European Competition Law Newsletter – May 2015

May 4, 2015

European Commission v Google; Alleged Discrimination by a Dominant Firm

On 15 April 2015, the European Commission (EC) sent a Statement of Objections (preliminary statement of case) to Google alleging the company has abused its dominant position in the markets for general internet search services in the EU. The EC has also formally opened a separate antitrust investigation into Google's conduct as regards the mobile operating system Android.

On the search side, the allegation is that Google has been systematically favouring its own comparison shopping product (Google Shopping) in its general search results pages. The case therefore essentially concerns whether a dominant firm is entitled to discriminate in favour of services it provides in a separate market.

On the Android side, the EC will assess whether Google has illegally hindered the development and market access of rival mobile operating systems and apps/services. The concern is that it has done this by requiring or incentivising smartphone and tablet manufacturers to exclusively pre-install Google’s own apps/services, by preventing smartphone and tablet manufacturers from developing and marketing modified and potentially competing versions of Android (so-called “Android forks”) and by >tying or bundling certain Google apps/services distributed on Android devices with other Google apps/services.

While not entirely novel, the search case in particular raises difficult legal issues. In any event, competitors of dominant providers in other online or in offline industries now have more ammunition to use when those providers seek to favour their own separate services or discriminate against competitors of those services. This is arguably the case even absent any foreclosure of those rivals.

European Commission v Russia (Gazprom); Alleged Market Partitioning, Unfair Pricing and Leveraging by a Dominant Firm

On 22 April 2015, the EC sent a Statement of Objections to Gazprom alleging several abuses of its dominant market position in the EU. This is clearly a highly politicised case and one which shows that the EC is willing to take action against any potentially anti-competitive activities which have an effect in the EU, regardless of the nationality or ownership of the company involved.

The EC’s preliminary view is that Gazprom is breaking EU antitrust rules by pursuing an overall strategy to partition Central and Eastern European natural gas markets, for example, by reducing its customers’ ability to resell the gas cross-border. This may have enabled Gazprom to charge unfair prices in certain EU Member States. Gazprom may also have sought to leverage its dominant market into other markets.

The resale restrictions allegedly used include export bans and clauses requiring the purchased gas to be used in a specific territory (destination clauses). Gazprom has also allegedly used other measures that prevented the cross-border flow of gas, such as obliging wholesalers to obtain its agreement to export gas and refusing under certain circumstances to change the location to which the gas should be delivered. All of these types of activities are equally problematic whatever the industry concerned.

The unfair pricing and leveraging elements are also interesting and generally applicable. In relation to pricing, the concern is that Gazprom has been charging prices to wholesalers that are unfairly high compared to Gazprom’s costs or to benchmark prices. In relation to leveraging, the concern is that Gazprom is making gas supplies to Bulgaria and Poland conditional on obtaining unrelated commitments from wholesalers concerning gas transport infrastructure promoted by Gazprom. For example, gas supplies were made dependent on investments in a pipeline project promoted by Gazprom or on accepting Gazprom’s reinforcement of its control over a pipeline.

MFN Clauses and Online Sales

The competition authorities of Sweden, Italy and France have accepted commitments offered by Booking.com, Europe's largest online travel agent (OTA), concerning its use of so-called parity (or “most favoured nation”) clauses in agreements with hotels. The parity clauses oblige hotels to offer Booking.com the same or lower room prices as the hotel makes available on all other online and offline distribution channels. This settlement with these competition authorities provides a model for the use of similar clauses in this and other sectors EU-wide and should be carefully studied.

Booking.com has agreed, amongst other things, to allow hotels to offer lower room prices on other online hotel booking websites. Booking.com will still be able to apply parity clauses in relation to hotels’ own publicly available online room prices (but not hotels’ offline or online loyalty sites).

The particular concern was that the parity clauses eliminated competition among OTAs. The intention is that the changes will put pressure on OTA commission rates and the quality of service of OTAs, leading ultimately to lower room prices and better services for consumers. The commitments are also intended to make it easier for new OTAs to enter the market, and for innovative OTAs to expand. The “exemption” for price parity clauses relating to hotels’ own public websites is considered justified to prevent “free-riding” on Booking.com’s investments, thus ensuring the continued offering of user-friendly search and comparison services free of charge.

Commission to Investigate Online Selling Practices for Compliance with Antitrust Law and to Inform Future Legislation

In a move relevant to all companies active in online sales, on 26 March 2015, the European Commissioner in charge of competition policy announced a forthcoming proposal to launch a competition inquiry in the e-commerce sector. The inquiry, if confirmed (and it is very likely that it will be), will focus on private and, in particular, contractual barriers to cross-border ecommerce in the EU in digital content and goods.

As is normal in such inquiries, once the inquiry is launched, the EC will gather information from a large number of stakeholders in all EU Member States. Knowledge gained through the sector inquiry will be used to enforce competition law in the e-commerce sector and also, the EC indicates, to facilitate consideration of various legislative initiatives which the Commission plans to launch to boost the EU’s Digital Single Market.

This latter point is particularly important; the inquiry will impact future legislation. One practice which could be impacted is so-called “geo-blocking” of websites based on exclusive territorial content licenses. That is currently a difficult issue under EU competition law.

In any event, the inquiry and the questionnaires should be followed and considered carefully by any company with an interest. Active participation, with advice taken as necessary, is essential.

Additional European competition law news coverage can be found in our news section.

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