Collusion in the online economy – new competition law traps for the unwary?

We reported last year on the Eturas decision, in which the Court of Justice ruled that technical measures applied on an online platform gave rise to a potentially anti-competitive agreement.  The Lithuanian Court which had referred the matter to the CJEU then went on to consider liability, based on the participants’ knowledge of the relevant facts (for a review of this decision, see here).

But the risks posed by agreements over platform T&Cs are not the only thing for companies to be aware of.

The European Commission is now carrying out active enforcement in relation to geo-blocking, which can be achieved primarily through technical measures.  The Steam video games investigation is looking in particular at whether anti-piracy measures have an anti-competitive effect. 

Meanwhile, the CMA last autumn issued a statement noting another practice potentially raising antitrust concerns.  This concerned agreements restricting the use of paid online search advertising (e.g. through use of Google AdWords).  The CMA suggested that restrictions on bidding for particular ad terms, or on negative matching (identifying terms for which ads should not be shown) may infringe the competition rules.  It appears that the CMA sees this in terms of potential effects on competition, rather than as a new form of object restriction, with the CMA stating that the practices are particularly likely to be problematic “where one or more similar agreements include parties that collectively represent a material share of the relevant markets and, in the context of brand bidding restrictions, as a result of negative matching obligations in relation to brand terms which an advertiser would not negatively match but for the agreement”.   It should therefore not be assumed that such a provision would in fact be restrictive of competition – but it is something which bears watching.  Indeed, the CMA is not the only competition authority to have lighted on this issue – a similar point is under investigation in the United States, where the FTC accuses 1-800 Contacts of “orchestrating a web of anticompetitive agreements with rival online contact lens sellers that suppress competition in certain online search advertising auctions”.

In conjunction with this statement, the CMA also announced a market study into digital comparison tools; it described the study as an opportunity to explore the nature of competition between price comparison websites and their relationship with service providers.  This may lead to further issues in this area; in the meantime, judgment in the Coty case, which considers contractual prohibitions on the use of certain online sales channels, such as price comparison websites, is due from the CJEU in the near future.

And then there’s the risk of good ol’-fashioned collusion, with a modern twist.  One thing that comes to mind is the new attention on the significance of privacy conditions for consumers.  Now that these are recognised as a parameter of competition (see here, for example), is there a risk that exchanging information about planned changes to privacy conditions / other online trading T&Cs, or actually agreeing a common strategy for these could amount to a breach of Article 101 or its national equivalents?   Or that an agreement between separate companies to adopt a common practice on such terms (in particular if it results in less protection for consumers) could amount to active collusion?  These are open questions for now, but companies should remember that – while benchmarking is often sensible – they should ultimately take their own decisions, and keep their own counsel, about such matters.

Coincidentally, the consumer arm of the CMA has just closed an investigation into the online terms and conditions of cloud service providers following changes agreed by a number of companies.  The closure statement notes that “the CMA remains interested in unfair terms and conditions, particularly in the digital economy”.  It should not be assumed that this interest is limited only to the parts of the CMA responsible for enforcement of consumer laws… 

Back to the future: the Commission opens e-commerce competition investigations

True to its current focus on all things digital, the European Commission has recently announced that it has launched three separate investigations into whether certain online sales practices prevent, in breach of EU antitrust rules, consumers from benefiting from cross-border choice in their purchases of consumer electronics, video games and hotel accommodation at competitive prices.

The context to the investigations is the Commission's Digital Single Market Strategy and its related sector inquiry on e-commerce, which suggested that the use of online sales restrictions were widespread throughout the EU (previous posts here and here).

The Commission is now examining whether the companies concerned are breaking EU competition rules by “unfairly restricting retail prices” or by excluding customers from certain offers because of their nationality or location (geo-blocking). 

The Commission’s rationale for the inquires is that these practices may make cross-border shopping or online shopping in general more difficult and ultimately harm consumers by preventing them from benefiting from greater choice and lower online prices.  Whether the evidence gathered from the investigations ultimately bears out this hypothesis is very much an open question. 

Whatever the wider benefits to the Commission of the sector investigation, it is questionable whether these investigations in themselves justify the full arsenal of an antitrust sector inquiry.  To judge by the press release, at least a significant part of the Commission’s concern appears to relate to classical infringements of competition law – resale price maintenance and contractual barriers to parallel trade – which merely happen to have come to light through the sector inquiry.  Time will tell whether this hypothesis is correct, or whether more specific types of online anti-competitive conduct are in fact concerned.

Amazon’s E-Books antitrust saga - War now Peace?

Amazon has offered commitments to the European Commission to end the antitrust investigation into its use of ‘most favoured nation’ (MFN or parity) clauses in its e-books contracts with publishers, launched in 2015. The Commission is now inviting comments on these proposed commitments from customers and rivals. 

The Commission’s concern is that the clauses may breach EU antitrust rules and result in reduced competition among e-book distributors and less consumer choice.

Amazon’s MFN clauses require publishers to inform Amazon about more favourable terms or conditions offered to Amazon's competitors and to offer Amazon similar terms and conditions. This includes requiring publishers to offer Amazon any new or different distribution methods or release dates, any better wholesale prices or agency commissions, or to make available a particular catalogue of e-books.

The Commission considers that the cumulative effect of these clauses is to make it harder for other e-book retailers to compete with Amazon by developing new and innovative products and services. It also takes the view that imposing these clauses on publishers may amount to an abuse of a dominant market position.

In parallel, Audible, Amazon’s audio-books subsidiary, has announced the end of its exclusivity provisions in its distribution agreement with Apple following a joint antitrust investigation by the Commission and the German competition authority, the Bundeskartellamt. 

Amazon’s proposed commitments

Amazon disputes the competition law basis for the Commission’s investigation.  Nevertheless, in order to bring the investigation to a close (and to avoid the risk of a costly infringement decision), it has offered commitments:
  • Not to enforce:
    1. any clause requiring publishers to offer Amazon similar terms and conditions as those offered to Amazon's competitors; or 
    2. any clause requiring publishers to inform Amazon about such terms and conditions. 
  • To allow publishers to terminate e-book contracts that contain a clause linking discount possibilities for e-books to the retail price of a given e-book on a competing platform. Publishers would be allowed to terminate the contracts upon 120 days' advance written notice.
  • Finally, not to include, in any new e-book agreement with publishers, any of these clauses.
The commitments would apply for five years and (as is usual for behavioural commitments) be subject to oversight by a monitoring trustee.

E-Books - déjà vu? 

This is not the first time the Commission has investigated the e-books sector. In 2011 it opened antitrust proceedings against Apple and five international publishing houses (Penguin Random House, Hachette Livres, Simon & Schuster, HarperCollins and Georg von Holtzbrinck Verlagsgruppe) on the basis that it considered that they had colluded to limit retail price competition for e-books. In that case the companies also offered commitments to address the Commission's concerns (see our previous comment).

Where does this leave MFNs?

The Commission and national competition authorities have conducted investigations into MFN clauses in a number of other sectors, including online motor insurance and online sports goods retail, on which we have previously commented.  

While MFNs are not per se unlawful, and in some circumstances may even be pro-competitive, companies should carefully consider their possible anti-competitive effects before including them in new contracts. 

Competition and Regulation in Digital Markets

On Friday 9 September 2016, I attended the International Conference on Competition and Regulation in Digital Markets, a smoothly-run conference hosted by the University of Leeds School of Law. It featured a host of well-informed speakers from a variety of backgrounds. 

The keynote speech was given by Dr Andrea Coscelli acting Chief Executive of the CMA (the full text of which is available here). He flagged the CMA’s interest in digital tools, both as an aid to the investigative processes and also as part of any remedial actions, referencing the remedies proposed following the recent CMA investigations into the UK energy and retail banking markets. 

The speakers raised a number of interesting questions faced by courts and regulators in the fast-moving world of digital technology.  For example:

  • How can a static market definition be successfully applied to markets filled with constantly changing products?
  • How can regulators know when to act in markets that are still developing so quickly?
  • Is there a real risk that dominant digital companies will be discouraged from innovating further due to antitrust fears? 
  • What will the impact be of automatic algorithms capable of doing shopping on behalf of consumers?

Another feature of the event was the frequent differences between the perspectives of the economists and lawyers present. For example, there was some debate about the relevance of price substitution to market definition (the conclusion was that the focus should be on competitive restraints) and the extent to which vertical restraints are capable of restricting competition.

A development that nicely encapsulates some of the issues identified above is the Commission’s recently proposed overhaul of telecoms regulations (which we reported on here).

Some of the new rules apply to web communications services such as WhatsApp and Skype, thus extending the regulatory burden beyond its previous parameters.  One of the speakers at the conference, James Waterworth, pointed out that services like WhatsApp aren’t limited by the bottleneck of requiring a physical telephone line in the same way that traditional telecoms providers are. They operate in a completely different way, so why should they be regulated in the same way? 

After all, what happens if the services develop in the same way as the instant messaging service WeChat has in China, by including additional functionality such as video games and the ability to transfer money to other users within the app? Is that still a communications service that should be regulated in the same way as a company providing a landline?  Or is it a banking service that will fall within financial regulation?  Is adding layers of regulation consistent with the Commission’s exhortations to EU Member States to “aim to relieve operators from unnecessary regulatory burden, regardless of the business model adopted”? (See the Communication on the “collaborative economy” published in June 2016.)

There are many questions here, and not so many answers (yet…).  We’ll be keeping a close eye on how developments in this area play out.

Matthew Hunt

Connecting the DSM dots

European Commission releases proposals on copyright and telecoms as part of Digital Single Market strategy

Today the European Commission released proposed directives, regulations and initiatives on telecoms and copyright, aimed at modernising EU law in these areas. This is part of the Commission’s push to deliver on the Digital Single Market strategy.  

The Proposed Directive establishing the European Electronic Communications Code will be of particular interest to consumers and telecoms providers alike. In a bid to ensure that telecoms legislation is in line with modern technology, it extends regulation beyond traditional service providers. In certain areas, the rules will also apply to those providing consumers with “number-independent interpersonal communications services”, which encompasses newer chat and calling apps such as Facebook Messenger and Skype. 

In particular, Article 40 imposes an obligation on Member States to ensure that providers’ networks are secure and that they have appropriate systems in place to manage network security risks. The aim is to allow consumers to benefit from consistent and secure provision of services. This will undoubtedly have an impact on the way in which owners of chat and calling apps manage their network security. 

Another interesting development lies in the area of interconnectivity and interoperability of services. Article 59 grants national authorities the power to require service providers to have interoperable services. It applies in justified circumstances; the proposed legislation outlines the need for this where users require access to emergency services or “end-to-end connectivity between end-users is endangered”. Crucially, this will also apply to chat and calling apps.

For consumers, the proposed changes will be largely beneficial. The focus on network security is reassuring and the provisions on interoperability should improve the quality of services generally. However, these changes may come at a cost. Providers of chat and calling apps could choose to charge for apps which are currently free, in an attempt to offset the costs of compliance with the new regime. 

For those in the telecoms industry, this is perhaps a welcome development. Telecoms has traditionally been heavily regulated and increased competition from online communications service providers has been fierce, particularly as these services have not been subject to the same stringent regulations. The Commission’s move to legislate in this area is a step towards levelling the playing field. The questions are whether the proposals are enough to encourage telecoms companies to continue investing across Europe without inhibiting investment by over-the-top service providers that will now be subject to regulatory limitations. We will have to wait and see. 

The Commission’s 2016 Competition Enforcement Priorities: the Digital Economy and Standard Essential Patents

Margrethe Vestager, the European Competition Commissioner, has set out DG Competition’s enforcement priorities for 2016. 
 
In a speech to the College of Europe’s Global Competition Law Centre on 1 February 2016, she highlighted two issues that will be of particular interest to readers of this blog: the digital economy and standard essential patents (“SEPs”). 

Unsurprisingly, given the launch of the e-commerce sector enquiry last year (see our blogs on the launch of the enquiry and a review of the inquiry's scope) the digital economy was highlighted as a key enforcement priority, in particular contracts that stop retailers selling cross-border. The Commission intends to publish an issues paper on geo-blocking at Easter, aimed at tackling these online restrictions. 

The Commissioner also gave a heavy hint that the Commission is planning to bring competition enforcement cases following its e-commerce sector inquiry. 

Perhaps more surprisingly, given recent events and the degree of prominence given to SEP issues during her predecessor’s term, the Commissioner also mentioned SEPs, noting that the Motorola, Samsung and Huawei cases had set important precedents for SEPs, and that these cases had made clear that such patents must be licensed on FRAND terms. 

Finally (and not directly related to IP) the speech highlighted the need for some national competition law authorities to be given enhanced powers and suggested that the Commission was likely to propose potential new legislation to address any deficiencies.

Why a Spanish state aid decision is making EU governments nervous


In an expansion of our usual repertoire, this post is taking a quick look at the relationship between EU state aid rules and national support for national television platforms. 

The long running Spanish state aid saga, concerning the conversion of analogue television transmission to digital transmission, has reached a decisive stage with a decision by the lower European court, the General Court of the European Union (“the Court”), in 6 joined and similar cases on 26 November 2015.  Although an appeal to the European Court of Justice is technically possible, it seems unlikely.
 
What is the EU state aid regime?

For those of you unfamiliar with the state aid regime, the rules are set out in the EU Treaties (Article 107 TFEU) and govern (and attempt to limit) when EU member states can use public funds to support domestic industry.  The purpose of these rules, in common with the competition rules, is to level the playing field across the EU for industry.  Consequently, the application and interpretation of the rules are intensely political. 

What was the case about? 
 
The Court rejected appeals by a number of Spanish regional authorities against an infringement decision of the European Commission and in the process confirmed a number of important state aid principles.  

Principally, the Court upheld the Commission’s decision that the fact that the Spanish government had failed to respect the principle of ‘platform neutrality’, as its digital switchover funding was only available to Digital Terrestrial Television (“DTT”), as opposed to holding a procurement competition in which satellite, cable and internet protocol TV could also bid.  This conferred a ‘selective advantage’ on DTT in relation to its competitors and was therefore state aid. 

What makes this case interesting? 


The case raises questions about the ‘platform neutrality’ of other compensation schemes for DTT.  In particular, it highlighted the issue of whether DTT platform operators should receive compensation for regulatory changes, in this case changes to spectrum position; when this is not available to other (pay) digital television platforms. 

In the UK, the operators of the DTT platform have received public funds to compensate them for moving their channels to other spectrum frequencies.  However, the DTT platform was not selected through a competitive procurement process.  Therefore, this compensation may raise some state aid questions. 

For example, in 2014 OFCOM decided to move the DTT platform from the 700 MHz band to a lower frequency, in order to use the 700 MHz band for mobile data.  The change is estimated to have cost the UK Treasury between £550–660 million.

Equally, other (pay) television platforms do not receive similar compensation for regulatory changes, which could result in extra costs or a loss of income.  For example, the Department of Culture Media and Sport’s (“DCMS”) 2015 proposal to deregulate the Communications Act 2003 (“the Act”) may make it harder for Sky to charge public service broadcasters for ‘technical platform services’. 

How about future implications? 

The Spanish DTT case also suggests that similar compensation schemes for converting analogue to digital radio, using the Digital Audio Broadcasting (“DAB”) system, may be challenged by the Commission, again on the basis of ‘platform neutrality’. 

Unless EU member states hold public procurement competitions to select the technical solution for the provision of digital radio, they could therefore be open to allegations of state aid, as there are a number of competing technical systems to DAB; such as DRM+, HD Radio and DVB-T.

Competition law developments in the pharma sector


Last night we had the pleasure of giving a seminar at our offices on competition law developments in the pharma sector. We looked at investigations into patent settlements, and in particular the ‘pay for delay’ cases. We also reflected at how the recently published Lundbeck and Servier decisions may impact upon other important areas for pharmaceutical companies, such as licensing transactions. We concluded by drawing some ‘bright lines’ to try to assist in navigating what can sometimes appear to be a very grey area, providing practical guidance where we could. After a thorough review of a complex, and sometimes daunting, area of competition law we enjoyed a well deserved drink with many familiar faces, and some new ones too...

For those of you who couldn’t make the seminar a webinar version is available here and the slides here.


Interested in competition law developments in the pharma sector…?

If you are interested in competition law developments in the pharma sector, it’s still not too late to register for a seminar that a couple of us will be giving on Wednesday 30 September.  We will be looking in some detail at the latest patent settlement cases, with a view to trying to find some much-needed legal certainty.  We will also be talking about how the Commission’s conclusions in its Lundbeck and Servier decisions may apply to other areas such as licensing transactions, as well as considering the impact of the competition authorities’ increasingly narrow approach to market definition.

Registration is via Bristows’ main website – here.

A podcast of the seminar, together with the slides, will be available after the event

Pat Treacy and Sophie Lawrance

The unseen risks of e-commerce - a timely AG opinion on technical measures for breaching the competition rules

Those interested in all things e-commerce and competition will want to keep an eye out for the Court of Justice's ruling on a preliminary reference made by Lithuania's Supreme Administrative Court. 

The case (Case C 74/14 - Eturasconcerns an allegation about an anti-competitive concerted practice in the online travel industry. The notable (and novel) point is that the alleged concertation was achieved entirely through the technical workings of an online travel booking system, used by around 20 travel agents (who are now subject to competition investigation). 

The act giving rise to the alleged breach of Article 101 consisted in the making of a technical change which restricted the level of discounts that could be offered by the travel agents to their customers.  There appears to be some very slight evidence that some of the  travel agents had an interest in such a change being made, but the complaint essentially relates to the administrator’s actions in introducing the change, and sending a system notice notifying the travel agents about the change.  It is unclear if the majority of the travel agency users actually saw the system notice, but the fact that they failed to distance themselves from the measure by communicating their disagreement or ceasing to use the service is alleged to amount to a concerted practice. 

The opinion of AG Szpunar (not seen so often in competition cases) was published last week. The opinion  takes the opportunity to engage in a bit of inter-AG dialogue, picking up on AG Wahl's very interesting opinion of a few weeks ago on the role of "cartel administrators" in AC Treuhand (currently only available in French)**.  

Leaving such  benign (or even beneficial) rivalry aside, AG Szpunar concludes that a unilateral communication from an IT system administrator is capable of giving rise to a concerted practice between the administrator and recipients – provide the latter at least give their tacit approval to the measure in question.  According to the AG, such approval can be inferred from the fact that the recipients of the system notice remained silent following receipt of the notice, in particular in circumstances where they were aware that the same information had been communicated to competitors.  While the use of systems messages is not  exactly equivalent to other methods of communication between cartel participants (as the European Commission has urged), a presumption of awareness of the communication may be inferred if a “reasonably attentive and prudent economic operator” would have become aware of the system notice.  Such an operator should have acted in the same way as if it had become privy to illicitly shared information, and should have taken steps to distance itself from the conduct (e.g. by informing the systems administrator).  The ultimate decision on the facts will of course be left to the Lithuanian court on the basis of the full evidence, but the likely outcome (if the AG’s opinion is followed), is that the conduct amounts to an unlawful concerted practice.

In sum, this case is something of a cautionary tale for users of the-commerce systems – who would be well advised to keep an eye out for communications from systems administrators if they wish to avoid being implicated in an unexpected breach of the competition rules.  The view of the Commission (that such communications are entirely equivalent to “normal” business communications) should also be noted – since the Commission will shortly be in receipt of detailed and copious information from its ecommerce questionnaires, it would not be at all surprising to see further cases of this nature emerge in the years to come.

This was of course, only an AG opinion – I, for one, will be keeping a weather eye out for the CJEU ruling.

** It has been a particularly fascinating few weeks for AG opinions in the completion field - and perhaps one where the existence of bit of internecine rivalry among the AGs can be inferred. Important recent AG opinions (aside from this one) include:

  • AG Wahl in AC Treuhand - probably the most radical of this group, suggesting that a “cartel administrator” which is not active on the market does not bear responsibility for the infringement – this is the one, in my opinion, which is the most likely of this group not to be followed;
  • AG Kokott in Post Danmark II - my least favourite - if followed, it represents a 180o change in direction since Post Danmark I, and could well be the nail in the coffin of the supposed economic approach to abuse cases (an “ephemeral trend”, to judge by AG Kokott...);
  • AG Wathelet in Toshiba - an interesting opinion on (inter alia) potential competition.  This one has the potential to be unhelpful for the pending patent settlement cases (companies treated as potential competitors unless the barriers to market entry are “insurmountable”...).
Finally, I note that AG Szpunar has something of a gift for a readable opinion – following a search on a “popular search engine” I found another recent Szpunar opinion in New Media Online, relating to the Audiovisual Media Services Directive (not an instrument with which I currently claim great familiarity), which delights with the following opening paragraph: 

‘Koń jaki jest, każdy widzi’ (“We all know what a horse is”). Thus read one of the definitions contained in the first Polish encyclopaedia, published in the eighteenth century. (2) The problem of defining an audiovisual media service in the internet context, which is the subject of the present case, might seem similar — intuitively everyone is capable of identifying such a service. However, when it comes to describing it in legal language, it is difficult to find terms which are at the same time sufficiently clear-cut and comprehensive.

For those who like their law Denning-esque, AG Szpunar is certainly one to watch!

Sophie Lawrance