Key issues for digital product distribution and online sales in the EU Charles Bankes Peter Meyer Ombline Ancelin Ajit Kainth 10 May 2016
Agenda EU Digital Single Market Strategy Online distribution of digital content in the EU EU cases Geo-blocking Online distribution of consumer goods products in the EU VABER and EU Guidelines Examples of national enforcement France Germany 1 / L_LIVE_EMEA1:33424439v3
EU Digital Single Market strategy Adopted in May 2015 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 2 / L_LIVE_EMEA1:33424439v3
Part 1 Online distribution of digital content in the EU 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 Focus of recent cases on ensuring access to digital products/content throughout EU 3 / L_LIVE_EMEA1:33424439v3
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? 4 / L_LIVE_EMEA1:33424439v3
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 2014 Statement of objections sent in July 2015 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 5 / L_LIVE_EMEA1:33424439v3
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 6 / L_LIVE_EMEA1:33424439v3
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 7 / L_LIVE_EMEA1:33424439v3
Geo-blocking of consumer goods Respondents that have a contractual restriction to sell cross-border for each product category (Commission s Issue Paper) 8 / L_LIVE_EMEA1:33424439v3
Geo-blocking digital content Proportion of agreements requiring providers to geo-block by category Average for all respondents (Source: Commission s Issue Paper) 9 / L_LIVE_EMEA1:33424439v3
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 geoblocking 10 / L_LIVE_EMEA1:33424439v3
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 Where geo-blocking occurs due to agreements, we need to take a close look whether there is anticompetitive behaviour Commissioner Vestager Geo-blocking more prevalent in relation to digital content 11 / L_LIVE_EMEA1:33424439v3
Geo-blocking next steps Investigations The Pay TV case (ongoing) Other investigations possible Proposed legislation The e-commerce sector inquiry: Preliminary Report: mid-2016 Final Report: early 2017 Findings could feed into revision of the VABER in 2022 12 / L_LIVE_EMEA1:33424439v3
Part 2 Online distribution of consumer goods products in the EU Second focus of the sector inquiry into e-commerce Issues Paper (March 2016) only focuses on geo-blocking and geo-filtering practices but scope of the inquiry is wider Long debated topic to which the 2010 VABER and the 2010 Guidelines tried to give a clear legal answer but obviously failed given the numerous cases brought to courts at national level since then Unresolved questions in the VABER and Guidelines may call for a more direct enforcement by the EU Commission rather than by NCA so to ensure uniform interpretation of the law Criticisms raised about the various national approaches taken in the Hotel booking cases and use of MFNs 13 / L_LIVE_EMEA1:33424439v3
Online distribution of consumer goods products in the VABER and the 2010 Vertical Guidelines Same policy for off-line sales restrictions and on-line sales restrictions Active vs passive sales: passive sales cannot be prohibited = > the mere use of a website having effects that extend beyond the distributor s territory or customer group is passive selling Selective distribution: quality standards can be required Having one brick and mortar shop = exclusion of pure players Use of platforms only in accordance with the suppliers standards Restrictions of the quantity to be delivered to end-user 14 / L_LIVE_EMEA1:33424439v3
Online distribution of consumer goods products in the VABER and the 2010 Vertical Guidelines Pierre Fabre Case CJEU 2011 CJEU rules that prohibition of internet sales in a selective distribution agreement can be considered as a restriction by object when the clause is not objectively justified by the properties of the products No block exemption because amounts to a restriction of passive sales Individual exemption possible if conditions are met 15 / L_LIVE_EMEA1:33424439v3
Examples of national enforcement France Key cases on internet sales ban Bang & Olufsen 2013: 900,000 Euros fine for clause prohibiting selective distributors to sell online Court of Appeal 2014 confirms but states that individual exemption could have been granted if ban on online selling had only concerned complex and expensive high end products requiring demonstration of use in stores 16 / L_LIVE_EMEA1:33424439v3
France Key cases on sales through online platforms Caudalie cosmetics case: FCA decision 2007 : FCA validated clause prohibiting sales through online platforms at the stage of development Opinion on e-commerce (2012): marketplaces could satisfy quality requirements Samsung FCA case 2014: absolute prohibition of sales through online marketplaces may qualify as a restriction to passive sales (investigation ongoing) Adidas FCA closure of case November 2015 (cooperation with Germany): modification of the online marketing conditions to allow sales through online platforms Caudalie / e-nova, Court of Appeal decision February 2016 interim measures against e-nova, an online platform distributing its products CA overturned stating that e-commerce has changed and prohibition to sell through online marketplaces may constitute a restriction of competition 17 / L_LIVE_EMEA1:33424439v3
France what to look for? Geo-blocking So far FCA focused on absolute direct or indirect ban of online selling or sales through online market places Will the FCA focus on geo-blocking provisions? Cosmetics case 2007: the FCA noted that most of the cosmetics manufacturers investigated did not include geo-blocking clauses. Authorised distributors could sell EEA wide. In some cases, right to sell outside France was subject to translation of the website in the other country language and ability to deliver advice in said language EU Commission may be best placed to investigate such cases which impact cross-border trade within the EU 18 / L_LIVE_EMEA1:33424439v3
Germany Overview and Issues Strict approach of German Federal Cartel Office (FCO) may differ from that of other National Competition Authorities Highlighted by the Hotel booking platform cases FCO particularly active in relation to online distribution activity Various cases on FCO level and private enforcement actions 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 19 / L_LIVE_EMEA1:33424439v3
Germany Key cases on Online Distribution Price Differentiation and Resale Price Maintenance FCO fined manufacturers who introduced rebate schemes which favoured sales in brick and mortar stores over online sales Bosch Home appliances (2013) Gardena (2013) A distributor of bathroom fittings successfully challenged a double pricing through rebates in a private enforcement action FCO fined manufacturer of mattresses who warned distributors and ceased supply in cases distributors did not follow recommended resale price (October 2015) Manufacturer closely monitored online trade to find traders with lower prices 20 / L_LIVE_EMEA1:33424439v3
Germany Key cases on Online Distribution Platform prohibitions Various cases with regard to the 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), Sennheiser (2013) Manufacturers must not limit or restrict online sales without a good reason (Andreas Mundt, President of FCO) Backpacks/Perfums Distributors challenged ban of Platforms in private enforcement Some Higher Regional Courts followed the FCO approach and platform prohibitions to be hardcore restrictions in the sense of the VABER 21 / L_LIVE_EMEA1:33424439v3
Germany Key cases on Online Distribution Platform prohibitions (2) Higher Regional Court Frankfurt is in favour of legality of platform prohibition Reference to the ECJ (April 2016) with the following questions: 1. Can selective distribution systems which concern the distribution of luxury goods and primarily aim to ensure the luxury image of goods be seen as a feature of competition in accordance with Art. 101 (1) TFEU? 2. In case question is confirmed: Can it be a feature of competition in accordance with Art. 101 (1) TFEU if the members of a selective distribution system active on the retail level are generally prohibited to use identifiable third parties for online sales without having regard whether the legitimate quality criteria of the manufacturer are met or not in the individual case? 3. Is Art. 4 (b) of Reg (EU) 330/2010 to be interpreted that it is a restriction of the customer group by object of the retailers in case members of a selective distribution system active on the retail level are prohibited to use identifiable third parties for online sales? 4. Is Art. 4 (c) of Reg (EU) 330/2010 to be interpreted that it is a restriction of passive sales to end customers by object retailers in case members of a selective distribution system active on the retail level are prohibited to use identifiable third parties for online sales? 22 / L_LIVE_EMEA1:33424439v3
Germany Key cases on Online Distribution Best price clauses FCO investigated best price clauses or price parity clauses of hotel booking platforms such as HRS and booking.com HRS appealed the decision but the Appeal Court upheld the FCO s decision (January 2015) FCO pursued proceeding against booking.com and also prohibited the so-called narrow best price clause (December 2015) narrow clause was an amendment during the proceeding which 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 23 / L_LIVE_EMEA1:33424439v3
Germany what to look out for Increased activity in relation to dominance cases Google (2015) Ancillary copyright for publishers Google announced (during court proceedings) it would show search results only in a reduced form unless publishers agree to a free-of-charge use in order to avoid breaching the ancillary copy right FCO considers this to be an objective justification for Google's conduct Amazon/Audible and Apple (Proceedings opened in 2015) Regarding a 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 24 / L_LIVE_EMEA1:33424439v3
Germany what to look out for (2) Increased activity in relation to dominance cases Facebook Proceeding opened in March 2016 Interplay of competition law and data protection laws Investigation of a potential abuse of market power by Facebook as a result of infringing data protection rules FCO highlights that not every law infringement by a dominant undertaking is an abuse but user data are of utmost importance in Facebook s business model which may create a link between a dominant position and specific duties in relation to user data 25 / L_LIVE_EMEA1:33424439v3
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 26 / L_LIVE_EMEA1:33424439v3
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