Higher Regional Court of Frankfurt asks EU Court of Justice to rule on restriction of sales on online platforms in selective distribution systems
By Gabriele Accardo
On 19 April 2016, the Higher Regional Court of Frankfurt (the Court) made a request for a preliminary ruling (available only in German) to the Court of Justice of the European Union (CJEU) about the legality of a ban imposed in the context of a selective distribution system to sell on online platforms.
The request stems from a dispute before the Court between Coty, a cosmetics manufacturer, and one of its authorized distributors, Parfümerie Akzente, whereby Coty claimed that, by selling perfumes on Amazon.de, Akzente infringed the terms and conditions of its selective distribution system that prohibited sales on such online platforms. The Court asked the CJEU to rule on the following questions:
- Whether protection of a “luxury image” is a legitimate reason for a selective distribution system.
- Whether it is permissible to impose on distributors an outright ban on sales via third party platforms regardless of whether the distributor failed to meet legitimate quality criteria set by the manufacturer.
- Whether a sales ban on internet platforms results in a restriction on “passive sales” to end users.
It is worth recalling here that the Vertical Guidelines state that the use of third party platforms by authorized distributors shall only be done in accordance with the “standards and conditions” agreed upon between the supplier and its distributors for the distributors’ use of the internet. Yet, it is not clear whether “the standards and conditions” only relate to quality issues of a website, or whether they can go as far as to prohibit the use of certain third party platforms (e.g. eBay or Amazon).
As it may be expected, the CJEU ruling will be particularly relevant beyond the specific case at stake.
A consistent approach on online sales is much needed across Europe. Interestingly though, even cases dealt with by the Federal Cartel Office and other German courts have shown somewhat divergent approaches vis-à-vis online sales restrictions imposed by well-known brands.
For instance, two German courts adopted a rather lenient approach holding that manufacturers (Amer Sports and Scout-Schulranzen) could legitimately prohibit their distributors from reselling products through auction websites (such as eBay), insofar as such a restriction would amount to a quality requirement related to internet sales, while distributors would remain free to sell online using other means than auction websites.
More recently, instead, the Federal Cartel Office has investigated Asics’ and Adidas’ selective distribution systems, which restricted sales on online marketplaces on their retailers. While Asics has modified its selective distribution system in compliance with the prescriptions of the Federal Cartel Office, Adidas, instead, has challenged the authority’s decision before the court.
By Gabriele Accardo
On 10 May 2016, French and German Competition Authorities published their joint report on competition law and Big Data. Separately, the French Competition Authority announced the launch of a full-blown sector inquiry into data-related markets and strategies.
The joint report provides an overview of how the two authorities would look at relevant competition issues raised by the collection and commercial use of data, in particular the assessment of data as a factor in establishing market power
Interestingly, the authorities make reference to established antitrust principles (e.g. data as a barrier to entry, or use of data in exclusionary or exploitative abuses), and not to new theories to look at such issues. In fact, a number of past cases illustrates how competition authorities have analyzed the “data advantage” in “non-digital” markets, and provides useful guidance on which issues the authorities are likely to focus on in future cases.
While it is noted that there are several possible “data-based” conducts, whether exclusionary or exploitative, which may lead, depending on the circumstances, to enforcement action, however, the theories of harm underlying the prohibition of such conducts are premised, mainly, on the capacity for a firm to derive and sustain market power from data unmatched by competitors. Yet, before concluding whether a company’s “data advantage” has created or strengthened market power, enforcers should undertake case-specific assessments on whether data is scarce or easily replicable, and whether the scale and scope of data collection matters.
Two considerations are worth singling out.
First, the two authorities recall that refusal to access to data can be anticompetitive if the data is an essential facility to the activity of the undertaking asking for access. Based on existing EU case law, compulsory access to essential facilities can be granted only in exceptional circumstances as even a dominant company cannot, in principle, be obliged to promote its competitors’ business. In this context it is further noted that access to company’s data may raise privacy concerns as forced sharing of user data could violate privacy laws if company exchange data without asking for consumer’s consent before sharing their personal information with third companies with whom the consumer has no relationship.
Secondly, with specific regard to privacy concerns, it is recalled that under EU case law, any issues relating to the sensitivity of personal data are not, as such, a matter for competition law, but may be resolved on the basis of the relevant provisions governing data protection. Still, according to the two authorities, Decisions taken by an undertaking regarding the collection and use of personal data can have parallel implications on economic and competition dimensions. Therefore, privacy policies could be considered from a competition standpoint whenever these policies are liable to affect competition, notably when they are implemented by a dominant undertaking for which data serves as a main input of its products or services. In such instances, there may be a close link between the dominance of the company, its data collection processes and competition on the relevant markets, which could justify the consideration of privacy policies and regulations in competition proceedings.
For instance, looking at excessive trading conditions, especially terms and conditions which are imposed on consumers in order to use a service or product, data privacy regulations might be a useful benchmark to assess an exploitative conduct.
Facebook investigation in Germany
The presence of excessive trading conditions is the underlying theory of harm for the investigation launched by Germany’s Federal Cartel Office (FCO) Bundeskartellamt into Facebook to assess whether it has abused its dominant position in the market for social networks through its specific terms of service on the use of user data. In particular, the FCO will assess whether Facebook’s position allows it to impose contractual terms that would otherwise not be accepted by its users.
Andreas Mundt, President of the FCO, stated that dominant companies are subject to special obligations, including the use of adequate terms of service as far as these are relevant to the market. For internet services that are financed by advertisements such as Facebook, user data is very important. For this reason, it is essential to also examine the abuse of market power and whether consumers are sufficiently informed about the type and extent of data collected.
In order to access the social network, users must first agree to the company’s collection and use of their data by accepting the terms of service. It is difficult for users to understand and assess the scope of the agreement accepted by them. According to the FCO, there is considerable doubt as to the admissibility of this procedure, in particular under applicable national data protection law. If there is a connection between such an infringement and market dominance, this could also constitute an abusive practice under competition law.
The FCO is conducting the proceeding closely with the competent data protection officers, consumer protection associations as well as the European Commission and the competition authorities of other EU Member States.
By Gabriele Accardo
On October 22, Germany’s Federal Cartel Authority (“FCA”) fined mattress producer Tempur Deutschland GmbH, Steinhagen, 15.5 million euros for imposing resale price maintenance on retailers selling its products, in breach of Article 101 of the Treaty on the Functioning of the European Union (“TFEU”). The alleged anticompetitive conduct took place between August 2005 and July 2011.
According to the FCA, due to the price transparency in the online channel, Tempur agreed with (or rather “forced”) the company’s retailers that they should offer various mattresses both online and in their brick-and-mortar stores only at the sales prices recommended by Tempur.
If prices of products sold online by retailers were below 5% the price recommended by Tempur and retailers did not subsequently alter their sales prices or repeatedly undercut the minimum sales prices set, they would experience delays in supply or even a discontinuation of supply. Tempur would also withdraw the retailer’s right to use the Tempur brand name for online search advertising on Google.
This is the third case concerning resale price maintenance issues in the mattress market (see Newsletter 1/2015, p. 20 for further background). However, the FCA stated that the investigations did not reveal any indication of anticompetitive horizontal agreements between mattress manufacturers. In August 2014 and February 2015 fines were also imposed on Recticel Schlafkomfort GmbH and Metzeler Schaum GmbH on account of resale price maintenance. After evaluating the evidence the Bundeskartellamt terminated the proceedings against two other manufacturers, two purchasing cooperatives and one online retailer for discretionary reasons.
By Nicole Daniel
In Germany the Bundeskartellamt has opened an investigation into Apple and Amazon.com’s long-term agreement on audiobook distribution as it might impede competition.
In Germany, Audible – an Amazon subsidiary – is the leading supplier of audiobook downloads and one of the largest audiobook producers in Europe and Germany. Through its iTunes store Apple operates one of the largest digital media trading platforms, which includes audiobooks for download.
Through Audible, Amazon sells books in Apple’s iTunes store, and the agreement at issue which has lasted several years, gives these companies a strong position in the German audiobook market, suggesting a need for closer scrutiny.
The investigation was triggered by a complaint from the German Publishers and Booksellers Association. This association had previously complained, inter alia, about the exclusive distribution terms between Audible.com and the iTunes store.
In its November 16, 2015 statement, the German Bundeskartellamt said that audiobook publishers need sufficient alternatives for selling their digital audiobooks.
The German Bundeskartellamt is in close contact with the European Commission, which also received the complaint.
By Gabriele Accardo
On 27 August 2015, the Federal Cartel Office (“FCO”) concluded its proceedings concerning certain anticompetitive restrictions in the distribution system of ASICS Deutschland (“ASICS“), and found that ASICS breached the EU competition rules on anticompetitive agreements, insofar as it restricted online sales of its small and medium-sized authorized dealers (see Newsletter 2/2014, p. 20 for more background).
The FCO took issue with ASICS’ prohibiting its dealers from using price comparison engines for their online presence and from using ASICS brand names on the websites of third parties to guide customers to their own online shops.
While ASICS had already amended the clauses concerned, Andreas Mundt, President of the FCO, noted that if manufacturers prohibit their authorized dealers from using price comparison engines and online sales platforms or from using the manufacturers’ brand names in their own search engine advertisements, it will de facto no longer be possible for consumers to find the smaller retailers, in particular, on the Internet. This in turn would allow manufacturers, such as ASICS, to control price competition in both online and offline channels.
The FCO also noted that while small and medium-sized distributors could not compensate for the sales lost due to the limited reach of their “shops” resulting from ASICS’ prohibition, the online business will ultimately be concentrated in the hands of the manufacturers themselves and a few large retailers or leading marketplaces.
The FCO has not specifically ruled on the outright prohibition to use online marketplaces such as eBay or Amazon, due to the fact that the other online restrictions were found anti-competitive.
Interestingly, the FCO noted competition authorities have received numerous complaints from distributors about the conditions for online sales set by brand manufacturers, and that the European Commission’s current sector inquiry into e-commerce will also possibly provide further insights on this issue. Not surprisingly, the FCO stated that further decisions by the authorities or the courts can be expected in this area.
By Gabriele Accardo
On 12 May 2015, Germany’s Federal Cartel Office (“FCO”) imposed a fine of 300,000 euros on United Navigation GmbH, Ostfildern, for enforcing resale price maintenance on retailers selling its portable navigation devices between 2009 and 2014. The investigation was launched upon an exchange of information with the Austrian Competition Authority.
During the relevant period, United Navigation monitored the prices of online retailers specifically, and requested they raise prices up to the indicated level, so-called “street price”, as soon as prices dropped below the price level considered acceptable by United Navigation.
The FCO found that most of the retailers raised their prices after being contacted by United Navigation.
In other instances, United Navigation threatened to stop supplying the retailers or to bring legal claims for unauthorized use of copyright material. Otherwise, in order to induce retailers to raise prices, United Navigation granted retailers certain advantages or benefits, such as bonuses
By Gabriele Accardo
On April 21, 2015 the French, Swedish and Italian competition authorities jointly announced they have accepted—and made legally binding—the commitments (see FRA, ITA, SWE) offered by Booking.com, thus closing their respective investigations into the online hotel booking platform. The three authorities had also opened proceedings against Expedia. These proceedings are still pending.
The investigations concerned the clauses in the contracts between Booking.com and hotels that obliged hotels to offer Booking.com the same or better room prices and conditions as the hotels made available on all online and offline distribution channels (so-called “Most Favored Nation” or “MFN” clauses), including, for instance other Online Travel Agencies (“OTAs”) as well as hotels’ direct sales channels (see, Newsletter 1/2015, p. 17 Newsletter 3/2014, p.12 Newsletter 1/2014, p.15, Newsletter 5-6/2013, p.9 and 11, Newsletter No. 4-5/2012, p. 15, for additional background).
Such MFN clauses were deemed in breach of both national and EU competition rules, by restricting competition between Booking.com and other OTAs and hindering new booking platforms from entering the market.
The commitments offered by Booking.com consist of reductions in the scope of the MFN clauses.
Price parity vis-à-vis other OTAs. First, Booking.com committed to abandon the parity requirement in respect of prices which hotel make available to other OTAs. This would enable hotels to offer different room prices and/or better commercial conditions to different OTAs, and allocate them larger quotas of rooms.
Price parity vis-à-vis hotels direct sales. Secondly, hotels may also offer prices at a lower rate than those displayed on the Booking.com website via their offline sales channels (on-site bookings, by telephone, fax, email, instant messaging, physical sales outlets of travel agencies, etc.) as long as these prices are not published on the hotel’s website. They may also offer prices at a lower rate than those displayed on the Booking.com website to customers who are members of loyalty programs.
However, hotels would still have to offer the same or better room prices to Booking.com as are offered to the general public on the hotel’s own online booking channels. Nonetheless, hotels’ websites accessible by the general public may display qualitative information regarding the prices offered via their offline channels, such as “attractive prices”, “good prices”, etc. Furthermore, hotels will be allowed to send emails and SMS messages to consumers informing them of the prices offered via their offline channels, as well as to reach out to previous customers and offer them special discounts.
Other conditions. In addition, hotels may reserve a greater number of rooms to their direct online or offline sales channels than are allocated to Booking.com. Hotels will also be completely free to offer consumers more favourable conditions than those offered on Booking.com via other platforms and via their own offline channels. This includes breakfast or any other service (e.g. gym, spa, Internet access, etc.) as well as booking conditions (e.g. cancellation).
In essence, the commitments accepted by the competition authorities increase the hotels’ margin for maneuver, while acknowledging that price parity may be important in preventing free-riding on Booking.com’s investments and thus ensuring the continued offering of user-friendly search and comparison services free of charge.
In this respect, the three NCAs appear to have acknowledged that MFN clauses may bring about some efficiency. That is somewhat surprising given that during the market tests, stakeholders pointed to the fact that OTAs—not hotels—are the free-riders, notably on the investments made by hotels (e.g., brand, hotel facilities, quality of services provided to customers etc.), e.g. by purchasing hotels brands as keywords for online search. Also, hotels and other stakeholders actually expressed concerns that even a “narrow MFN” clause would produce the same effects as the fully-fletched MFN clause, since hotels would have basically no incentives to grant other OTAs lower prices than the price displayed on their own online sales channel (due to the risk of cannibalizing their direct sales).
It is not clear whether, in the light of their concerns, the intervening parties will decide the appeal the commitment decision(s).
Investigations in Germany…
While the French, Italian and Swedish competition authorities cheered the outcome of their cooperation and the coordination of the European Commission, the Federal Cartel Authority (“FCA”) in Germany was actually heading in the opposite direction on the very same issues in an ongoing investigation against Booking.com.
In fact, on April 2, 2015, the FCA sent formal charges to Booking.com regarding the use of “best price” clauses in its contracts with hotels in Germany.
In so doing, the FCA followed the same path it had already walked against HRS, another online booking portal once dominant in Germany.
In fact, according to the FCA, the statement of objections against Booking.com was necessary because the hotel booking portal had continued to use its best price clauses despite the fact that the FCA had prohibited similar clauses with a decision in the parallel proceedings against HRS.
The FCA’s decision was recently upheld by the Düsseldorf Higher Regional Court, which confirmed that HRS’s “best price” clauses restricted competition to such a degree that they could not be exempted under the EU Block Exemption Regulation (HRS’s market share was higher than 30%) or with an individual exemption (arguably, because the FCA found that such clauses brought about no efficiencies).
…and in the UK
These recent developments are particularly relevant in the context of the new investigation that the UK Competition and Markets Authority (“CMA”) has to carry out into Booking.com’s MFN clauses (the CMA replaced the Office of Fair Trading or “OFT” on April 1, 2014).
On September 26, 2014 the UK’s Competition Appeal Tribunal (“CAT”) reversed the OFT’s January 20th decision to accept commitments from online travel agents Booking.com B.V. (“Booking.com”, and its ultimate parent company Priceline.com Incorporated) and Expedia Inc. (“Expedia”), together with InterContinental Hotels Group plc. (“IHG”) (see Newsletter 4-5/2014, Newsletter 1/2014, Newsletter 5-6/2013 and Newsletter No. 4-5/2012 for additional background).
In the wake of the CAT’s decision, the case has been sent back to the CMA, which has been ordered to reopen the investigation into hotel online booking practices.
In its ruling the CAT noted that “by pursuing its investigation on the basis that it had identified restrictions ‘by object’ the OFT may have deprived itself of the ability properly to appreciate the significance of the role of operators such as Skyscanner, even though it had initially acknowledged the importance of price transparency as a force for competition and was aware, at least, that meta-search operators existed.”
It is worth recalling that in November 2013, the FCA and the OFT closed their respective investigations into Amazon’s price parity policy on its Marketplace platform following Amazon’s decision in August 2013 to end its Marketplace price parity policy across the European Union (see Newsletter 5-6/2013, p. 12, for additional background). The policy prohibited third party retailers from offering products through other online sales platforms cheaper than on Marketplace.
While it is hard to predict the outcome of the new investigation by the CMA, third parties and complainants may point to the recent developments illustrated above to call for a stricter approach by the CMA. In turn, the businesses under investigation may arguably prefer to settle the case once and for all by offering improved commitments in line with the French, Italian and Swedish cases. If that occurs, the German approach will be “singled out” as the stricter one in the European competition arena.
The issues assessed by several national competition authorities in Europe in the online booking sector were the perfect candidate for an EC investigation, which would have provided greater legal certainty at a faster speed. The reasons why this did not happen are unclear to most, and certainly the coordination efforts recently undertaken are no substitute for clear-cut enforcement. Historians of EU competition law may find the issue interesting to investigate