|The EU commences with one antitrust action against Amazon while investigating other possible violations.|
The European Commission (EC) released a summary of its findings in one antitrust investigation against Amazon, finding enough evidence to proceed while also starting the process to investigate another alleged violation by the United States (U.S.) multinational. The EC started its investigation of Amazon in July 2019, and this action follows an announced investigation of Apple earlier this year. Also, the European Union (EU) has fined Google €8.2 billion cumulatively for three separate antitrust violations over the last five or six years. Moreover, the EC is readying a “Digital Markets Act” to update the EU’s competition laws.
Article 102 of the Treaty on the Functioning of the European Union (TFEU) bars a company from abusing its dominant market position. The EC is asserting that Amazon has a dominant market position regarding its use of sales data from selling the items of third parties that the company sometimes uses to undercut the third parties. According to the EC, this is abuse in violation of Article 102, and it has issued a Statement of Objections. However, the process by which an antitrust action in the EU is brought is not finished at this stage. Amazon will have the opportunity to respond and any final decision, particularly fines, must be approved by the Advisory Committee which consists of the EU’s competition authorities.
In its press statement, the EC explained:
- The European Commission has informed Amazon of its preliminary view that it has breached EU antitrust rules by distorting competition in online retail markets. The Commission takes issue with Amazon systematically relying on non-public business data of independent sellers who sell on its marketplace, to the benefit of Amazon’s own retail business, which directly competes with those third party sellers.
- The Commission also opened a second formal antitrust investigation into the possible preferential treatment of Amazon’s own retail offers and those of marketplace sellers that use Amazon’s logistics and delivery services.
In its Statement of Objections, the EC further detailed its case that Amazon’s access to and use of private business data of third-party sellers for Amazon’s benefit distorts competition contrary to EU law:
- Amazon has a dual role as a platform: (i) it provides a marketplace where independent sellers can sell products directly to consumers; and (ii) it sells products as a retailer on the same marketplace, in competition with those sellers.
- As a marketplace service provider, Amazon has access to non-public business data of third party sellers such as the number of ordered and shipped units of products, the sellers’ revenues on the marketplace, the number of visits to sellers’ offers, data relating to shipping, to sellers’ past performance, and other consumer claims on products, including the activated guarantees.
- The Commission’s preliminary findings show that very large quantities of non-public seller data are available to employees of Amazon’s retail business and flow directly into the automated systems of that business, which aggregate these data and use them to calibrate Amazon’s retail offers and strategic business decisions to the detriment of the other marketplace sellers. For example, it allows Amazon to focus its offers in the best-selling products across product categories and to adjust its offers in view of non-public data of competing sellers.
- The Commission’s preliminary view, outlined in its Statement of Objections, is that the use of non-public marketplace seller data allows Amazon to avoid the normal risks of retail competition and to leverage its dominance in the market for the provision of marketplace services in France and Germany- the biggest markets for Amazon in the EU. If confirmed, this would infringe Article 102 of the TFEU that prohibits the abuse of a dominant market position.
The EC also launched another inquiry into the platform’s practices that allegedly favor the company’s items as compared to third-party sellers and also those items offered by third-parties that use Amazon’s logistics and delivery services. The EC explained it “opened a second antitrust investigation into Amazon’s business practices that might artificially favour its own retail offers and offers of marketplace sellers that use Amazon’s logistics and delivery services (the so-called “fulfilment by Amazon or FBA sellers”).” The EC continued:
- In particular, the Commission will investigate whether the criteria that Amazon sets to select the winner of the “Buy Box” and to enable sellers to offer products to Prime users, under Amazon’s Prime loyalty programme, lead to preferential treatment of Amazon’s retail business or of the sellers that use Amazon’s logistics and delivery services.
- The “Buy Box” is displayed prominently on Amazon’s websites and allows customers to add items from a specific retailer directly into their shopping carts. Winning the “Buy Box” (i.e. being chosen as the offer that features in this box) is crucial to marketplace sellers as the Buy Box prominently shows the offer of one single seller for a chosen product on Amazon’s marketplaces, and generates the vast majority of all sales. The other aspect of the investigation focusses on the possibility for marketplace sellers to effectively reach Prime users. Reaching these consumers is important to sellers because the number of Prime users is continuously growing and because they tend to generate more sales on Amazon’s marketplaces than non-Prime users.
- If proven, the practice under investigation may breach Article 102 of the TFEU that prohibits the abuse of a dominant market position.
The EC’s antitrust action may be followed by an action by the United States (U.S.) government. It has been reported in the media that the Federal Trade Commission (FTC) is also investigating Amazon’s conduct visa vis third-party sellers on its platform and could also bring suit. However, there may be a lack of bandwidth and resources at the agency if it proceeds with an antitrust action against Facebook as is rumored to be filed by year’s end.
Moreover, the U.S. House of Representatives’ Judiciary Committee’s Antitrust, Commercial and Administrative Law Subcommittee’s “Investigation into Competition in Online Markets” detailed the same conduct the EU is alleging violates antitrust law:
One of the widely reported ways in which Amazon treats third-party sellers unfairly centers on Amazon’s asymmetric access to and use of third-party seller data. During the investigation, the Subcommittee heard repeated concerns that Amazon leverages its access to third-party sellers’ data to identify and replicate popular and profitable products from among the hundreds of millions of listings on its marketplace. Armed with this information, it appears that Amazon would: (1) copy the product to create a competing private-label product; or (2) identify and source the product directly from the manufacturer to free ride off the seller’s efforts, and then cut that seller out of the equation.
Amazon claims that it has no incentive to abuse sellers’ trust because third-party sales make up nearly 60% of its sales, and that Amazon’s first-party sales are relatively small. Amazon has similarly pointed out that third-party listings far outnumber Amazon’s first-party listings. In a recent shareholder letter, CEO Jeff Bezos wrote, “Third-party sellers are kicking our first-party butt. Badly.” In response to a question from the Subcommittee, however, Amazon admitted that by percentage of sales—a more telling measure—Amazon’s first-party sales are significant and growing in a number of categories. For example, in books, Amazon owns 74% of sales, whereas third-party sellers only account for 26% of sales. At the category level, it does not appear that third-party sellers are kicking Amazon’s first-party butt. Amazon may, in fact, be positioned to overtake its thirdparty sellers in several categories as its first-party business continues to grow.
As noted, earlier this year, the EC announced two antitrust investigations of Apple regarding allegations of unfair and anticompetitive practices with its App Store and Apple Pay.
In a press release, the EC announced it “has opened a formal antitrust investigation to assess whether Apple’s conduct in connection with Apple Pay violates EU competition rules…[that] concerns Apple’s terms, conditions and other measures for integrating Apple Pay in merchant apps and websites on iPhones and iPads, Apple’s limitation of access to the Near Field Communication (NFC) functionality (“tap and go”) on iPhones for payments in stores, and alleged refusals of access to Apple Pay.” The EC noted that “[f]ollowing a preliminary investigation, the Commission has concerns that Apple’s terms, conditions, and other measures related to the integration of Apple Pay for the purchase of goods and services on merchant apps and websites on iOS/iPadOS devices may distort competition and reduce choice and innovation.” The EC contended “Apple Pay is the only mobile payment solution that may access the NFC “tap and go” technology embedded on iOS mobile devices for payments in stores.” The EC revealed “[t]he investigation will also focus on alleged restrictions of access to Apple Pay for specific products of rivals on iOS and iPadOS smart mobile devices” and “will investigate the possible impact of Apple’s practices on competition in providing mobile payments solutions.”
In a press release issued the same day, the EC explained it had also “opened formal antitrust investigations to assess whether Apple’s rules for app developers on the distribution of apps via the App Store violate EU competition rules.” The EC said “[t]he investigations concern in particular the mandatory use of Apple’s own proprietary in-app purchase system and restrictions on the ability of developers to inform iPhone and iPad users of alternative cheaper purchasing possibilities outside of apps.” The EC added “[t]he investigations concern the application of these rules to all apps, which compete with Apple’s own apps and services in the European Economic Area (EEA)…[and] [t]he investigations follow-up on separate complaints by Spotify and by an e-book/audiobook distributor on the impact of the App Store rules on competition in music streaming and e-books/audiobooks.”
Finally, recently, EU Executive Vice-President Margrethe Vestager gave a speech titled “Building trust in technology,” in which she previewed one long awaited draft EU law on technology and another to address antitrust and anti-competitive practices of large technology companies. Vestager stated “in just a few weeks, we plan to publish two draft laws that will help to create a more trustworthy digital world.” Both drafts are expected on 2 December and represent key pieces of the new EU leadership’s Digital Strategy, the bloc’s initiative to update EU laws to account for changes in technology since the beginning of the century. The Digital Services Act will address and reform the legal treatment of both online commerce and online content. The draft Digital Markets Act would give the EC more tools to combat the same competition and market dominance issues posed by companies like Apple, Amazon, Facebook, and Google. Vestager stated:
- So, to keep our markets fair and open to competition, it’s vital that we have the right toolkit in place. And that’s what the second set of rules we’re proposing – what we call the Digital Markets Act – is for.
- That proposal will have two pillars. The first of those pillars will be a clear list of dos and don’ts for big digital gatekeepers, based on our experience with the sorts of behaviour that can stop markets working well.
- For instance, the decisions that gatekeepers take, about how to rank different companies in search results, can make or break businesses in dozens of markets that depend on the platform. And if platforms also compete in those markets themselves, they can use their position as player and referee to help their own services succeed, at the expense of their rivals. For instance, gatekeepers might manipulate the way that they rank different businesses, to show their own services more visibly than their rivals’. So, the proposal that we’ll put forward in a few weeks’ time will aim to ban this particular type of unfair self-preferencing.
- We also know that these companies can collect a lot of data about companies that rely on their platform – data which they can then use, to compete against those very same companies in other markets. That can seriously damage fairness in these markets – which is why our proposal aims to ban big gatekeepers from misusing their business users’ data in that way.
- These clear dos and don’ts will allow us to act much faster and more effectively, to tackle behaviour that we know can stop markets working well. But we also need to be ready for new situations, where digitisation creates deep, structural failures in the way our markets work.
- Once a digital company gets to a certain size, with the big network of users and the huge collections of data that brings, it can be very hard for anyone else to compete – even if they develop a much better service. So, we face a constant risk that big companies will succeed in pushing markets to a tipping point, sending them on a rapid, unstoppable slide towards monopoly – and creating yet another powerful gatekeeper.
- One way to deal with risks like this would be to stop those emerging gatekeepers from locking users into their platform. That could mean, for instance, that those gatekeepers would have to make it easier for users to switch platform, or to use more than one service. That would keep the market open for competition, by making it easier for innovative rivals to compete. But right now, we don’t have the power to take this sort of action when we see these risks arising.
- It can also be difficult to deal with large companies which use the power of their platforms again and again, to take over one related market after another. We can deal with that issue with a series of cases – but the risk is that we’ll always find ourselves playing catch-up, while platforms move from market to market, using the same strategies to drive out their rivals.
- The risk, though, is that we’ll have a fragmented system, with different rules in different EU countries. That would make it hard to tackle huge platforms that operate throughout Europe, and to deal with other problems that you find in digital markets in many EU countries. And it would mean that businesses and consumers across Europe can’t all rely on the same protection.
- That’s why the second pillar of the Digital Markets Act would put a harmonised market investigation framework in place across the single market, giving us the power to tackle market failures like this in digital markets, and stop new ones from emerging. That would give us a harmonised set of rules that would allow us to investigate certain structural problems in digital markets. And if necessary, we could take action to make these markets contestable and competitive.
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