict requirements when it comes to imposing restrictions on retailers in terms of customers, sales territory, and sales channels.
The German Federal Cartel Office has been very active in carrying out investigations in the area of distribution antitrust law for quite some time now. Most recently, in July 2017, it fined Peek & Cloppenburg and Wellensteyn International a total of EUR 10.9 million for resale price maintenance. Also in July 2017, the FCO published a guidance paper entitled “Resale Price Maintenance in the Food Retail Sector”.
The Commission, on the other hand, was for a long time quite reluctant to investigate the area of distribution antitrust law. This is now set to change. In its final report on the e-commerce sector inquiry the Commission announced its intention to forge ahead with the enforcement of EU competition rules in the area of distribution. It actually launched a number of investigations while the sector inquiry was still underway, and in June, i.e. shortly after the final report was published, another two, one against clothing manufacturer Guess and the other against Nike and Universal Studios.
At the same time, some landmark cases in the field of distribution antitrust are pending in German and European courts. Most notably, in Coty, the European Court of Justice is currently looking into the matter of whether manufacturers can prohibit their authorised retailers from selling via third-party online platforms (such as eBay and Amazon Marketplace). While the Federal Cartel Office has previously taken a very strict line on this, the European Court of Justice looks set to take a more lenient approach. In his Opinion, Advocate General Nils Wahl recommends that prohibitions on the use of third-party platforms should be allowed in selective distribution agreements or in the case of market shares of not more than 30%. The Court of Justice is often guided by the opinion of the Advocate General.
E-commerce sector inquiry
In May 2015 the Commission launched its sector inquiry into e-commerce, an inquiry to which the Commission devoted much time and effort. It gathered evidence from, among others, 1,051 retailers, 37 marketplaces, 89 price comparison tool providers, 259 manufacturers and 248 digital content providers. The recently published final report and the staff working paper that accompanies it summarise the inquiry’s most important findings. Conclusions can be drawn from the findings as to the areas in which the Commission sees the most need for action in the area of distribution antitrust law, but also as to the clauses that it is less strict on than the German Federal Cartel Office, for example.
- A large part of the report and paper is taken up by a discussion of restrictions on online selling and online advertising. The Commission points – hardly surprisingly – to the inadmissibility of resale price maintenance. It also takes a critical view of the monitoring of (online) retail prices, especially where this involves the use of software tools. It is furthermore interesting what the Commission has to say on dual pricing, i.e. the practice of charging retailers different prices for a product depending on whether they intend to resell the product online or offline. The Commission makes it clear that manufacturers are within their rights to charge different retailers different prices. The prohibition of dual-pricing systems relates (only) to the practice of charging one and the same retailer different prices for the same product for offline and online resale.
- The Commission does not consider restrictions on selling via online marketplaces to be inadmissible per se. In particular, it does not see (absolute) platform bans as hardcore restrictions and therefore takes the view that, generally speaking, they qualify for an exemption in the case of market shares of not more than 30%. The Commission’s line on this is in contrast to the more strict legal standpoint and practice of the Federal Cartel Office. It remains to be seen how the Court of Justice will decide in Coty.
- The Commission underlines how very important cross-border commerce is in the EU. It concludes from the sector inquiry that a large proportion of retailers are subject to geographical sales restrictions (e.g. an obligation to use geo-blocking software to block sales enquiries from internet u¬sers in other Member States). Restrictions of this kind are permitted within strict limits only. In particular, passive selling to end users must not be restricted, and within selective distribution systems, active selling to end users may not be restricted either. The Commission specifically states that within a selective distribution system extending across multiple Member States restrictions on sales to retailers in those EU Member States are not permitted. Where a manufacturer decides to introduce a selective distribution system in several EU Member States, it cannot prevent its authorised retailers in those states from cross-supplying to each other.
- The final report also mentions requirements imposed on retailers as regards the use of price comparison tools, on exclusivity and parity obligations as between retailers on the one hand and marketplaces/price comparison tools, on the other, and on restrictions on retailers as regards the use of online advertising tools (Google AdWords).
The Commission underlines its wish to press ahead with the enforcement of EU antitrust rules in the field of e-commerce based on the findings of the sector inquiry, and also announces its intention to ensure the consistent application of EU competition rules through a broader dialogue within the European Competition Network.
Exemplary, post-inquiry investigations
The Commission has since commenced several exemplary investigations, thereby giving emphasis to its announcement to press ahead with the enforcement of antitrust law in e-commerce.
Aside from agreements that limit retailers’ pricing freedom (e.g. the one opened on 2 February 2017 against consumer electronics producer ASUS), these investigations increasingly concern geographical sales restrictions, especially geo-blocking. In an investigation it opened on 6 June 2017, for example, the Commission accuses clothing manufacturer Guess of having prevented their authorised retailers from selling online to consumers or retailers in other Member States. In further cases involving several travel operators and hotels, the Commission is investigating whether agreements between them provide for price discrimination against consumers on the basis of their nationality or country of residence.
On 2 February 2017 the Commission also published a press release announcing the launch of investigations against game platform provider Valve and several video game publishers (Koch Media and others), again based on the allegation of geo-blocking. It allegedly appears that consumers were prevented from purchasing digital content from abroad on the basis of agreements between Valve and the video game publishers. Similarly, in the most recent investigations into Nike and Universal Studios, among others, the Commission is examining licensing and distribution practices that may possibly unlawfully prevent retailers from selling licensed merchandising products cross-border or online within the EU internal market.
Conclusions
The final report on the e-commerce sector inquiry and the investigations that have been launched over recent months show that the Commission is serious about enforcing antitrust law in the area of distribution. Geo-blocking is clearly currently a main focus of its attention. Even more than hitherto, companies must take care to ensure that their distribution agreements meet the antitrust requirements. The following points are especially important:
- Retailers must be free to set their own resale prices. Hybrid retailers, i.e. ones who sell their products through brick and mortar shops and online, may not be charged different prices for the two sales channels (unlawful dual pricing).
- Geographical sales restrictions and restrictions on the customers to whom a retailer may sell products are permitted only subject to strict conditions. Within a selective distribution system (including across several EU Member States) they are always prohibited.
- Manufacturers should revisit any requirements on retailers as regards their use of online platforms, price comparison tools, online advertising (Google AdWords), and the like, and take a closer look at these aspects. Depending on the outcome in Coty, manufacturers may be allowed to prohibit retailers from using online platforms. Using a brand for Google AdWords advertising, on the other hand, generally cannot be prohibited.
There is much anticipation around the outcome of the Commission’s ongoing investigations and the matter of whether the Commission decides to launch further investigations. The Court of Justice’s decision in Coty will also have a great impact in practice. For companies, the Commission’s recent measures have the advantage that they can expect the law to be applied more consistently in future. National competition authorities have hitherto differed on a number of issues. A greater degree of harmonisation here will give market players more certainty in the shaping of their contracts.
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