Earlier today the European Commission's Consumer Affairs
Commissioner Meglena Kuneva presented a new report on cross-border
e-commerce in the EU.1 While the report illustrated that
online shopping within Europe is increasing, with the internet
being the fastest growing retail channel in Europe, it also
highlighted that cross-border e-commerce has been slow to develop
in the EU. The Commission has announced that it will continue its
investigation of how and where consumers are being prevented from
shopping on-line across borders.
Given the particularly weak British Pound against the Euro in
recent months, conditions are prime for the practice of parallel
trading by retailers based in different Member States to take
advantage of the exchange-rates. Similarly, European consumers
based in continental Europe are able to make significant savings by
purchasing exchange-rate dependant bargains from UK-based retailers
of the same products available across the channel. This is
especially so in respect of consumer electronic goods, a product
sector which was highlighted in the Commissioner's speech today
as being prone to 'artificial pricing' across Europe.
Consequently, it is more important than ever that upstream firms
do not risk infringing European competition law by restricting
trade across Member States. In comparison to the less problematic
position regarding territorial restrictions in the US, the
imposition of such limitations on the sale of goods or services
within Europe is likely to constitute a serious infringement of
The Commission has regarded territorial restrictions as
amounting to very serious infringements in the past. For instance,
Nintendo was fined 149 million Euro in 2002 as a result of an
arrangement which prevented German consumers from accessing
parallel imports of Nintendo products from lower-priced Member
States, such as the UK. In addition, the Commission fined those of
Nintendo's distributors who had participated in the arrangement
a total of 18.8 million Euros. Similarly, in 2007 the Commission
issued a statement of objections to Apple in relation to its
arrangements that restricted i-Tunes music sales across European
national borders. Such arrangements had the effect of consumers
being limited to purchases from the i-Tunes online music store
dependant upon their country of residence, which in some cases
resulted in material differences in price for the same product.
Ultimately, a fine was avoided after Apple equalised the prices of
its products across all Member States.
With DG Consumer Affairs having now confirmed the commencement
of an investigation regarding the "artificial pricing" of
electronic goods across Europe over the course of 2009, the risk of
related spill-over investigations under the competition rules by DG
Competition is to be expected.
It would therefore be prudent for firms to verify their internal
compliance with EU competition rules in relation to territorial
restrictions. A crash-course in the main principles governing
territorial restrictions under EU competition law would include the
Restrictions regarding where or to whom a retailer may resell a
product are generally regarded as hard-core restrictions and are
not permitted under EU competition law. This includes direct or
indirect restrictions on the territories in which, or customers to
whom the buyer may resell.
A number of permitted exceptions to the general prohibition do
exist, such as the imposition of restrictions on "active"
reselling into an exclusive territory (or exclusive customer
group) reserved to the supplier or allocated by the supplier to
another of its resellers, or where the restriction forms part of a
selective distribution system. However, a legal review of the
applicable arrangement is highly recommended.
Consequently, despite the various factors set out above (in
addition to the crumbling world-wide economy) which create a real
temptation for upstream companies to impose territorial
restrictions and prevent bargain-hunters gaining from the current
imbalance in exchange-rates across Europe, the risk of Article 81
enforcement relating to any (inadvertent or otherwise) territorial
restriction needs to be taken very seriously.
Whether your entire retail business operates online, or the internet is part of a multi-channel strategy, you need to ensure that you are complying with the Distance Selling Regulations to keep customers happy.
A new Consumer Rights Bill, to be unveiled around May 2013, aims to streamline confusing and overlapping legislation and regulation, and provide stronger protection for consumers.
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