Distribution in the New Digital World: The EU s Digital Single Market Strategy. Peter Meyer George Morris Ajit Kainth

Transcription

1 Distribution in the New Digital World: The EU s Digital Single Market Strategy Peter Meyer George Morris Ajit Kainth 26 May 2016

2 Introduction Different digital distribution models Digital single market strategy EU sector inquiry into e-commerce sector Geo-blocking initial findings EU and national cases on distribution of digital content

3 Different digital distribution models Models of digital distribution focus around two core areas: Digital distribution of digital content Digital enablement of distribution of physical products Distribution can be undertaken in two key ways: Direct manufacturer controls its own distribution Indirect manufacturer / producer sells wholesale to distributors / publishers which run their own distribution channels

4 Examples of different distribution models Direct distribution of digital content: BBC iplayer Google Play Store app (in respect of Google-produced apps) Indirect distribution of digital content: Steam / Playstation Store / Xbox Games Store Spotify / YouTube Direct digitally-enabled distribution of physical products Indirect digitally-enabled distribution of physical products Amazon Shop App Very.co.uk

5 EU Digital Single Market strategy Adopted in May One of the three key pillars is improved access to cross border e- commerce for consumers and businesses across Europe. Includes legislative proposals E-commerce sector inquiry launched in May 2015 Geo-blocking

6 Legal framework Existing EU competition law toolkit still relevant The 2010 VABER and EU Guidelines remain useful guidance. Territorial restrictions that grant absolute territorial protection are likely to be object restrictions. Passive versus active sales. Selective distribution - Pierre Fabre Case CJEU 2011 Focus of recent cases on ensuring access to digital products/content throughout EU

7 Background - Geo-blocking Ongoing antitrust sector inquiry into the e-commerce sector Initial findings published on 18 March 2016 Followed a large scale public consultation Included an Issues Paper on Geo-blocking Set out the Commission s definition of geo-blocking and key findings from data collected Geo-blocking prevents users from accessing/purchasing consumer goods/digital content services online based in location/place of residents

8 Geo-blocking the Commission s initial findings Geo-blocking is widespread throughout the EU. Consumer goods 38% of responding retailers geo-block Common types of geo-blocking measures identified Geo-blocking often justified Online digital content 68% of providers geo-block Usually on the basis of IP address 59% of providers are contractually required by suppliers to geo-block

9 Geo-blocking of consumer goods Respondents that have a contractual restriction to sell cross-border for each product category (Commission s Issue Paper)

10 Geo-blocking digital content Proportion of agreements requiring providers to geo-block by category Average for all respondents (Source: Commission s Issue Paper)

11 Variation in prevalence of geo-blocking Significant variation in the prevalence of geo-blocking practices in different Member States and product categories. This is especially the case in relation to online digital content. Subscription and transaction based services, for example, were generally subject to heightened geo-blocking. UK online digital content service providers were particularly prone to geo-blocking.

12 Geo-blocking implications of the report Unilateral conduct Limiting sales to territories or customer groups Not dominant unlikely to be problematic Restrictions imposed within distribution agreements May be problematic, Can be tackled by existing competition enforcement tools Geo-blocking more prevalent in relation to digital content. Where geo-blocking occurs due to agreements, we need to take a close look whether there is anticompetitive behaviour Commissioner Vestager

13 Geo-blocking next steps Investigations The Pay TV case (ongoing) Other investigations possible Proposed legislation including a proposed Regulation on geo-blocking announced on 25 May The e-commerce sector inquiry: Preliminary Report: mid-2016 Final Report: early 2017 Findings could feed into revision of the VABER in 2022

14 Recent EU cases - C-429/08 Murphy ECJ judgment on preliminary reference from English High Court. Involved importation of satellite decoder devices from one Member State to another Football Association Premier League could still grant rights on a territorial basis based on copyright rules. ECJ ruling basis of European Commission investigation into Pay TV?

15 Recent EU cases - Pay TV case European Commission is investigating film distribution contracts between Sky UK and the six major US movie studios. Case started in January Statement of objections sent in July Allegation of absolute territorial exclusivity being given to Sky UK and/or other broadcasters. Reliance on copyright laws to refute Commission s case. Paramount Studios offered commitments in April 2016.

16 Germany Overview and Issues Strict approach of German Federal Cartel Office (FCO) FCO particularly active in relation to online distribution activity Main issues: Price differentiation between products sold online and in stores Platform prohibitions sales via third party websites Best price guarantees - HRS and booking.com cases

17 Germany Key cases on online distribution Price Differentiation and Resale Price Maintenance FCO fined manufacturers which introduced rebate schemes which favoured offline sales A distributor of bathroom fittings successfully challenged double pricing through rebates in a private enforcement action FCO fined a mattress manufacturer which warned distributors and ceased supply where distributors did not follow the recommended resale price

18 Germany Key cases on online distribution Platform prohibitions Ban of sales over certain platforms such as Amazon Marketplace or ebay FCO opened various investigations and manufacturers changed their online distribution system, e.g. ASICS (August 2015), Adidas (2014) Manufacturers must not limit or restrict online sales without a good reason (Andreas Mundt, President of FCO) Backpacks/Perfumes Distributors challenged platform prohibitions in private enforcement Some Higher Regional Courts followed the FCO approach: platform prohibitions are hardcore restrictions in the sense of the VABER

19 Germany Key cases on online distribution Platform prohibitions (2) Higher Regional Court Frankfurt is in favour of legalising platform prohibition Reference to the ECJ (April 2016) on this issue Court seeks guidance on the requirements of the VABER Clarify the legal situation for selective distribution in particular on luxury goods

20 Germany Key cases on online distribution Best price clauses FCO investigated best price clauses of hotel booking platforms such as HRS and booking.com Appeal Court upheld the FCO s decision against HRS FCO pursued proceeding against booking.com and also prohibited the so-called narrow best price clause (December 2015) Booking.com modified clauses to allow offering of cheaper rooms on other platforms but prevented the hotels from offering lower priced deals on their own websites FCO took a stricter view than other European authorities on this issue

21 Germany what to look out for Increased activity in relation to dominance cases Amazon/Audible and Apple (proceedings opened in 2015) Concerns long-term agreement on the purchase of audiobooks by Apple Both undertakings hold strong positions in the market for digital audiobooks Close review of agreement between competitors audiobook publishers need to have sufficient alternative channels for the sale of their digital audiobooks

22 Germany what to look out for (2) Increased activity in relation to dominance cases Facebook and Data Privacy Abuse of market power by Facebook by infringement of data privacy? FCO highlights that not every infringement is an abuse, but user data are of utmost importance for Facebook s business model which may create a link between a dominant position and specific duties in relation to user data Amazon Concerns have been voiced that Amazon becomes the main market place Manufacturers cooperate with Amazon which may lead to discrimination of retailers (platform prohibitions) Keep other platforms as viable alternatives in the market

23 Conclusion What lies ahead The competition law issues surrounding distribution in a digital world remain a topical issue. Likely to see legislative changes and enforcement action. Changing of business practices. Pitfalls to avoid going forward.

24 Key Contacts Peter Meyer Partner George Morris Associate Sign up to elexica and receive TMT legal updates and resources: elexica.com Ajit Kainth Supervising Associate Follow us on

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