Germany

German Competition Authority Investigates Amazon

The German Federal Cartel Office (FCO) has opened abuse proceedings against Amazon for practices related to the German marketplace amazon.de. This move comes not long after the European Commission initiated a preliminary investigation into Amazon’s use of transaction data.

In both the German and the EU case, the competition concerns appear to be linked to Amazon being not only the largest online retailer but also the largest online marketplace for competing retailers. There are, however, important differences between the two investigations: While the Commission is looking at “exclusionary abuse,” i.e. conduct hindering the competitive opportunities of its rivals, the FCO investigates potential “exploitative abuse,” i.e. imposing conditions that are significantly more onerous for retailers using the marketplace than they would be in a competitive environment (see the FCO’s press release).

The approach of the FCO is based on special features of German competition law, which facilitate proceedings against abuses of market power:

First, regarding the issue of market power, the German prohibition on abusive market conduct applies not only to companies with a dominant market position (as under EU law) but also to companies with “relative market power,” which is a less demanding standard. A company has relative market power if small or medium-sized customers or suppliers are dependent on it and cannot reasonably switch to other companies for the supply or the sale of a particular type of goods or services. The FCO believes that Amazon may be dominant or may have relative market power because it functions as a “gatekeeper.” In fact, Amazon has become so powerful in Germany that many retailers and manufacturers depend on the reach of its marketplace for their online sales.

Second, regarding the existence of abuse, the FCO suspects that Amazon is abusing its market position to the detriment of sellers active on its marketplace by imposing unfair terms and conditions. Here, the FCO relies on the case law of the German Supreme Court, which has decided that the use of unfair terms and conditions by a dominant firm can constitute an abuse – provided it is because of its dominance or relative market power that the firm is able to impose such terms and conditions. In other words: there must be a causal link between the firm’s market power or dominance and the unfair terms and conditions. It is not yet clear how the FCO will establish such a link.

Regarding the terms and practices that will be scrutinized, the FCO has listed the following provisions as being potentially illegal:

  • liability provisions
  • choice of law and jurisdiction clauses
  • rules on product reviews
  • the non-transparent termination and blocking of sellers’ accounts
  • withholding or delaying payment
  • clauses assigning rights to use the information material that a seller has to provide with regard to the products offered
  • terms of business on pan-European dispatch

The FCO’s Amazon investigation shows some similarities to its ongoing proceedings against Facebook (see our previous Blog post). Both cases are focused on the use of unfair terms and conditions. The FCO has said that it will issue its Facebook decision in early 2019. We expect that decision to set the direction for the Amazon investigation.

 

Platform Bans: German Competition Authority Critical Despite Coty Judgment

Since last year’s “Coty” judgment of the European Court of Justice (ECJ), it may have seemed settled that authorized dealers in a selective distribution network can be prohibited from selling products via third-party marketplaces, i.e. online platforms operated by third parties such as Amazon.[1] However, in a recent position paper, the German Federal Cartel Office (FCO) has expressed a much more nuanced view.[2]

According to the Coty judgment, EU competition law generally allows the banning of online third-party platforms in selective distribution systems, especially for luxury goods. First, where such a ban is applied without discrimination and in a proportionate manner to the distribution of luxury goods and with the objective of preserving the luxury image of such goods, the ban is not considered a restriction of competition. Second, in all other cases – for example where the goods in question are not “luxury goods” – the ban may be justified by the Vertical Block Exemption Regulation (VBER), provided the market shares of the parties are below 30 percent.[3]

The FCO, however, makes it clear that there are several issues that remain unsolved, even after the Coty ruling.

First, the FCO points out that the Coty judgment deals with “luxury goods” and that it cannot simply be applied one-to-one to other types of products, including high-quality products. Thus platform bans for non-luxury goods may, in fact, infringe competition law, even within selective distribution systems. In the absence of a clear definition separating “luxury goods” from other (high-quality) branded products, accepting outright bans of online platforms will, therefore, be anything but automatic.

Second, the FCO explains the policy that it proposes to apply outside the (limited) scope of the Coty ruling, i.e. to non-luxury goods, including high-quality branded products: it considers that a general prohibition on using third-party online platforms is likely excessive and that less restrictive measures, such as specific quality requirements, will normally suffice to protect a brand image. For example, the FCO explains that dealers could be required to have their own online shop on the marketplace rather than share a product page with other dealers.

Third, the FCO also puts a question mark over the application of the VBER to third-party platform bans. The ECJ decided in its “Pierre Fabre” judgment that manufacturers generally cannot prevent their distributors from using the internet as a sales channel.[4] An outright ban on internet sales is normally an infringement of EU competition law. However, in “Coty,” the ECJ added that a mere ban of third-party platforms does not amount to a prohibition on using the internet – provided distributors are able to run their own online shops and are unrestricted in using the internet for advertising and marketing purposes so that customers can find their online offers via online search engines. The FCO now points out that consumer preferences and the relative importance of different sales channels may vary between EU member states. According to the FCO, marketplaces and price comparison sites are much more significant in Germany than in other EU member states. In Germany, banning the use of marketplaces could reduce a distributor’s visibility to such an extent that the ban becomes equivalent to a complete ban of online sales and, thus, unlawful.

In a nutshell, the FCO is not prepared to generally accept the legality of third-party platform bans and it can be expected that it will continue to challenge such prohibitions if they have restrictive effects on competition.

However, the FCO also recognizes that Amazon Marketplace has become increasingly important for manufacturers and that many manufacturers can no longer afford to exclude this particular sales channel from their distribution system. The rising market power of Amazon Marketplace is of particular concern for the authority because of Amazon’s dual business model. Amazon is a “hybrid platform” that acts both as an intermediary for online dealers and as an authorized dealer for the same products. The FCO highlights the risks that follow from this setup: in particular, independent dealers could be disadvantaged or squeezed out of the market. The FCO is very clear about its intention to keep online markets open and that it will closely monitor Amazon’s growing market power with this in mind.

_________________________ 

[1] EU Court of Justice judgment of December 6, 2017, Coty Germany GmbH vs. Parfümerie Akzente GmbH, C-230/16, EU:C:2017:941.

[2] “Competition and Consumer Protection in the Digital Economy: Competition restraints in online sales after Coty and Asics – what’s next?” published on the FCO website (link).

[3] Commission Regulation (EU) No 330/2010 of April 20, 2010 on the application of Article 101(3) of the Treaty on the Functioning of the European Union to categories of vertical agreements and concerted practices.

[4] EU Court of Justice judgment of October 13, 2011, Pierre Fabre Dermo-Cosmétique SAS vs. Président de l’Autorité de la concurrence a.o., C-439/09, [2011] ECR I-9447.

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Germany’s Federal Cartel Office (FCO) has published two documents summarizing its activities for the public: a more detailed “Activities Report” for the years 2015 and 2016 and the high-level “Annual Report 2016.” These documents confirm that the FCO continues to be a highly active operator in the area of competition law enforcement in Europe.

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Currently, the applicability of the German merger control rules depends primarily on the revenues of the firms participating in a transaction. A concentration needs to be notified to the German competition authority – the Bundeskartellamt – where all the following three turnover thresholds are met: (i) EUR 500 million worldwide, (ii) EUR 25 million in Germany, and (iii) EUR 5 million in Germany. The 500 million threshold (i) refers to the sales achieved by all of the parties combined in their last completed financial year. The other two thresholds (ii) and (iii) refer to the individual sales of two parties to the transaction (e.g., the acquirer, on the one hand, and the business being acquired, on the other). Where the notification thresholds are met, the parties are subject to a standstill obligation. They must not consummate the transaction until it has been cleared (or is deemed to have been cleared) by the Bundeskartellamt.

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