Ongoing Competition Enforcement Actions Arising Out of the European Commission’s E-Commerce Market Study

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Author: Luis Blanquez

In our prior article, we discussed the European Commission’s final report of its study of the EU’s e-commerce market for consumer goods and digital content.

In this article we describe EU investigations and enforcement actions that arose from the EC’s final e-commerce market study. While the final report itself offers companies doing business in the EU helpful guidance, the Commission’s actual conduct is perhaps an even better indicator of how the EC will implement what it learned.

Since the European Commission published its Final Report, it has opened investigation of about 20 companies.

Below is a summary of the relevant cases that the EC recently opened. We expect additional cases in the future in this area, both at EU and national level.

Geo-blocking cases

Video Games

On February 2, 2017, the EC opened an investigation to analyze bilateral agreements between Valve Corporation, owner of the Steam game distribution platform, and five PC video game publishers:  Bandai Namco, Capcom, Focus Home, Koch Media and ZeniMax.

This investigation concerns geo-blocking practices, where companies prevent consumers from purchasing digital content, in this case PC video games, because of the consumer’s location or country of residence.  After the purchase of certain PC video games, users need to confirm that their copy of the game is not pirated to be able to play it.  This is done with an activation key.

The investigation focuses on whether such agreements require the use of activation keys for the purpose of geo-blocking.

Clothing Company, Guess

On June 6, 2017, the EC opened an investigation against clothing manufacturer Guess.  The EC is analyzing whether Guess’s distribution agreements impose cross-border sales restrictions on (i) retailers making online sales to consumers in other Member States, (ii) or wholesalers, selling to retailers in other Member States.

Interestingly, as a result, other clothing manufacturers such as Mango, Oysho and Pull&Bear have now started to review and revise their distribution agreements.  Other companies, such as coffee machine manufacturer De Longhi, and photo equipment manufacturer Manfrotto, are doing the same (See here).

Hotel Pricing Discrimination

On February 2, 2017, the EC opened another investigation into hotel accommodation agreements between the largest European tour operators on the one hand: Kuoni, REWE, Thomas Cook and TUI, and Meliá Hotels on the other hand.

The EC encourages hotels to develop and introduce innovative pricing mechanisms to maximize room usage.  But the EC is concerned that these agreements may contain clauses that discriminate among customers based on their nationality or country of residence.  As a result, customers may not be able to see the full hotel availability, or book hotel rooms at the best prices, simply because of the consumer’s nationality or place of residence.

Licensed Merchandising Products

On June 14, 2017, the EC opened more investigations into the licensing and distribution practices of Nike, Sanrio and Universal studios.  These three companies license intellectual property rights to manufacturers of merchandising products such as the Fútbol Club Barcelona, Hello Kitty and Minions merchandise, respectively.

The EC is concerned that these companies, in their role as licensors of rights for merchandising products, may have restricted the ability of their licensees to sell licensed merchandise cross-border and online.

Resale Price Maintenance cases

Consumer electronics manufacturers

The EC has opened another investigation against Asus, Denon & Marantz, Philips and Pioneer.  In this case, the EC is concerned that the companies involved might be restricting the ability of online retailers to set their own prices for widely used consumer electronics products such as household appliances, notebooks and hi-fi products.

This is the first resale price maintenance case that the EC has initiated in a long time.  Instead, the Member States themselves have scrutinized resale price maintenance at national level during the last decade.

Germany, for example, has recently published a new guidance note on resale price maintenance. The Competition and Markets Authority (“CMA”) in the UK also published additional guidance on these types of pricing agreements in the form of an open letter, a film, a 60-second summary, and  case studies.

Indeed, the CMA recently fined National Lighting Company (NLC), a light fittings supplier, £2.7 million for restricting online prices. They also sent out warning letters to others in the industry.  In 2016, the CMA also fined two other online companies for resale price maintenance practices: Ultra Finishing Limited (“Ultra”) in the Bathroom fittings sector and ITW Limited in the commercial refrigeration sector.

Most Favored Nation (“MFN”) Clauses / Price Parity Clauses

The EC has been familiar with MFN clauses for a while now.

In 2015, it investigated the use of MFN clauses in its eBooks Decision, concerning agreements between Apple and eBook publishers.

More recently, in May 2017, the EC accepted Amazon’s commitments in its E-book investigation, concerning agreements between Amazon and eBook publishers.  Amazon’s MFN clauses required publishers to inform Amazon about more favorable terms or conditions offered to Amazon’s competitors and to offer Amazon similar terms and conditions.  The EC concluded that the cumulative effect of such clauses made it harder for other e-book retailers to compete with Amazon by developing new and innovative products and services.

In April 2017, the EC and ten national competition authorities published a report on competition in the online hotel booking sector.

The report assesses the effects of the antitrust enforcement measures adopted in recent years in this sector.

On the one hand, online travel agents use “wide parity clauses” in their contracts with hotels.  These clauses force hotels to offer the online travel agent the lowest room prices and best room availability relative to all other sales channels.

On the other hand, there are also “narrow parity clauses”, which allow hotels to offer lower room prices and better room availability on other online travel agents and offline sales channels, but still prevent hotels from publishing lower room prices on their own websites.

Based on the results, the European Competition Network has agreed to keep the online hotel booking sector under review and to eventually re-assess the competitive situation.

Additionally, at the national level, several competition authorities in the EU have also challenged the use of MFN clauses in the online hotel bookings sector.

Digital Content and Licensing Cases

Restrictions affecting cross border provision of pay TV services

Formal antitrust proceedings are currently ongoing against major U.S. film studios and a large European pay-TV broadcaster.

The EC is investigating whether certain provisions of licensing agreements for broadcasting by satellite or through online streaming between US film studios and the major European broadcasters, granting “absolute territorial protection,” infringe EU Competition rules.

Paramount

The EC has already made commitments offered by Paramount, one of the US film studios involved, legally binding under EU Competition rules.

These address the Commission’s concerns about certain clauses in film licensing contracts for pay-TV between Paramount and Sky UK.

These clauses prevented Sky UK from allowing EU consumers outside the UK and Ireland to access films via satellite or online.  They also required Paramount to ensure that broadcasters other than Sky UK could not make their pay-TV services available in the UK and Ireland.

Paramount has now committed that it will not enforce these clauses in existing film licensing contracts for pay-TV with any broadcaster in the European Economic Area (EEA).  It has also committed to refrain from (re)introducing such clauses in film licensing contracts for pay-TV with any broadcaster in the EEA.

 

These cases and investigations are just a start. We anticipate that the European Commission will continue its active course in these areas over the next several years.

photo credit: Glyn Lowe Photoworks. The European Commission – Berlaymont Building via photopin (license)