Sector Inquiry into E-Commerce

 

On 26 March 2015 Margrethe Vestager, EU Competition Commissioner announced a proposal for a sector inquiry into the e-commerce sector.  The Commission has concerns that there are barriers to cross-border online trade and that it is necessary for the Commission to gain a better understanding of digital markets.  The sector inquiry is intended to contribute to the Commission's objective of creating a digital single market.   

Increasingly, the European and UK competition authorities are carrying out sector and market investigations.  These are industry wide probes where there are concerns that markets may not be working as well as they should but where the problem does not appear to be related to unlawful action by individual companies.  

Before the recent announcement of an EU sector inquiry into e-commerce the Commission’s use of this power had been on the back-burner.  The last EU competition sector inquiry concerned the pharmaceutical sector and was launched in January 2008.  The Commission launched three other sector inquiries in June 2005 (energy and retail banking and business insurance).   

A range of potential outcomes are possible.  Outcomes can range from investigation or enforcement action against companies or individuals for infringing competition laws, to giving the market a clean bill of health.  Even where an inquiry does not lead to direct enforcement action, it will bring to light large amounts of information, often shared across Member States of the EU, upon which other authorities may start their own inquiries and third parties may launch challenges.

The outcome will depend on a number of factors including (i) whether complaints, particularly from consumers, can be substantiated; (ii) strength of evidence gathered; (iii) arguments and analysis presented by interested parties; (iv) legal powers available to the Commission to take action or recommend that others such as the Member States do so; and (v) overall policy. 

There is no formal timeline for Commission sector inquiries as distinct from the position in the UK for market studies and market investigation references which are subject to statutory timelines.  The more open-ended nature of EU sector inquiries is therefore a source of frustration and concern for business.  The Commission is increasingly attempting to complete sector inquiries in around 18 months.

It may be difficult at the outset to see any immediate benefits for businesses affected by a sector inquiry.  However, such inquiries can provide opportunities for companies to put forward arguments to support opening up of markets such as where there are legislative or regulatory barriers to entry.  Every sector inquiry is an opportunity to educate the authorities and the public about the industry which will stand a business in good stead in its future dealings with the authorities. 

Where certain industry interests are aligned it can be effective to make submissions through a trade association and indeed one of the legitimate functions of a trade association is to do just that.  However, there can be situations where an individual player may find that its interests diverge from others in its industry or it may not be able to mobilise a trade association to get its viewpoint across effectively.  In those situations a business will want to consider how it can best put its case individually.  The potential strategies for engagement (collective or individual) are not necessarily mutually exclusive as a business may join in an industry submission and supplement that with its own representations on issues that are particularly relevant to it. 

Below is a summary of some key issues for companies and their advisers to consider if their industry sector becomes the subject of a sector inquiry.

·       Investigation of suspected competition law infringement: treat the inquiry as an investigation of suspected competition law infringement; plan for inspection visits and requests for information; engage advisers early to help establish where the business’ interests lie and how to respond. 

·        Resource commitments: engaging with a sector inquiry and dealing with any follow-up action tends to involve the commitment of substantial resources; assess how to present the business’ case and take a long term view about the resource commitment that may be needed.   

·       Questionnaires:  consider whether business documents could be misinterpreted and how best to defend them; consider the impact of responses on the authority’s thinking.

 

·        Consistency:  note that information may be exchanged between Member States of the EU; consistency of message and positioning is vital. 

·        Third party complaints:  third party complaints will need to be addressed; anticipate how third parties (customers, suppliers and competitors) may be concerned about industry practices and how best to address those concerns. 

·         Strategy: there is no ‘one size fits all ‘strategy that will be appropriate for all businesses affected.  At the outset a ‘wait and see’ approach may be justified until the shape and direction of the inquiry develops but this carries the risk that the later a company engages with an inquiry the more limited the prospects for influencing more fundamental issues such as the overall scope and key issues to be examined. 

·        Media and PR:  an inquiry may be high profile; consider how to engage the business’ PR and media team to help shape public perception and deliver a consistent message. 

·        Opportunities:  consider whether there are any business-specific messages to get across or potential to work with trade bodies to improve the profile of the industry.

 

Commission press release IP/15/4701 and SPEECH/15/4704 "Competition policy for the Digital Single Market: Focus on e-commerce"