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When you compete with your customer

New technology and digital tools are opening up a wealth of opportunities for value creation in every industry but are also raising new antitrust risks. At the same time, authorities are looking hard at different business models and increasingly finding antitrust infringements in commercial behaviour that are far removed from traditional price fixing or market sharing.

In 2019, all companies should look again at the risk areas in their business to identify where allegations of anti-competitive behaviour might now arise. Digital tools that facilitate collaboration with competitors, including the creation and sharing of data, are dealt with in theme 1, and the use of algorithms that enable effective price monitoring, changing or fixing in theme 7. This theme deals with the broader issues arising from online selling, distribution and other areas of regulatory focus.

Online selling – spotlight on restrictive distribution arrangements

Although distribution systems have traditionally been regarded as a lower-risk area because they involve agreements with companies at different levels of the supply chain, they frequently raise competition law concerns in the online world.

In a survey conducted by the European Commission in 2017, the single most common change in distribution strategy in reaction to the growth of e-commerce cited by European manufacturers was the opening of their own online shop (64 per cent had done this in recent years). As suppliers sell directly to customers and independent retailers (‘dual distribution’), they become competitors to their own retailers, which brings its own risks and opportunities:

  • suppliers must be even more careful about restrictive clauses or sensitive information exchange;
  • even where the relationship remains purely ‘vertical’, authorities are alert to the potential harm to competition caused by online sales restrictions, and courts and authorities are still working out their approach. For example, in the 2017 Coty case, the European Court of Justice provided some guidance on when a contractual ban on the use of certain distribution platforms is permissible, but many questions remain open in this area; and 
  • when things have gone wrong, leniency in relation to self-reported infringing conduct, which in many jurisdictions is limited to horizontal cartel infringements, is more likely to be available than it is for traditional distribution infringements. Some authorities will grant leniency for essentially vertical restrictions (Austria, UK) and others do not (France, Italy) while others have not yet decided (Japan) or grant benefits informally (Germany).

Selling online can raise tricky issues of restrictions on competitors and non-competitors, and different authorities take different attitudes to making leniency available in such situations.

Maria Dreher
Antitrust Counsel,

The EU’s distribution rules – a wide- ranging review expected in 2019

A wide-ranging review of the EU’s distribution rules, which have been in place since 2010, will start formally with a public consultation in early 2019. We expect this to focus on issues flagged by the European Commission’s e-commerce inquiry in 2017 and cases opened since then, including:

  • direct and indirect resale price maintenance, and the use of price monitoring software;
  • price and other parity clauses;
  • restrictions on cross-border sales, such as dual pricing arrangements, re-routing customers to websites targeting other member states, or prohibiting or discouraging cross-border deliveries or payments; and
  • selective distribution practices, such as restrictions on the use of online marketplaces and price comparison tools and requirements on distributors to operate ‘brick-and-mortar’ shops.

The review is also expected to cover dual distribution, as this is a key issue in an investigation opened by the European Commission in October 2018 and its current treatment under the rules is controversial. It may also extend to some aspects of online digital content distribution, and to issues linked to the perceived market power of large online platforms.

In the US, dual distribution is viewed as a vertical restriction and is therefore analysed under the ‘rule of reason’ doctrine. Although the Federal Trade Commission and Department of Justice are unlikely to bring a dual distribution enforcement action, plaintiffs may still bring private claims under the Sherman Act, when the pro-competitive features of such arrangements are balanced against the anti-competitive effects.

US authorities are much less likely than European and other enforcers to intervene in distribution arrangements. So it is crucial that American companies active outside the US know that their conduct abroad will be judged according to much stricter rules.

Rich Snyder
Antitrust Counsel,
Washington DC

Other areas of focus in 2019

Authorities in Europe and the US are taking a renewed interest in broader types of commercial practice, which in some circumstances are seen to restrict competition. Particular areas of focus in 2019 include:

  • joint purchasing, which may reduce competition for certain inputs. Ongoing investigations in Europe indicate that companies need to exercise the same degree of caution as in other types of co-operation (such as joint selling or production), though much will turn on precisely how the joint purchasing is structured; and

The European Commission is now looking critically at joint purchasing arrangements, especially in basic industries – even where the market shares concerned are modest.

Thomas Lübbig
Antitrust Partner,
Berlin and Vienna

  • no-poach agreements, which also reduce competition for an input (labour), are a priority for the US authorities where they may be dealt with as criminal infringements.

Many people, including human resources managers, do not realise that no-poach agreements can be serious – and in the US, criminal – infringements, even if made between companies that are active in different product markets.

Tobias Klose
Antitrust Partner,

Looking ahead in 2019:

Check your distribution arrangements for online selling restrictions: remember that if you are selling directly to customers as well as using independent retailers you are competing with those retailers. This means that any antitrust infringements may be horizontal and therefore treated more seriously.

Look out for the EU vertical restraints review early in 2019: get in touch if you would like us to keep you posted, or help you with your own responses.

Make sure your antitrust compliance extends to the human resources team: following developments in the US on no-poach agreements, other enforcers can be expected to take a strong line.