In context

Trend: discrimination between online customers remains firmly on EU’s radar

March 16, 2020
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In context

Companies that discriminate against online customers because of their country of residence, are under the Commission’s increased scrutiny. This concerns not only B2C, but also B2B higher-up the distribution chain if distributors are unduly restricted in Europe-wide resales. Since the 2017 inquiry into the e-commerce sector, and as a part of its ambition to complete the digital single market, the Commission has enforced competition law against several companies that implemented territorial restrictions and restricted online sales. Recent developments are evidence that this remains a key priority for the newly installed Commission. Territorial restrictions and limitations of online resale in distribution and licence contracts, must therefore be handled carefully.

New fines for cross-border sales restrictions

The Commission recently imposed a fine of EUR 14 million on media conglomerate NBCUniversal for anti‑competitive licensing practices. NBCUniversal licensed its copyrights to companies producing merchandise featuring popular images and characters from its films (such as the Minions, Jurassic World, and Trolls). Copyright agreements like this are more akin to distribution agreements than to other IP agreements. The Commission will therefore generally assess these agreements under the competition rules regarding vertical distribution agreements, rather than under competition rules relating to technology transfer agreements.

 

The Commission found that NBCUniversal (i) restricted its licensees to selling the merchandise only to allocated territories and customers, and (ii) limited online sales to particular territories or to the websites of specific retailers. These contractual restrictions were found to partition the single market and prevent licensees from selling products across borders and customer groups. Commissioner Vestager, referring to science-fiction character E.T., stated that “The extra-terrestrial may have made it all the way to Earth – but he was stopped in Spain because of a contractual restriction.

 

After the much publicised fines imposed on Nike and Sanrio for similar sales restrictions on licensed products in 2019, the huge fine imposed on NBCUniversal is already the third fine imposed by the Commission on merchandise owners in less than a year.

 

The Commission’s enforcement actions also target other types of cross-border sales restrictions. Clothing company Guess was fined for blocking cross-border sales by authorised retailers in a selective distribution system in 2018. And more recently, the Commission imposed a fine on Spanish hotel group Meliá. In agreements between the hotel group and tour operators, the latter could only make a valid reservation if a consumer was resident in specified countries, as such, restricting both active and passive sales. Since the completion of the sector inquiry in 2017, the Commission has imposed total fines of almost EUR 200 million for creating barriers to cross-border trade in the digital single market.

 

And there are still more cases in the pipeline. The Commission suspects that the cross-border sales of video games via an online platform have been restricted, and more recently, it confirmed that it was investigating Mondelez‘s potentially illegal restrictions on the cross-border sales of its products.

 

See also our previous article on the Commission’s increased scrutiny of parallel trade and geo-blocking in distribution chains.

 

Legislative initiatives

The Commission’s active approach in all of these cases is complemented by its legislative agenda.

 

The Geo-Blocking Regulation (adopted in the aftermath of the e-commerce sector inquiry), is one of the Commission’s measures used to combat cross-border sales restrictions. This regulation aims to remove unjustified geographic restrictions which prohibit online customers from shopping abroad. It bans the difference in treatment of customers based on their place of residence, in terms of access to web shops, payment methods and delivery conditions (see our earlier article on the regulation).

 

The Commission (together with national consumer protection authorities) recently conducted a screening of online shopping practices. As many as one fifth of the websites screened did not respect the Geo-Blocking Regulation’s rules. It also uncovered other irregularities that were in violation of EU consumer rights. As part of this year’s evaluation of the regulation, the Commission will consider a potential expansion to its scope to include certain electronically supplied services which offer copyrighted content.

 

The Commission’s ambition to complete the digital single market will probably also inform the current ongoing review of the Vertical Agreement Block Exemption Regulation and its accompanying guidelines. Commissioner Vestager recently announced that the Commission will publish its assessment of the existing framework shortly and will launch another round of consultation regarding the main options for revision of the rules by the end of 2020.

Fields of expertise

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