European Union: Restrictions of Online Sales

Introduction

The Digital Single Market constitutes one of the European Commission (EC)’s key political priorities through which it seeks to improve access to cross-border e-commerce for consumers and businesses throughout the European Union.[2] In this context, the EC: (1) has intensified the enforcement of competition law vis-à-vis practices related to online sales; and (2) is in the process of updating and modernising the applicable legislative framework[3] as well as creating new legislative instruments[4] with a view to better addressing the needs arising out of the increased use of online trade. These initiatives assume additional importance given the exponential growth of online sales in the backdrop of the covid-19 health crisis.

Against this background, this Chapter:

  • analyses the current state of the law and summarises the latest decisional practice concerning: (1) online sales restrictions and third-party platform bans; (2) dual pricing in online sales; and (3) resale price maintenance (RPM) in online sales;
  • provides an overview of the latest changes brought forward by the revised draft VBER, the accompanying Vertical Guidelines and the proposed DMA; and
  • unbundles the key provisions under the Geo-blocking Regulation and reconciles the relevant case law in the field.

Analysis of restrictive practices

Online sales restrictions and third-party platform bans

Outright bans on internet sales constitute by object restrictions of competition within the meaning of Article 101(1) TFEU and correspond to hardcore constraints under the VBER. Such practices survive antitrust scrutiny only where the four criteria under Article 101(3) TFEU are cumulatively met.

The Court of Justice of the EU (CJEU) first addressed restrictions on online sales through its judgment in Pierre Fabre. Members of Pierre Fabre’s selective distribution system were required to sell cosmetics and personal care products only at brick and mortar stores and in the presence of a trained pharmacist:[5]

  • The CJEU held that a general and absolute ban on internet sales in the context of a selective distribution network constitutes a restriction of competition by object within the meaning of Article 101(1) TFEU. The CJEU reasoned that such a ban ‘considerably reduces the ability of an authorised distributor to sell the contractual products to customers outside its contractual territory or area of activity. It is therefore liable to restrict competition in that sector.’
  • The CJEU further held that the restriction in question could not be justified on the basis of any safety and public health grounds and that maintaining a prestigious image does not qualify as a legitimate aim for limiting competition.
  • The CJEU also found that the measures under review could not benefit from the VBER. A general internet ban operates as a limitation on active and passive sales within the meaning of Article 4(c) of the VBER.
  • The CJEU nonetheless left it open that such measures could benefit from the individual exemption under Article 101(3) TFEU.

Online sales restrictions also constitute a high priority for national enforcers.

By way of example, in 2018, the UK Competition Appeal Tribunal (CAT) found against an online sales ban imposed by the golf club manufacturer Ping[6] and upheld CMA’s infringement decision of 2017.[7] Ping relied on its long-standing practice of offering face-to-face custom fitting and prevented retailers in its selective distribution system from selling golf clubs online. First, the CAT sided with the CMA and found that the online sales ban under review amounted to a by object restriction of competition, as it: (1) restricted consumers’ access to retails outside their local area; and (2) reduced or even removed the ability and incentives of retailers to compete over business through the internet. Second, the tribunal considered that the imposed restriction was not justified since Ping could still compete with other manufacturers on non-price parameters even absent the ban. Third, the tribunal dismissed Ping’s argument that the CMA had erred in finding the ban as disproportionate and considered that the alternative measures proposed by the CMA would not damage Ping’s brand image. Last, but not least, the CAT held that the ban in question could not be exempted pursuant to Article 101(3) TFEU.

Third-party platform bans

Marketplace bans do not constitute hardcore restrictions of competition within the meaning of the VBER. According to the EC, such practices ‘do not generally amount to a de facto prohibition on selling online or restrict the effective use of the internet as a sales channel’.[8]

The CJEU assessed the legality of third-party platform bans on the occasion of its judgment in Coty.[9] The case arose out of a request for a preliminary ruling posed by the Frankfurt Court of Appeal. Coty, a producer of luxury cosmetics in Germany, disseminated its products through a selective distribution system. Parfümerie Akzente, an authorised distributor, sold Coty’s products through different channels including its own online shop and Amazon Germany. Coty revised the terms of its selective distribution system and allowed its authorised distributors to make online sales only through ‘electronic shop windows’. Conversely, sales through third-party undertakings not previously authorised by Coty, such as online marketplaces, were banned. Coty argued that this updated policy was necessary to protect the luxurious nature of its cosmetics products and by extension its brand value.

Faced with these facts, the CJEU reasoned first that selective distribution systems for luxury goods are compatible with Article 101(1) TFEU so long as these meet the criteria under the Metro case-law.[10] The CJEU applied these conditions to the facts of the case and confirmed that these were indeed met.

First, the CJEU considered that the nature of the products in question justified the organisation of their sales through a selective distribution system. In so doing, the CJEU:

  • affirmed, in line with its previous case law under Copad, that the quality of luxury goods is not just the result of their material characteristics but also encompasses their ‘aura of luxury’.[11] Consequently, any impairment of the product’s luxury aura can negatively affect consumers’ perception on their corresponding quality; and
  • clarified that Paragraph 46 of its previous judgment under Pierre Fabre[12] must be read in the light of the context of that judgment and related solely to the goods at issue and the contractual clause in question in that case (i.e., a prohibition of online sales) rather than the selective distribution system in its entirety or selective distribution in general.

Second, the CJEU held that the measure under review was appropriate since:

  • the restriction sought to ensure that the goods in question would be exclusively associated with the authorised distributors;
  • the marketplace was not bound by contractual obligations of any sort obliging them to respect the manufacturer’s specific quality sales conditions; and
  • sales through third-party platforms are generally liable to harm products’ luxury image.

Third, the CJEU also found that the measures under review were proportionate, to the extent that:

  • these did not amount to absolute bans on internet sales; and
  • any pre-defined quality sales conditions could not be effective alternatives to achieve the aims pursued.

Last but not least, the CJEU provided guidance on how to approach online marketplace bans where the Metro criteria are not met and Article 101(1) TFEU is therefore applicable. The CJEU found in this connection that marketplace bans do not amount to hardcore restrictions of competition and can therefore benefit from the VBER. This is so for two reasons:

  • First, such bans do not exclude online sales entirely. They restrict certain specific types of internet sales while sales through their individual web shops or non-discernible third-party platforms remain possible.
  • And second, third-party platform customers are not a definable customer group within the meaning of Article 4(b) VBER. Hence, marketplace bans do not exclude sales to a certain category of customers as a whole.

The CJEU’s reasoning in Coty is convincing on the face of the facts of the case. However, the court left a number of issues unresolved especially concerning the scope of the judgment’s application. It therefore comes as little surprise that different national enforcers have taken diverging views on how to substantiate the notion of luxury goods as well as whether the CJEU’s findings under Coty apply beyond luxury products.[13] The revised Vertical Guidelines are expected to resolve at least some of the issues still outstanding in the backdrop of the Coty judgment and bring long awaited and much anticipated clarity into this field of the law.

Dual pricing

Dual pricing under EU competition law in general

Dual pricing, outside the online sales context, mainly concerns practices through which manufacturers price products differently depending on the geographic market where these are sold. Such practices seek to discourage cross-border sales – no rational consumer would ever enter into a cross-border transaction for a product priced cheaper in their domestic market – and essentially amount to export bans inhibiting parallel trade contrary to the common market objective. Dual pricing measures constitute by object restrictions of competition, which are nonetheless capable of meeting the Article 101(3) criteria.

Dual pricing and online sales

The current Vertical Guidelines define dual pricing as practices through which ‘the distributor [shall] pay[s] a higher price for products intended to be resold by the distributor online than for products intended to be resold off-line’ and classify relevant practices as hardcore restrictions.[14]

The Vertical Guidelines recognise that dual pricing may qualify for individual exemption under Article 101(3) TFEU where ‘online sales lead to substantially higher costs for the manufacturer than sales made off-line’. The Vertical Guidelines provide the example of increased complaints and warranty claims resulting from the fact that online sales do not, as a general rule, include home installation services offered by the distributor.[15]

Moreover, the Vertical Guidelines allow sellers to award customers a fixed fee to support their sales efforts irrespective of whether these are online or offline so long as the advanced sum is predetermined and does not increase depending on the turnover realised through each sales channel.[16]

The relevant decisional practice regarding dual pricing in the field of e-commerce mainly comes from the national level.

The first type of dual pricing cases concerns setting a different wholesale price for the same product to the same retailer depending on whether the resale channel is online or offline. In 2013, the Bundeskartellamt investigated the rebates schemes of Gardena[17] and Bosch Siemens Hausgerate,[18] which favoured offline sales, and reached the preliminary conclusion that these practices constituted hardcore restraints of competition. The enforcer was not prepared to accept that the said measures were justified pursuant to Article 101(3) TFEU and the investigations closed with the entities in question committing to lift any discriminatory elements from their rebate schemes.[19]

The second type of dual pricing case concerns setting a different wholesale price for the same product to different retailers some of which may be present only online. The EC recently clarified that such practices do not qualify as hardcore restrictions and that this classification is only applicable to dual pricing concerning the same retailer.[20]

The most recent enforcement activity in this field comes from the French Competition Authority (FCA).[21] Lego implemented a discount policy that de facto put its online retailers at a disadvantage. The applicable rebate scheme system offered additional discounts to reward certain qualitative physical store features, such as extra shelf space for example. Naturally, pure online resellers could not have access to these discounts. This practice amounted to dual pricing since Lego essentially charged pure offline or hybrid dealers a better sales price post-discount compared to pure online resellers.

The FCA considered first that the said scheme was capable of constituting an anticompetitive agreement. It then reached the preliminary conclusion that although the agreement did not amount to a by object restriction of competition or a hardcore restraint it was nonetheless ‘likely to have anti-competitive effects, by disadvantaging the pure players and reducing the competitive pressure they could exert’. Importantly, the FCA did not see any objective justification for the price differentiation and held that Lego had failed to demonstrate that its pricing scheme was indispensable and proportionate to the objectives of building awareness of the brand among children, ensuring the availability of products and the quality of the overall shopping experience. Following the above, Lego agreed to change its rebate system and the investigation was closed based on the company’s commitments.

RPM

RPM under EU competition law in general

Article 101(1)(a) TFEU specifically prohibits agreements that ‘directly or indirectly fix purchase or selling prices or any other trading conditions’.

Moreover, Article 4(a) of the VBER excludes from the exemption agreements that include:

the restriction of the buyer’s ability to determine its sale price, without prejudice to the possibility of the supplier to impose a maximum sale price or recommend a sale price, provided that they do not amount to a fixed or minimum sale price as a result of pressure from, or incentives offered by, any of the parties.

This covers all behaviour on the part of the seller intended to constrain the buyer to resell the contract products at or above a certain price. Paragraph 48 of the Vertical Guidelines gives a useful list of provisions that are tantamount to price maintenance.[22] The EC also refers to indirect measures and ‘supportive’ measures, such as price monitoring and reporting schemes, the operation of which tends to indicate price maintenance.

Paragraph 224 of the Vertical Guidelines refers elaborately to the anti­competitive effects following from RPM practices.[23] The Vertical Guidelines nonetheless recognise that there are situations where RPM restrictions may indeed be justified pursuant to Article 101(3) TFEU.[24] By way of example, it can be legitimate to impose RPM for a short period in the context of the promotion of a new product.

RPM and online sales

Algorithms and other electronic surveillance technologies further facilitate RPM practices in online sales and exacerbate the anticompetitive impact resulting therefrom. The relevant technologies: (1) allow prices to be automatically adopted and adjusted ensuring that the imposed RPM is followed at all times; and (2) render monitoring compliance with any imposed RPM practices easier and hence increase any corresponding sanctioning. This explains why RPM practices in the e-commerce field have recently come under the enforcers’ spotlight.

On 24 July 2018, the EC closed its investigation on consumer electronics manufacturers Asus, Denon & Marantz, Philips and Pioneer by imposing a total fine of €111 million.[25] The EC found that the infringing parties had limited price competition among retailers ‘by restricting the ability of their online retailers to set their own retail prices for widely used consumer electronics products such as kitchen appliances, notebooks and hi-fi products’, leading to an increase in consumer prices. The use of algorithms to implement and enforce the RPM practices under review was a central piece of the EC’s analysis. As the EC explained at the time the investigation was opened:

The effect of these suspected price restrictions may be aggravated due to the use by many online retailers of pricing software that automatically adapts retail prices to those of leading competitors. As a result, the alleged bevahiour may have had a broader impact on overall online prices for the respective consumer electronics products.[26]

Similarly, NCAs have been increasingly active in investigating and sanctioning RPM practices in online sales.

By way of example, in May 2016 the CMA fined a supplier of commercial refrigeration equipment over £2 million[27] and a bathroom fittings manufacturer over £780,000[28] for preventing retailers from advertising or selling products online below a certain price. The CMA held that these practices in essence restricted retailers’ freedom to set the price for online sales individually and, therefore, amounted to illegal RPM.

Following these cases, the CMA published further guidance on restrictions of online resale prices in the form of an open letter, noting the growing importance of online sales channels and reiterating that the CMA ‘takes resale price maintenance seriously and is focused on tackling anti-competitive practices that diminish the many benefits of e-commerce’.[29]

In June 2017, the CMA fined a supplier of domestic light fittings £2.7 million for having dictated the minimum prices at which its resellers could sell products online.[30] National Lighting Company’s agreements with its resellers prevented the sale of its Endon and Saxby brands below a certain minimum at the retail level. The infringing agreements were not memorialised in writing. Resellers nonetheless understood these restrictions as being a necessary condition and part of the agreement they entered into with the National Lighting Company allowing them to use the manufacturer’s brand and image.

The CMA continued to focus on RPM-related practices during 2019 and 2020:

  • In August 2019, the CMA fined the digital piano and keyboard supplier Casio £3.7 million for online resale price maintenance infringements over a five-year period between February 2013 and April 2018.[31]
  • In January 2020, the CMA fined guitar maker Fender Musical Instruments Europe Limited and its US parent company, Fender Musical Instruments Corporation, £4.5 million.[32]
  • In June 2020, the CMA fined Roland, a supplier of electronic drum kits, and Korg, a supplier of synthesisers and high-tech music equipment, £4 million and £1.5 million respectively.[33]
  • Later in June 2020, the CMA also fined retailer of musical instruments GAK £278,945.[34]

VBER revision

The EC is currently in the process of revising the VBER, due to expire on 31 May 2022. In this context, the EC published on 9 July 2021 a revised draft of the VBER and its accompanying Vertical Guidelines and put this up for public consultation and comments until 17 September 2021.[35]

The revised draft of the VBER introduces a number of key changes concerning online sales including the following:

Online sales restrictions

The revised draft VBER now defines hardcore online sales restrictions as restrictions:

which directly or indirectly, in isolation or in combination with other factors, ha[ve] as [their] object to prevent the buyers of their customers from effectively using the Internet for the purposes of selling their goods or services online or from effectively using one or more online advertising channels.[36]

The revised Guidelines also make sure to provide examples of hardcore online sales restrictions other than the obvious outright bans.[37]

Marketplace bans

The revised draft Guidelines clarify the position vis-à-vis marketplace bans in a number of ways. First, they define marketplaces as online platforms, which connect merchants and potential customers with a view to enabling direct purchases.[38] Second, the EC explains that marketplace bans do not amount to hardcore restrictions since they do not ban online sales altogether but just limit certain modalities thereof. Marketplace bans constitute hardcore restrictions only where these essentially prevent the effective use of the internet a sales channel.[39] Third, the EC seizes the opportunity to end the debate on the correct application of the Coty judgment. The draft Guidelines expressly stipulate that online marketplace restrictions may be block exempted provided that the relevant market share thresholds are met irrespective of the nature of the products concerned.[40]

Dual pricing

Dual pricing can now benefit from the safe harbour exception so long as the relevant restrictions aim to incentivise or reward an appropriate level of investment and related to the costs incurred for each sales channel.[41] Moreover, the draft Guidelines remove the principle of equivalence between offline and online sales. Paragraph 221 recognises that online and offline sales bear different characteristics and hence the criteria imposed by suppliers vis-à-vis the sales of each may differ.

The EC will review the input provided in response to the public consultation and will finalise the new rules by May 2022. The final version of the revised VBER is not expected to depart fundamentally from the released draft. The new rules will enter into force on 1 June 2022 and will be effective until 31 May 2034.

Concurrently, the CMA is also reviewing the Vertical Agreements Block Exemption Regulation, which was retained under UK law following the UK’s exit from the EU (retained VABER) with a view to making a recommendation to the Secretary of State (SoS) on whether, and if so how, to replace the retained VABER upon its expiry in May 2022. The CMA held stakeholder roundtables during Spring 2021 and subsequently launched a consultation on its proposed recommendation to the SoS. The CMA’s proposal for a Vertical Agreements Block Exemption Order (VABEO) takes a similar approach as the EC concerning the intended revisions on the online sales rules.[42]

The DMA

Another important development in the field of e-commerce, is the EC’s proposal for a Digital Markets Act (DMA).[43]

The DMA intends to focus on the market conduct of digital gatekeepers, namely providers of core online platform services with: (1) a strong economic position, significant impact on the internal market and activity in multiple EU countries; (2) a strong intermediation position, meaning that they link a large user base to a large number of businesses; and (3) an entrenched and durable position in the market, meaning that they are stable over time.[44] The DMA sets forth an exhaustive list of ‘online platform services’, which includes online search engines, online intermediation services, online social networking services, video-sharing platforms, operating systems, interpersonal communication services, cloud computing and advertising.[45]

Article 5 of the draft DMA sets forth a number of straightforward practices gatekeepers must clearly refrain from.[46] Moreover, Article 6 of the draft DMA provides a list of obligations that need to be further specified depending on the different core platform services on offer.[47]

Interestingly, the DMA requires gatekeepers to inform the EC of any contemplated M&A activity involving another provider of core platform services or digital services irrespective of whether the proposed transaction is reportable under the applicable EU or Member State merger control regime.[48]

The DMA allows the EC to take enforcement actions similar to those concerning the application of its antitrust rules. The EC may, therefore, initiate formal investigations, conduct on-site inspections, send out requests for information, adopt infringement decisions and impose fines, order the application of interim measures and accept commitments in relation to infringements of the DMA.[49]

The CMA has been moving along similar lines. In 2019, the CMA published its Digital Markets Strategy setting out its priorities in the field[50] following which it undertook an in-depth market study into online platforms and digital advertising in July 2020[51] and announced its intention to introduce stricter regulation of digital players in November 2020.[52] In this context, the CMA set up in April 2021 a specialised Digital Markets Unit charged with overseeing a new pro-competition regulatory regime for digital platforms with strategic market status (SMS) as well as monitoring the competitive conditions prevailing in digital markets more widely.[53]

The developments set out above reflect the enforcers’ intention to supplement the current regime based on the ex post application of competition law rules as a means to ensure a level-playing field in digital markets with an ex ante system of regulating the market conduct of key players. This observation naturally reinforces the strategic importance of digital markets for both the EC and the CMA and as a matter of fact for our current economy. It will be interesting to see the interplay of these two parallel enforcement systems in practice.

Geo-blocking and geo-filtering

What is geo-blocking and geo-filtering?

Geo-blocking encompasses various practices through which online sellers restrict cross-border sales based on consumers’ nationality, residence or place of establishment. Frequently, online sellers allow consumers to access and purchase goods or services cross-border, but nonetheless extend different terms or conditions if the customer is in a different Member State (geo-filtering).

Geo-blocking may take different forms including but not limited to:

  • blocking access to websites of users located in another Member State;
  • automatically rerouting users to another website of the same or a different service provider (possibly with a different price);
  • reusing the delivery of goods or services based on the user’s location or place of residence;
  • refusing certain payment methods based on geographic criteria related to the location of the user, their bank account or their banking institution.

It clearly follows from the above that such practices essentially constitute a form of discrimination based on unjustified geographic criteria: online sellers treat EU consumers differently for reasons related to the users’ nationality, place of residence or establishment.

By blocking or, at the very least, restricting EU consumers’ access to cross-border trade, the said practices de facto amount to geographical market segmentation and hence contravene the EU’s core free movement principles as well as the digital single market objective.

The EC’s Final e-Commerce Sector Inquiry Report published in May 2017 documented the extensive use of geo-blocking: 38 per cent of the responding retailers selling consumer goods online and 68 per cent of the responding digital content providers affirmed that have made recourse to geo-blocking measures.[54]

EU Regulation 2018/302

In this context, the EU adopted on 28 February 2018 Regulation 2018/302 (the Geo-blocking Regulation), which entered into force on 22 March 2018 and became applicable as of 3 December 2018.

The Geo-blocking Regulation seeks to remove unwarranted, discriminatory restrictions to users’ access to cross-border trade and services and obliges online sellers to treat similarly situated EU consumers in the same manner irrespective of their nationality, place of residence or establishment.

Scope

The Geo-blocking Regulation, as it currently stands, excludes from its scope the following industries:

  • audiovisual services, including services providing access to film and television content;
  • financial services; and
  • transport-related services.[55]

Non-audiovisual electronically supplied services protected by copyright such as music, e-books and games generally fall within the Regulation’s ambit[56] subject to the certain exceptions discussed below.[57]

That said, the EC recently reviewed the application of the Geo-blocking Regulation pursuant to Article 9. In so doing, it considered the possibility of extending its scope to also encompass audiovisual services and fully cover copyright­-protected content.[58] The EC identified the clear benefits following from the availability of a wider choice of audiovisual content across the EU and found that the details and conditions for extending the Regulation’s content in this direction must be further assessed in the context of a stakeholder dialogue with the audiovisual sector. Conversely, the EC concluded that extending Article 4 of the Geo-blocking Regulation to also capture online copyrighted content would not bring additional benefits to consumers in terms of access to new content. The catalogues of online content available throughout the EU are generally homogenous.

Last but not least, the Geo-blocking Regulation applies to:

  • business-to consumer (B2C) transactions; and
  • business-to-business (B2B) transactions so long as these:
    • are conducted on the basis of general conditions (i.e., are not individually negotiated); and
    • are intended for end-use (i.e., are made without the intention to resell, transform, process, rent or subcontract).

The key features under the Geo-blocking Regulation

Access to online interfaces (Article 3)

Article 3 of the Geo-blocking Regulation prohibits traders from:

  • blocking access to their interfaces (websites or apps) for reasons related to the customer’s nationality, place of residence or establishment; and
  • rerouting users to an interface different than the one the customer initially sought access to, by virtue of its layout, use of language or other characteristics that make it specific to customers with a particular nationality, place of residence or establishment, unless the customer has explicitly consented to such redirection.

Non-discrimination in access to goods and/or services (Article 4)

Traders are obliged to grant users access to goods and services under the same conditions as those applied to local, national customers (‘shop like a local’) vis-a-vis:

  • the sale of goods with delivery or pick up in an area already served by the trader;
  • the sale of electronically supplied services (such as cloud services, data warehousing and website hosting); and
  • the sale of services provided in a specific physical location, including when booked online (such as ticketing services, accommodation and car rental services).

Importantly, Article 4 does not currently apply to non-audiovisual electronically supplied services protected by copyright (such as e-books, video games, music and software). These services, nonetheless, remain subject to the rest of the Regulation’s prohibitions. As discussed previously, the EC is currently assessing the possibility of extending the scope of the Regulation as part of its short-term review.

Non-discrimination for reasons related to payments (Article 5)

Traders are free to choose the means of payment (i.e., credit cards, debit cards, card-based payment instruments of the same brand and category of cards) they make acceptable through their online websites or platforms and apps. They are nonetheless inhibited from discriminating against customers who use the acceptable payment methods based on unjustified geographic criteria (i.e., customer’s nationality, place of residence or place of establishment, the location of the payment account, the place of establishment of the payment service provider or the place of issue of the payment instrument). Discriminatory practices may take various forms including refusing certain transactions – such as by refusing to accept certain cards – or applying different payment conditions – by way of example by implementing additional transaction costs – for any of the reasons listed just above. The non-discrimination prohibition under Article 5 applies provided that: the said payments are made: through electronic transactions; in a currency accepted by the trader; and pursuant to applicable authentication requirements.

Agreements on passive sales (Article 6)

Article 6 renders as outright null and void any vertical arrangements prohibiting traders from responding to unsolicited requests from consumers throughout the EU (passive sales) in the specific situations covered by the Regulation. This is an absolute prohibition irrespective of the trader’s market position.

Recent enforcement activity in the field

Geo-blocking practices in the field of video games

On 2 February 2017, the EC launched an investigation into Valve, owner of the online PC gaming platform Steam, and five video game distributors (Bandai Namco, Capcom, Focus Home, Koch Media and ZeniMax) for violations of geo-blocking rules. The EC concluded on 20 January 2021, that the investigated undertakings had restricted the cross-border sales of certain PC video games on the basis of the geographical location of users and imposed a total fine of €7.8 million.[59] More specifically, the EC found that:

Valve and the publishers had entered into bilateral agreements and/or concerted practices through which they restricted the cross-border purchases of certain video games for the period from September 2010 to October 2015. The parties implemented geo-blocking keys to bar the activation of specific video games outside certain Member States. They therefore prevented passive sales in the regions where activation was blocked.

Certain publishers introduced clauses in their licensing and distribution agreements with some of their respective PC video games distributors in the EEA (other than Valve) restricting passive sales within the EU from March 2007 until November 2017.

Geo-blocking practices in the field of TV broadcasting

On 13 January 2014, the EC opened an investigation into possible restrictions affecting the provision of pay-TV services within the EU. More specifically, the EC took the preliminary view that certain clauses in film licensing contracts for pay-TV between Paramount (among other studios) and Sky UK were in breach EU antitrust rules since they:

  • required Sky UK to block access to Paramount’s films through its online pay-TV services or through its satellite pay-TV services to consumers outside its licensed territory (UK and Ireland); and
  • required Paramount to ensure that broadcasters outside the UK and Ireland were prevented from making their pay-TV services available in the UK and Ireland.

The EC considered that these provisions essentially restricted the ability of broadcasters to accept unsolicited requests for their pay-TV services from consumers located outside their licensed territory. Concomitantly, the EC took the preliminary view that each of Disney, NBCUniversal, Sony, 20th Century Fox and Warner Bros had put in place similar contractual restrictions in their agreements with Sky UK. On its part, Paramount offered commitments to ban and no longer enforce the territorial protection provisions in question. The EC adopted its commitments decision on 26 July 2016.[60] Disney, NBCUniversal, Sony, 20th Century Fox and Warner Bros refrained from offering any commitments until 2018. The EC eventually adopted a commitments decision vis-à-vis these undertakings in March 2019.[61] By way of reminder, EC commitments decisions do not establish a positive infringement finding and do not hold addresses liable for any breach of EU competition rules. It is important to highlight in this connection that audiovisual content is outside the scope of the Geo-blocking Regulation as it currently stands.

On 8 December 2016, French TV broadcaster Canal+ challenged the EC commitments decision on Paramount arguing before the General Court that the EC had violated its intervention rights as an interested third party. On appeal, the CJEU sided with Canal+ and annulled the EC’s decision on procedural grounds related to the way in which Paramount’s proposed commitments were accepted.[62] The CJEU held, among others, that when analysing commitments in the context of Article 9, the principle of proportionality requires that the EC verifies that the remedies correspond to its preliminary competition concerns; and takes into account the interests of third parties.

The CJEU went on to reason that the EC needs to verify whether any proposed commitments are proportionate vis-à-vis the contractual rights of implicated third parties and held that any failure to do so cannot be remedied by any review undertaken by national courts on a domestic level.

Following the CJEU’s judgment, the EC withdrew its commitments decision in March 2021.[63] Paramount is now released from its obligation not to enforce and introduce into the EEA absolute territorial bans, including geo-blocking restrictions. This now aligns the status of the case law with the actual scope of the Geo-blocking Regulation, which expressly excludes audiovisual services and content from its scope.


Notes

1 Stephen Mavroghenis is a partner and Zena Prodromou is a senior associate at Quinn Emanuel Urquhart & Sullivan, LLP.

3 See below on the revision of the Vertical Block Exemption Regulation (VBER).

4 By way of example, see below on the proposal for a Digital Markets Act (DMA) and the enactment of the Geo-blocking Regulation.

5 Case C-439/09 – Pierre Fabre Dermo-Cosmétique SAS, EU:C:2011:649 (Pierre Fabre).

6 Ping Europe Limited v. Competition and Markets Authority, [2018] CAT 13. Further upheld by the Court of Appeal in Ping Europe Limited v. Competition and Markets Authority [2020] EWCA Civ 13.

7 Decision of the CMA in Ping, Case No. 50230.

9 Case C-230/16 – Coty Germany GmbH v Parfümerie Akzente GmbH, EU:C:2017:941 (Coty).

10 The organiser of a selective distribution system must demonstrate that: (1) the nature of the products concerned necessitates selective distribution in order to preserve their quality and ensure their proper use; (2) the restrictions are laid down uniformly for all resellers and are not applied in a discriminatory way; and (3) they are proportionate.

11 Case C-59/08 – Copad, EU:C:2009:260.

12 Pierre Fabre, Paragraph 46: ‘The aim of maintaining a prestigious image is not a legitimate aim for restricting competition and cannot therefore justify a finding that a contractual clause pursuing such an aim does not fall within Article 101(1) TFEU.’

13 See, for example, Decision of the FCA in Dammann Frères 20-D-20 cf Decision of the German Federal Court of Justice in Asics, KVZ 41/17.

14 Paragraph 52 of the Vertical Guidelines.

15 ibid., at Paragraph 64.

16 ibid., at Paragraph 52.

17 Gardena awarded discounts to its retailers calculated based on the distribution channel used for the sale of products. The BKA found that this staggered system of discounts amounted to illegal dual pricing because the reductions were structured in such a way that only brick and mortal retailers could benefit from the full discount.

18 Similarly Bosch’s rebate system put hybrid dealers, namely dealers who sold household appliances in both a brick a mortal shop and via online shops, at a disadvantage compared to pure offline dealers. Bosch awarded a smaller amount of discount for sales achieved through online channel.

19 Decision of the BKA in Gardena, B5-144/13; Decision of the BKA in Bosch Siemens Hausgerate B7-11/13.

20 See above.

21 Decision of the FCA in Lego, 21-D-02.

22 Such measures include: fixing a distributor’s or buyer’s margin, capping possible discounts by the buyer and linking sales prices to those of competitors.

23 The Vertical Guidelines identify that RPM practices may, among others, facilitate collusion between suppliers by enhancing price transparency in the market, thereby making it easier to detect whether a supplier deviates from the collusive equilibrium by cutting its price; eliminate intra-brand price competition, and also facilitate collusion between the buyers (i.e., at the distribution level); soften competition between manufacturers or between retailers, in particular when manufacturers use the same distributors to distribute their products and RPM is applied by all or many of them; prevent distributors from lowering their sales price for that particular brand; lower the pressure on the margin of the manufacturer, in particular where the manufacturer has a commitment problem; be implemented by a manufacturer with market power to foreclose smaller rivals; and reduce dynamism and innovation at the distribution level.

24 Paragraph 225 of the Vertical Guidelines. In essence, if the promotion of a new product is materially facilitated by investments being made by retailers, these retailers would likely not make those investments if they were not protected from price competition at least in the short term.

25 Decision of the EC in Asus, AT. 40465; Denon & Marantz, AT. 40469; Philips, AT. 40181; and Pioneer, AT. 40182.

26 European Commission, Antitrust: Commission opens three investigations into suspected anticompetitive practices in e-commerce (2 February 2017), available at: https://ec.europa.eu/commission/presscorner/detail/en/IP_17_201.

27 Decision of the CMA in ITW Limited infringed, Case CE/9856-14. In the commercial catering equipment case, the supplier imposed a ‘minimum advertised price’ (MAP) policy that restricted the price at which retailers could advertise the supplier’s product online. It enforced this MAP policy by threatening dealers who advertised below this minimum price with higher cost prices for products or seize of supply altogether.

28 Decision of the CMA in Ultra, Case CE/9857-14. In the bathroom fittings case, the manufacturer threatened retailers with penalties for not pricing at or above a ‘recommended’ online price as set out in previously circulated ‘online trading guidelines’. Enforcement threats included charging retailers with higher prices, withdrawing rights to use the supplier’s images online or withholding supply of products altogether. In addition to the guidelines, Ultra introduced a new copyright licensing procedure according to which use of Ultra’s imagery by resellers was subject to separate licensing. Ultra argued that the rationale for introducing the aforementioned measures was to protect its brand value and to address poor quality service by online retailers. The CMA concluded that these objectives were at most subsidiary to the overall goal of protecting reseller’s margins and reiterated that ‘maintaining a prestigious image is not a legitimate aim for restricting competition’.

30 Decision of the CMA in National Lighting Company Limited, Case 50343.

31 Decision of the CMA in Casio, Case 50565-2. The CMA concluded that Casio required its online resellers to advertise and sell Casio products at or above a minimum price and prohibited them from offering online discounts. Casio monitored the policy using software and threatened to withdraw marketing contributions and other incentives where resellers failed to comply.

32 Decision of the CMA in Fender, Case 50565-3. The CMA found that Fender required its online resellers to sell guitars above a minimum price and took retaliation measures against non-compliant counterparties.

33 Decision of the CMA in Roland, Case 50565-5 and Korg, Case 50565-4. The infringing entities restricted online retailers from selling their musical instruments below a set minimum price and used price monitoring software to monitor real time pricing and ensure their online retailers’ compliance. Interestingly, both companies had taken steps to conceal evidence of their infringing conduct.

34 Decision of the CMA in GAK, Case 50565-6. GAK had admitted to the CMA its agreement with Yamaha not to discount the online price of certain Yamaha musical instruments below a minimum price. Yamaha was granted total immunity from fines for being the first to bring the conduct to the attention of the CMA, whereas GAK settled the case. This was the first time the CMA took enforcement action against a retailer, rather than a supplier, in an RPM case.

36 Revised draft VBER, Article 1(1)(n).

37 Relevant examples include: forcing distributors to prevent customers located in another territory from viewing its website or to automatically re-route its customers to the manufacturer’s or other distributors’ websites; requiring distributors to terminate consumers’ online transactions once their credit card data reveal addresses outside the distributors’ territory; obliging distributors to seek suppliers’ prior authorisation for selling online; not allowing distributors to use the supplier’s trademarks or brand names on their websites; directly or indirectly prohibiting distributors from using a specific online advertising channel, such as price comparison tools or advertising on search engines. Revised draft Guidelines, Paragraph 192.

38 Revised draft Guidelines, Paragraph 313.

39 ibid., Paragraphs 188 and 196.

40 ibid., Paragraph 316.

41 Revised draft Guidelines, Paragraph 159.

42 See https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/994552/VBER_recommendation_2021_consultation_with_annexes_170621_FINAL.pdf. The CMA recommends that dual pricing and imposing criteria for online sales that are not overall equivalent to those imposed in brick-and-mortar stores in a selective distribution system should not constitute hardcore restrictions of competition. Interestingly, the CMA also considers that any guidance accompanying the VABEO should shed further light on how to distinguish between active and passive online sales.

43 See https://ec.europa.eu/info/strategy/priorities-2019-2024/europe-fit-digital-age/digital-markets-act-ensuring-fair-and-open-digital-markets_en and proposal-regulation-single-market-digital-services-digital-services-act_en.pdf (europa.eu). The proposal was tabled on 15 December 2020.

44 Proposed DMA, Article 3(1).

45 ibid., Article 2(2).

46 Practices under Article 5 include: combining personal data from their core platform services with data from any other sources offered by the same gatekeeper or with personal data from third-party services; restricting business users from contracting with end-users outside of the gatekeepers’ eco-systems; and requiring business users to use, offer or interoperate with any identification service of the gatekeeper in the context of providing its services via the relevant gatekeeper’s core platform services.

47 Obligations susceptible to being further specified under Article 6 include the duties to: allow the installation and effective use of third-party software applications or software application stores using, or interoperating with, operating systems of that gatekeeper and allow these software applications or software application stores to be accessed by means other than the core platform services of that gatekeeper (interoperability); refrain from self-preferencing practices; allow end users to uninstall any pre-installed software applications on its core platform (unbundling); provide business users and third parties with access to date, including consumer data ‘provided for or generated in the context of’ their use of core platform services (data access); and provide effective portability of data generated through the activity of a business user or end-user (data portability).

48 ibid., Article 12(1).

49 ibid., Chapter V.

55 Geo-blocking Regulation, Paragraphs 8–9.

56 ibid., at Paragraph 8.

57 ibid., Article 4.

59 Decision of the EC in Focus Home, AT.40413; Koch Media AT.40414; ZeniMax AT.40420; Bandai Namco, AT.40422; Capcom, AT.40424.

60 Decision of the EC in Case AT.40023 - Cross-border access to pay-TV dated 26 July 2016.

61 Decision of the EC in Case AT.40023 - Cross-border access to pay-TV dated 7 March 2019.

62 C-132/19 P - Groupe Canal+ v. Commission, EU:C:2020:1007.

63 Decision of the EC in Case AT.40023 - Cross-border access to pay-TV dated 31 March 2021.

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