European Commission’s Digital Single Market Strategy Is Storming The Border Walls In E-Commerce

A View from Constantine Cannon’s London Office

By Yulia Tosheva and James Ashe-Taylor

The European Commission (“EC”) is taking aim at artificial restraints on cross-border online sales in the European Union with its launch of a formal investigation into e-commerce.

The antitrust investigation, which was opened on May 6, 2015, will focus on barriers to cross-border online trade in goods and services where e-commerce is most widespread such as electronics, clothing and shoes, as well as digital content.  The inquiry complements the EC’s wider Digital Single Market Strategy, which was adopted by the EC on May 6 as well.  The goal of the Digital Single Market is to ensure better access for consumers and businesses to digital goods and services across Europe, and create a level playing field for digital networks and innovative services.

The EC is concerned that online retailers may restrict cross-border online trade within the EU by deliberately creating technical and/or contractual barriers.  A recent report by the European Consumer Centres Network (ECC-net) showed that 32% of retailers cited contractual restrictions in their distribution agreements as the reason for refusing to supply services cross-border.  In another 2015 survey into wholesale and retail sales of goods and services in the EU, 19.1% of companies already active in cross-border e-commerce and 29% of companies that are not yet active, declared that suppliers’ restrictions affecting sales on online platforms either constituted or would constitute a problem for their businesses when selling online.

Currently, some 85% of Europeans buy their online products from sellers based in their own countries, according to Eurostat data.  Europe e-commerce sales are expected to reach $377 billion in 2015, roughly the same as in the U.S., according to the data provider eMarketer.  While there are many smaller European online retailers, large U.S. technology companies remain at the core of the EU online economy.  EU Competition Commission, Margrethe Vestager, said:

European citizens face too many barriers to accessing goods and services online across borders.  Some of these barriers are put in place by companies themselves.  With this sector inquiry my aim is to determine how widespread these barriers are and what effects they have on competition and consumers.  If they are anti-competitive we will not hesitate to take enforcement action under EU antitrust rules.

The inquiry will specifically focus on why prices allegedly vary so dramatically between the country-specific websites of multinational online retailers.  EU Competition Commission Vestager cited the example of a Netflix subscriber in Brussels, paying the same price as a British subscriber, but given access to a much smaller library of content than is available on the Netflix UK site.

In the coming weeks, the EC will send requests for information to content rights holders, broadcasters, manufacturers, online merchants and marketplace operators.  The EC plans to publish its preliminary report in mid-2016.  Then, following a public consultation on the preliminary report, the EC is expected to announce its final conclusions in the first quarter of 2017.  Depending on the findings, the EC and/or national competition authorities may initiate investigations against individual companies.

The EC has already taken action in the e-commerce sector.  Last year, Brussels opened a formal investigation involving major U.S. film studios and large European broadcasters and their licensing contracts.  It is also investigating pricing and cross-border trade restrictions for consumer electronics and the geo-blocking of video games sold online for use on personal computers.

– Edited by Gary J. Malone