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Major changes ahead in e-commerce regulation

Several significant developments have recently occurred in competition rules related to e-commerce business solutions. According to experts at professional services firm Deloitte, companies interested in online retail should be especially careful when signing contracts, as any lapse could mean serious fines.

Péter Göndöcz

The e-commerce sector has been expanding rapidly in Hungary, with the total amount of money spent on the internet reaching HUF 365 billion in 2017, according to a press release from Deloitte sent to the Budapest Business Journal. This amounts to 4.3% of total retail sales in Hungary.

The spread of e-commerce has also led to the appearance of other markets, which raises new questions from both consumer protection and competition law aspects, says Deloitte. In some cases, the situation only becomes clear after the intervention of the authorities, shedding light on requirements outside the basic rules for e-commerce companies.

Most e-commerce regulation developments in competition law are related to the abolishment of limitations. This is the result of the European Union handling the Digital Single Market Strategy as a priority. One of the strategyʼs most important elements is helping the spread of e-commerce taking place across borders.

Multiple commission investigations, either concluded or in progress, have been initiated, as manufacturing companies forbid retailers in their trade network to sell their products online. From the competition law aspect, it is clear that the general forbidding of online retail is a serious limitation of free competition, and is not allowed, according to Deloitte.

In some cases of limitation, manufacturers only implement a partial ban, forbidding their retailers from selling their wares on specific online marketplaces like Amazon and eBay. Multiple processes initiated in member states have led to condemnation of such agreements as automatically forbidden limitations on the freedom of competition.

At the same time, the European Court clarified in its Coty decision last December that forbidding e-commerce on certain online platforms does not automatically qualify as forbidden limitation of competition. Whatʼs more, in some cases, online platform bans, with preferable reasoning, may even be allowed.

Selective networks

The other typical tool of limiting online commerce is when a manufacturer creates a selective retail network, which excludes companies only conducting sales online, claiming that members of its network can only be firms doing in-store business. This limitation is not forbidden by competition law, nor is using different prices for retailers only involved in e-commerce, or conducting business exclusively in-store. However, a manufacturer selling products at different prices for retailers operating both online and offline, with regards to the characteristics of the sales, counts as legally problematic.

A method often used to limit e-commerce is determining the minimum price of products sold online. The goal of this practice is to ensure that retailers would not sell the same product cheaper online than in-store, as this puts companies conducting exclusively offline business at a disadvantage.

Despite the reasoning, this type of limitation is not permitted in competition law. The EC levied more than EUR 100 million in fines on four electronics manufacturers for fixing prices for online retail. Other EU authorities have also started processes against fixing.

Another practice is the manufacturer and the retailer agreeing not to sell to buyers of different nationalities or of a different location through the internet.

"Such an agreement counts as a hardcore limitation of competition, and in the case of a competition authority process, there is a high chance of a fine," says Anna Miks, head of competition at Deloitte Legal Hungary. "It is important to direct attention to the fact that location or nationality-based discrimination is not only forbidden by competition rules, but by this yearʼs geo-blocking legislation as well, which tries to introduce more partial rules to facilitate the spreading of cross-border commerce."

Online limitations are not only utilized by manufacturers preferring in-store commerce. There have been cases when online price comparison websites obligated their partners to disclose their agreements with other online platforms, and then obligated them to provide the same conditions for their own agreement as well.

It seems that e-commerce rules are constantly evolving, and a halt in the trend is not expected, with intensive changes predicted for the forthcoming period, according to Deloitteʼs press release.

"The Commissionʼs ‘roadmap,ʼ published on November 8, implies this, as they officially announced a consultation regarding the ‘Exemption for vertical supply and distribution agreements,ʼ which determines the rules of competition," says Péter Göndöcz, partner of Deloitte Legal. "The agreement will expire in 2022, and the Commission wants to use the opinion of stakeholders to determine if current regulations provide a sufficient answer for the changes that developed in the past years, mostly regarding the spreading of online commerce and the entry of new online market players. As a result of the consultation process, there might be a reevaluation of the rules of the ‘Exemption for vertical supply and distribution agreementsʼ."