European Union: Impact of New Competition Regime on the Digital Single Market
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The digital single market constitutes one of the key political priorities of the European Commission (EC) through which it seeks to improve access to cross-border e-commerce for consumers and businesses throughout the European Union. To achieve its ambitions, the EC:
- has intensified the enforcement of competition law with regard to restrictive practices relating to online sales; and
- has been updating and modernising the applicable legislative framework as well as creating new legislative instruments with a view to lessening and ultimately removing barriers impeding the increased use of online trade.
These initiatives have greater import given the exponential growth of online trade as a result of the covid-19 pandemic.
It is against this background that 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 changes brought forward by the revised Vertical Block Exemption Regulation (the new VBER), the accompanying revised Guidelines on Vertical Restraints (the new Vertical Guidelines) and the Digital Markets Act (DMA); and
- unbundles the key provisions of the Geo-Blocking Regulation while reconciling the relevant case law.
Regulatory regime on vertical restraints
On 10 May 2022, the EC published its new VBER and new Vertical Guidelines, which entered into force on 1 June 2022. The new legislation will be valid for 12 years with an evaluation report after eight years. The new VBER provided also for a transitional period for agreements that were already in force until 31 May 2023.
The EC’s revisions to the previous regime reflect changes in market dynamics and the platform economy since the VBER was adopted in 2010 and come after an extensive public consultation process that began in 2019. The final version of the new VBER and Guidelines follows an earlier draft published by the EC in July 2021.
One of the main objectives of the revisions was to provide up-to-date guidance on online restrictions and ensure a harmonised approach across the European Union, as the previous set of rules did not offer sufficient clarity. As a result, national authorities and courts had interpreted the prior legal framework with wide discretion, which often led to contradictory and inconsistent enforcement practices.
The new VBER and Guidelines have brought welcome clarity in some areas, such as the rules relating to exclusive and selective distribution and online sales restrictions. However, in other areas uncertainty remains, especially with regard to the new online sales hardcore restriction. Given the sift law nature of the Guidelines, national authorities and courts will undoubtedly still have the propensity to interpret the rules in a manner that might not always be consistent with the views expressed by the EC.
Analysis of restrictive practices
Online sales restrictions
Outright bans on internet sales constitute by-object restrictions of competition within the meaning of Article 101(1) of the Treaty on the Functioning of the European Union (TFEU) and correspond to hardcore constraints under the new 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 European Union (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.
- 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. It 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) VBER.
- The CJEU nonetheless left it open whether 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 (prior to Brexit), the UK Competition Appeal Tribunal (CAT) found against an online sales ban imposed by the golf club manufacturer Ping and upheld the Competition and Markets Authority’s (CMA) infringement decision of 2017. 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.
The CAT’s findings are as follows:
- First, the CAT, siding with the CMA, found that the online sales ban under review amounted to a restriction of competition by object, as it (1) restricted consumers’ access to retailers 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 CAT 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 CAT 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.
Online sales restrictions under the new VBER
Contrary to the old VBER, which did not explicitly mention online sales, the new VBER introduced a new category of defined hardcore restrictions with regard to online sales. In particular, Article 4(e) identifies as a hardcore restriction any vertical agreement that, directly or indirectly, has as its object ‘the prevention of the effective use of the internet by the buyer or its customers to sell the contract goods or services, as it restricts the territory into which or the customers to whom the contract goods or services may be sold’.
Permissible exemptions to this hardcore restriction are (1) other restrictions of online sales, such as restrictions intended to ensure the quality or appearance of the buyer’s online store and requirements regarding the display of the goods or services; and (2) restrictions of online advertising that do not have the object of preventing the use of an entire online advertising channel. Essentially, resellers must not be banned from using the internet as a sales or advertising channel.
The new Guidelines make sure to provide guidance and examples of hardcore online sales restrictions other than the obvious outright bans; nevertheless, some uncertainty remains. For instance, because restricting the effective use of the internet is now a hardcore restriction, there is a necessity to conduct an individual assessment to ascertain whether a restriction has as its object the effective use of the internet. Not only does the requirement leave meaningful interpretative room on what restrictions – other than the obvious – would prevent the effective use of the internet, but also it seems to defeat the purpose of a block exemption, which is to provide an automatic safe harbour without the need for an individual assessment.
Although the EC has not yet shed any more light on this, its recent practice reaffirms the EC’s broader focus on preventing online sales restrictions. In particular, in January 2022, the EC opened formal proceedings into possible anticompetitive conduct by Pierre Cardin and its licensee Ahlers. Most recently, in July 2023, the EC sent them a statement of objections and informed them of its preliminary view that they had breached antitrust rules by restricting the ability of other Pierre Cardin licensees and their customers to sell Pierre Cardin-licensed clothing, both offline and online, to protect Ahlers’ absolute territorial protection in countries covered by Ahlers’ EEA licensing agreements with Pierre Cardin. As the investigation is still ongoing, and bearing in mind the change in the vertical restraints regime in the meantime, it remains to be seen how the EC will assess the companies’ behaviour.
Third-party platform bans
Marketplace bans do not constitute hardcore restrictions of competition within the meaning of both the old and the new 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 irrespective of the markets concerned’.
The CJEU assessed the legality of third-party platform bans in its judgment in Coty. 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 as long as these meet the criteria under the Metro case law. It 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 its sales through a selective distribution system. In so doing, it:
- 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’. Consequently, any impairment of the product’s luxury aura can negatively affect consumers’ perception of their corresponding quality; and
- clarified that Paragraph 46 of its previous judgment under Pierre Fabre 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 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 an absolute ban on internet sales, and any predefined 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 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.
- Second, third-party platform customers are not a definable customer group within the meaning of Article 4(b) of the old 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 surface; 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 strikingly diverging views on how to substantiate the notion of luxury goods, as well as on whether the CJEU’s findings under Coty apply beyond luxury products. Fortunately, the new Vertical Guidelines have addressed some of the issues identified in the judgment, including clarifying the position regarding marketplace bans in a number of ways.
- First, they define marketplaces as online platforms that connect merchants and potential customers with a view to enabling direct purchases.
- Second, the EC explains that a restriction or ban of sales in online marketplaces concerns the manner in which the buyer may sell online and does not restrict sales to a particular territory or customer group. While such a ban restricts the use of a specific online sales channel, other online sales channels remain available to the buyer; therefore, marketplace bans do not amount to hardcore restrictions as long as they do not ban online sales altogether but just limit certain modalities of online sales.
- Third, seizing the opportunity to end the debate on the correct application of the Coty judgment, the new Vertical 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 or the distribution regime. The EC also provides guidance for the case-by-case assessment of online marketplace restrictions where the market share thresholds provided for in the VBER are exceeded.
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 geographical market where the products are sold. Such practices seek to discourage cross-border sales – no rational consumer would 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 under the old regime
The old Vertical Guidelines defined dual pricing as a practice 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 classified such relevant practices as hardcore restrictions. The relevant decisional practice regarding dual pricing in the field of e-commerce mainly comes from national competition authority decisions.
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 and Bosch Siemens Hausgerate, 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 measures were justified pursuant to Article 101(3) TFEU, and the investigations closed with the investigated companies committing to removing the offending provisions.
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 applicable only to dual pricing concerning the same retailer.
The most recent enforcement activity in this field comes from the French Competition Authority (FCA). 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. Naturally, purely online resellers could not have access to these discounts. This practice amounted to dual pricing since Lego essentially charged purely offline or hybrid dealers a better sales price post-discount compared with purely online resellers.
The FCA considered first that the 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 anticompetitive 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 and 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.
Dual pricing under the new regime
The EC’s review of the old VBER and the old Vertical Guidelines concluded that online sales have now grown into a well-operating sales channel that no longer requires special protection compared with offline sales channels. As a result, the new Vertical Guidelines stopped treating dual pricing as a hardcore restriction.
In particular, Paragraph 209 recognises that the ‘requirement that the buyer pays a different wholesale price for products sold online than for products sold offline’ can benefit from the block exemption, as ‘it may incentivise or reward an appropriate level of investments in online or offline sales channels, provided that it does not have the object of restricting sales to particular territories or customers’.
Dual pricing is considered a hardcore restriction only where the difference in the wholesale price for products sold online has the objective of preventing the effective use of the internet by the distributor to sell the contract goods or services to particular territories or customers. The EC further explains that this would be the case where the difference in wholesale price makes selling online unprofitable or financially unsustainable, or where dual pricing is used to limit the quantity of products made available to the buyer for sale online.
The new Vertical Guidelines also abandoned the principle of equivalence between offline and online sales. Paragraph 235 recognises that within the context of a selective distribution system, a supplier ‘may impose on its authorised distributors criteria for online sales that are not equivalent to those imposed for sales in brick and mortar shops’ as long as the lack of equivalence in the criteria imposed does not ‘indirectly have the object of preventing the effective use of the internet by the buyer to sell the contract goods or services to particular territories or customers’. The purpose of the revised text is to take account of the specific characteristics of the two sales channels, as, often, criteria that are important for one cannot be implemented in the other respective channel.
Parity obligations or most favoured nation clauses (MFNs) require a party to offer the same or better terms to its counterparty than those it offers in any other sales or marketing channel, such as a third-party platform or its own sales channel. In particular, the EC distinguishes between ‘wide’ and ‘narrow’ MFNs; the former restrict suppliers from offering better terms on all of their sales channels and on third-party competing platforms, whereas the latter restrict suppliers from offering better terms on their own direct sales channel but allow them to offer better terms through other sales channels.
Under the old VBER, all types of parity obligations were block-exempted. On the contrary, the new VBER narrows down the scope of the safe harbour by providing that ‘across-platform retail parity obligations’ (i.e., ‘any direct or indirect obligation causing a buyer of online intermediation services not to offer, sell or resell goods or services to end users under more favourable conditions via competing online intermedia services’ can no longer benefit from a block exemption and need to be assessed on an individual basis under Article 101 of the TFEU. Under the new regime, all other parity obligations, including narrow MFNs, will continue to benefit from the block exemption. Although Paragraph 253 of the new Vertical Guidelines provides more detail on the nature of the across-platform retail parity obligations, it would seem that the new regime has created a degree of uncertainty, as businesses and, particularly, online intermediation services and platform operators now need to assess whether their parity clauses meet the requirements of the new regime or whether they should be subject to a case-by-case analysis.
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 new VBER specifically excludes from the block 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 that is intended to constrain the buyer to resell the contract products at or above a certain price. Paragraph 187 of the new Vertical Guidelines gives a non-exhaustive list of practices that are tantamount to price maintenance. The EC further refers to practices the combination of which tends to indicate price maintenance, such as coupling a resale price recommendation with incentives to apply a certain price level. The new Vertical Guidelines also provide specific guidance on setting minimum advertised prices, which is considered a form of RPM.
Paragraph 196 of the new Vertical Guidelines explains how RPM restricts intra-brand or inter-brand competition by setting out the anticompetitive effects following from RPM practices. The new Vertical Guidelines also recognise that there are situations where RPM restrictions may lead to efficiencies and be justified pursuant to Article 101(3) TFEU. 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, which therefore increases 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 into consumer electronics manufacturers Asus, Denon & Marantz, Philips and Pioneer by imposing a total fine of €111 million. 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 behaviour may have had a broader impact on overall online prices for the respective consumer electronics products.
Similarly, national competition authorities 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 and a bathroom fittings manufacturer over £780,000 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 RPM seriously and is focused on tackling anti-competitive practices that diminish the many benefits of e-commerce’.
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. 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 in 2019 and 2020.
- In August 2019, the CMA fined the digital piano and keyboard supplier Casio £3.7 million for online RPM infringements over a five-year period between February 2013 and April 2018.
- 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.
- 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.
- Later in June 2020, the CMA also fined retailer of musical instruments GAK £278,945.
In the same vein, RPM practices in online sales have also been on the radar of the FCA. In November 2021, the FCA fined the video surveillance manufacturer Mobotix and its wholesalers €1.4 million for fixing resale prices through a minimum advertised prices policy of video surveillance devices and for restricting the sale of these products online.
UK approach to vertical restraints
Concurrently with the EC’s consultation on the old VBER and the Vertical Guidelines, the CMA and the Department for Business, Energy & Industrial Strategy (BEIS) also reviewed the Vertical Agreements Block Exemption Regulation (VABER), which was retained under UK law following the United Kingdom’s exit from the European Union (the retained VABER). In May 2022, BEIS published the final version of the Vertical Agreements Block Exemption Order (VABEO), which came into force on 1 June 2022 and will be in effect for six years, until 31 May 2028.
In July 2022, the CMA also published its guidance on the application of the VABEO to help businesses assess their vertical agreements and determine whether they benefit from the block exemption provided by the VABEO. Although the VABEO closely mirrors the EC’s new rules, there are a number of points of divergence. Consequently, businesses operating in both the United Kingdom and the European Union will have to consider both regimes.
Another important development in the field of e-commerce is the adoption of Regulation 2022/1925 of 14 September 2022 on contestable and fair markets in the digital sector, the DMA. On 24 March 2022, the European Council and the European Parliament reached a provisional agreement on the DMA proposal. On 5 July 2022, the European Parliament approved the final text of the DMA, followed by the European Council’s approval on 18 July 2022. The Regulation applied as of 2 May 2023. The EC also adopted on 14 April 2023 the Implementing Regulation, which details the procedural aspects relating to the implementation and enforcement of the DMA, including the right for parties to be heard and to access the file. The purpose of the Implementing Regulation is to provide legal certainty on procedural rights and obligations to the companies concerned. The Implementing Regulation also entered into force on 2 May 2023.
The DMA lays down harmonised rules aimed at regulating the behaviour of digital platforms that act as ‘gatekeepers’. It represents a significant shift of regulatory powers from ex post antitrust intervention to ex ante regulation in the form of a set of self-executing obligations imposed on those gatekeepers, namely providers of core platform services with a significant impact on the internal market, a core platform service that is an important gateway for business users to reach end users, and an entrenched and durable position in the market.
The DMA also sets forth an exhaustive list of ‘core platform services’, which includes online intermediation services, online search engines, online social networking services, video sharing platforms, number-independent interpersonal communications services, operating systems, web browsers, virtual assistants, cloud computing and advertising.
Article 5 of the DMA sets out a number of ex ante ‘blacklist’ self-executing prohibitions for gatekeepers, and Article 6 of the DMA provides a list of ex post potentially prohibited behaviour that needs to be further specified depending on the different core platform services on offer.
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.
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.
On 6 September 2023, the EC designated, for the first time, six gatekeepers under the DMA: Alphabet, Amazon, Apple, ByteDance, Meta and Microsoft. In total, 22 core platform services provided by gatekeepers have been designated. These six gatekeepers will now have six months to ensure full compliance with the DMA obligations for each of their designated core platform services.
The CMA has been moving along similar lines. In 2019, it published its Digital Markets Strategy setting out its priorities in the field, following which it undertook an in-depth market study into online platforms and digital advertising in July 2020 and announced its intention to introduce stricter regulation of digital players in November 2020.
In this context, the CMA set up in April 2021 a specialised Digital Markets Unit (DMU) charged with overseeing a new procompetition regulatory regime for digital platforms with strategic market status, as well as monitoring the competitive conditions prevailing in digital markets more widely. In May 2022, the UK government published its response to its public consultation on the new procompetition regime for digital markets, and in April 2023, the UK government announced the introduction of the Digital Markets, Competition and Consumer Bill into Parliament. The Bill introduces behavioural and other regulatory obligations on firms that are deemed to have strategic market status. The Bill also reinforces the role of the DMU that is responsible for implementing the new regime. The Bill is expected to enter into force in 2024.
The developments set out above reflect the enforcers’ intention to supplement the current enforcement regime and 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 the current economy. It will be interesting to see the interplay of these two parallel enforcement systems in practice.
Geo-blocking and geo-filtering
What are 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 and conditions if the customer is in a different Member State (geo-filtering).
Geo-blocking may take many forms, including, but not limited to:
- blocking users’ access to websites if they are located in another Member State;
- automatically rerouting users to another website of the same or a different service provider (possibly with a different price);
- refusing the delivery of goods or services based on the user’s location or place of residence; and
- refusing certain payment methods based on geographical criteria relating to the location of the user, their bank or credit account, or their banking institution.
It clearly follows from the above that such practices essentially constitute a form of discrimination based on unjustified geographical criteria: online sellers treat EU consumers differently for reasons relating to the users’ nationality, place of residence or establishment.
By blocking or, at the very least, restricting EU consumers’ access to cross-border trade, those practices de facto amount to geographical market segmentation and therefore contravene the European Union’s core free movement principles as well as the digital single market objective.
The Final Report on the E-Commerce Sector Inquiry Report from the Commission to the Council and the European Parliament, 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 they have made use of geo-blocking measures.
On 28 February 2018, the European Union adopted Regulation (EU) 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. By prohibiting unilateral practices that lead to market partitioning, the Geo-Blocking Regulation addresses the gap not covered by competition law.
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.
Non-audiovisual, electronically supplied services protected by copyright – such as music, e-books and games – generally fall within the Regulation’s ambit, subject to certain exceptions discussed below.
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 encompass audiovisual services and fully cover copyright-protected content. The EC identified the clear benefits following from the availability of a wider choice of audiovisual content across the European Union 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 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 European Union are generally homogenous.
The Geo-Blocking Regulation applies to:
- business-to-consumer transactions; and
- business-to-business transactions, as 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., 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 relating to the customer’s nationality, place of residence or establishment; and
- rerouting users to an interface different from 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 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’) in respect of:
- the sale of goods with delivery or pickup in an area already served by the trader;
- the sale of electronically supplied services (e.g., cloud services, data warehousing and website hosting); and
- the sale of services provided in a specific physical location, including when booked online (e.g., ticketing services, accommodation and car rental services).
Article 4 does not currently apply to non-audiovisual, electronically supplied services protected by copyright (e.g., e-books, video games, music and software). These services nonetheless remain subject to the rest of the Regulation’s prohibitions. The EC is still assessing the possibility of extending the scope of the Regulation as part of its short-term review.
Non-discrimination for reasons relating to payments (Article 5)
Traders are free to choose the means of payment (i.e., credit cards, debit cards or card-based payment instruments of the same brand and category of cards) that they make acceptable through their online websites or platforms and apps. They are nonetheless prohibited from discriminating against customers who use the acceptable payment methods based on unjustified geographical 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 refusal of certain transactions (e.g., refusal to accept certain cards) and different payment conditions (e.g., implementing additional transaction costs) for any of the reasons listed above. The non-discrimination prohibition under Article 5 applies provided that the 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 European Union (passive sales) in the specific situations covered by the Regulation. This is an absolute prohibition that applies irrespective of the trader’s market position.
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. 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 European Economic Area (other than Valve) restricting passive sales within the European Union from March 2007 to 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 European Union. 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 of 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 (United Kingdom and Ireland); and
- required Paramount to ensure that broadcasters outside the United Kingdom and Ireland were prevented from making their pay TV services available in the United Kingdom 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. Disney, NBCUniversal, Sony, 20th Century Fox and Warner Bros refrained from offering any commitments until 2018. The EC eventually adopted a commitments decision in respect of these undertakings in March 2019.
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 relating to the way in which Paramount’s proposed commitments were accepted. The CJEU held that, among other things, when analysing commitments in the context of Article 9, the principle of proportionality requires the EC to verify 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 must verify whether any proposed commitments are proportionate in respect of 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. This 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.
Geo-blocking practices in the field of fashion retail
In December 2018, the EC fined the clothing company Guess €39.8 million for restricting retailers from online advertising and selling cross-border to consumers in other Member States. The restrictive provisions and practices implemented by Guess formed part of an overall company strategy that was aimed at diverting online sales of Guess products towards Guess’ own website and restricting intra-brand competition among authorised distributors. In particular, Guess restricted authorised distributors in its selective distribution system from, inter alia, selling to end users located outside the authorised distributors’ allocated territory and cross-selling among authorised wholesalers and retailers. The EC concluded that Guess’ anticompetitive distribution agreements deprived European consumers of one of the main benefits of the European single market (i.e., the possibility to shop cross-borders for more choice and better value). By cooperating with the investigation, Guess obtained a 50 per cent reduction in its fine.
1 Stephen Mavroghenis is a partner and Christina Kolotourou is an associate at Quinn Emanuel Urquhart & Sullivan, LLP.
3 By way of example, see below the references to the Digital Markets Act (DMA) and the Geo-Blocking Regulation.
4 Commission Regulation (EU) 2022/720.
5 Communication from the Commission, Commission Notice: Guidelines on Vertical Restraints (2022/C 248/01).
7 The biggest ‘last-minute’ change concerned the safe harbour for information exchanges in dual distribution relationships, with the new VBER clarifying that certain types of information exchanges will be block-exempted for all companies with market shares not exceeding 30 per cent.
8 See below for more detail and new Vertical Block Exemption Regulation, Article 4(e).
9 Case C-439/09, Pierre Fabre Dermo-Cosmétique SAS, EU:C:2011:649 (Pierre Fabre).
10 Ping Europe Limited v. Competition and Markets Authority  CAT 13. Further upheld by the Court of Appeal in Ping Europe Limited v. Competition and Markets Authority  EWCA Civ 13.
11 Decision of the CMA in Ping, Case No. 50230, imposing a fine of £1.45 million.
12 New VBER, Article 4(e).
13 See new Vertical Guidelines, Paragraph 206 et seq. Relevant examples include the following: forcing distributors to prevent customers located in another territory from viewing their websites or to reroute their customers to the manufacturers’ or other distributors’ websites; requiring distributors to terminate consumers’ online transactions once their credit card data reveals addresses outside the distributors’ territory; obliging distributors to seek suppliers’ prior authorisation for selling online; not allowing distributors to use suppliers' trademarks or brand names on their websites; preventing distributors from establishing or operating one or more online stores, irrespective of whether the online store is hosted on the distributor’s own server or on a third-party server; and prohibiting distributors from using an entire online advertising channel, such as price comparison tools, or advertising on search engines.
14 See EC press release of 31 July 2023, available at https://ec.europa.eu/commission/presscorner/detail/en/ip_23_4031.
16 Case C-230/16, Coty Germany GmbH v. Parfümerie Akzente GmbH, EU:C:2017:941.
17 The organiser of a selective distribution system must demonstrate that (1) the nature of the products concerned necessitates selective distribution 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) the restrictions are proportionate.
18 Case C-59/08, Copad, EU:C:2009:260.
19 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.’
20 See, for example, Decision of the French Competition Authority (FCA) in Dammann Frères, 20-D-20 cf. Decision of the German Federal Court of Justice in Asics, KVZ 41/17.
21 New Vertical Guidelines, Section 8.2.3.
22 ibid., Paragraph 332.
23 ibid., Paragraph 336.
24 ibid., Paragraphs 208 and 335.
25 ibid., Paragraph 337 et seq.
26 Old Vertical Guidelines, Paragraph 52.
27 Gardena awarded discounts to its retailers calculated based on the distribution channel used for the sale of products. The Bundeskartellamt (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 mortar retailers could benefit from the full discount.
28 Similarly, Bosch’s rebate system put hybrid dealers, namely dealers who sold household appliances in both brick and mortar shops and online shops, at a disadvantage compared with purely offline dealers. Bosch awarded a smaller discount for sales achieved through online channels.
29 Decision of the BKA in Gardena, B5-144/13; Decision of the BKA in Bosch Siemens Hausgerate, B7-11/13.
31 Decision of the FCA in Lego, 21-D-02.
32 See, in this regard, the ‘Explanatory note on the new VBER and Vertical Guidelines’ of the EC, available at https://competition-policy.ec.europa.eu/system/files/2022-05/explanatory_note_VBER_and_Guidelines_2022.pdf.
33 New Vertical Guidelines, Paragraph 209.
34 New VBER, Article 5(1) and new Vertical Guidelines, Paragraph 253 et seq.
35 New Vertical Guidelines, Paragraph 253.
36 New Vertical Guidelines, Paragraph 254.
37 See also new Vertical Guidelines, Paragraph 185 et seq.
38 Such practices include, for example, fixing a distributor’s or buyer’s resale margin, fixing the maximum level of discount that a distributor can grant from a prescribed price level, making the granting of rebates or the reimbursement of promotional costs subject to the observance of a given price level, imposing minimum advertised prices (MAPs) that prohibit distributors from advertising prices below a level set by the suppliers and linking sales prices to those of competitors.
39 New Vertical Guidelines, Paragraphs 188 and 190.
40 ibid., Paragraphs 187 and 189.
41 The Vertical Guidelines identify that RPM practices may, among other things, 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 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; put 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 prevent price competition between distributors, therefore reducing innovation at the distribution level.
42 New Vertical Guidelines, Paragraph 197. For example, fixed resale prices may be necessary to organise a coordinated short-term, low price campaign, or a minimum resale price can be used to prevent a distributor from using the product of a supplier as a loss leader, since regularly reselling a product below the wholesale price could damage the brand image of that product and, over time, reduce overall demand for it and undermine suppliers' incentives to invest in quality and brand image.
43 Decision of the EC in Asus, AT. 40465; Denon & Marantz, AT. 40469; Philips, AT. 40181; and Pioneer, AT. 40182.
44 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.
45 Decision of the CMA in ITW Limited infringed, Case CE/9856-14. In the commercial catering equipment case, the supplier imposed a 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.
46 Decision of the CMA in Ultra, Case CE/9857-14. In this 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 resellers' margins and reiterated that ‘maintaining a prestigious image is not a legitimate aim for restricting competition’.
48 Decision of the CMA in National Lighting Company Limited, Case 50343.
49 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.
50 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.
51 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.
52 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. 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.
53 See press release of the FCA, dated 8 November 2021, available at https://www.autoritedelaconcurrence.fr/en/communiques-de-presse/autorite-de-la-concurrence-fines-video-surveillance-manufacturer-mobotix-and.
57 See European Council press release of 18 July 2022, available at www.consilium.europa.eu/en/press/press-releases/2022/07/18/dma-council-gives-final-approval-to-new-rules-for-fair-competition-online.
58 DMA, Article 54. Certain provisions of the DMA applied as of 25 June 2023.
59 See Regulation 2023/824 available at https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=uriserv%3AOJ.L_.2023.102.01.0006.01.ENG&toc=OJ%3AL%3A2023%3A102%3ATOC.
60 See Implementing Regulation, Article 12.
61 DMA, Article 3(1).
62 ibid., Article 2(2).
63 Practices under Article 5 that gatekeepers should refrain from include the following: processing, for the purpose of providing online advertising services, personal data of end users using services of third parties that make use of core platform services of the gatekeeper; combining personal data from the relevant core platform service with personal data from any further core platform services or from any other services provided by the gatekeeper or with personal data from third-party services; cross-using personal data from the relevant core platform service in other services provided separately by the gatekeeper, including other core platform services, and vice versa; and signing in end users to other services of the gatekeeper to combine personal data.
64 Obligations susceptible to being further specified according to Article 6 include the following duties: not to use, in competition with business users, any data that is not publicly available that is generated or provided by those business users in the context of their use of the relevant core platform services or of the services provided together with, or in support of, the relevant core platform services, including data generated or provided by the customers of those business users; to allow and technically enable end users to easily uninstall any software applications on the operating system of the gatekeeper, without prejudice to the possibility for that gatekeeper to restrict such uninstallation in relation to software applications that are essential for the functioning of the operating system or of the device and that cannot technically be offered on a stand-alone basis by third parties; to allow and technically enable 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; to refrain from self-preferencing practices; to allow providers of services and providers of hardware, free of charge, effective interoperability with, and access for the purposes of interoperability to, the same hardware and software features accessed or controlled via the operating system or virtual assistant of the gatekeeper; and to provide end users and third parties authorised by an end user, at their request and free of charge, with effective portability of data provided by the end user or generated through the activity of the end user in the context of the use of the relevant core platform service.
65 DMA, Article 14.
66 ibid., Chapter V.
67 See EC press release, ‘Digital Markets Act: Commission designates six gatekeepers’, dated 6 September 2023, available at https://ec.europa.eu/commission/presscorner/detail/en/ip_23_4328.
74 Regulation (EU) 2018/302, Paragraphs 8–9.
75 ibid., Paragraph 8.
76 ibid., Article 4.
78 Decision of the EC in Focus Home, AT.40413; Koch Media, AT.40414; ZeniMax, AT.40420; Bandai Namco, AT.40422; and Capcom, AT.40424. The EC’s decision is currently under appeal before the General Court (Case T-172/21, Valve v. Commission).
79 Decision of the EC in Case AT.40023, Cross-border access to pay-TV, dated 26 July 2016.
80 Decision of the EC in Case AT.40023, Cross-border access to pay-TV, dated 7 March 2019.
81 C-132/19 P, Groupe Canal+ v. Commission, EU:C:2020:1007.
82 Decision of the EC in Case AT.40023, Cross-border access to pay-TV, dated 31 March 2021.
83 Decision of the EC in Case AT.40428, Guess, dated 17 December 2018.