European Commission opened a formal investigation into Amazon’s data practices

 

On 17th July 2019, the Commission announced that it has opened a formal investigation into Amazon’s use of data gathered from other retailers using that platform. The Commission has repeatedly expressed competition concerns relating to platform’s data practices in e.g. its E-commerce Sector Inquiry (para 651, SWD(2017) 154 final) and P2B Regulation (Art.9, Reg.2019/1150). Also, in September 2018, EU Competition Commissioner Margrethe Vestager admitted that the Commission was conducting a preliminary investigation into the unfair use by Amazon of users’ data. As known, Amazon has been alleged to have unfairly used large amounts of sales data generated by the marketplace users in a bid to release its own products and to boost its own retail business (Kahn, 2017, pp.780-783).

As a commentator said, this case is a “prime example of contemporary antitrust” (or hipster antitrust). Also, as this case could be of Art.101 (vertical restraints) and/or Art.102 (abuse) the ramifications of this case may go beyond that of abuse cases, e.g. Google cases. So the present report seeks to explore the potential competition concerns raised by the Commission and how scholars and practitioners react to them. Through this, we may find some insights into what the competition policy would be in the digital world.

 

Commission’s concerns

In its press release, the Commission firstly focuses on the “dual role” of Amazon, as a retailer (seller) and as a marketplace in which independent retailers sell their products. As a marketplace, Amazon has collected competitively sensitive data from other retailers regarding their transactions, etc.

On 19th September 2018, during a press conference, Commissioner Vestager gave more detail on this point: “… You have these platforms that have a dual purpose. They are both hosting a lot of merchants to enable, maybe, the smaller guy to have his business to be found, to do his commerce. And at the same time, they themselves are merchants – big merchants. So, they’re both hosts and they also do the merchant business themselves. And the question here is about the data. Because if you, as Amazon, get the data from the smaller merchants that you host, which could be, of course, completely legitimate because you can improve your service to these smaller merchants, well, do you then also use this data to do your own calculations as to: ‘What is the next big thing?’ ‘What is that people want?’ ‘’What kind of offers do they like to receive?’ ‘What makes them buy things?’ And that has made us start a preliminary [antitrust investigation into Amazon’s business practices].”

Second, the Commission states that it is now centring on two specific issues: One is whether and how the standard agreements between Amazon and sellers, which allow Amazon’s retail business to analyze and use 3rd party’s data (i.e. marketplace seller data), affect competition. The other one is the impact of Amazon’s use of (sensitive) data to select the winner of the “Buy box” through which a vast majority of transactions are done. Reportedly, 82% of Amazon sales go through the “Buy Box” and the percentage is higher for mobile purchases. Against this backdrop, the Commission states that the “Buy Box” is a “key for marketplace sellers”.

When it comes to the agreement on data, it is worth noting that, in the 2018 Staff Working Document, the Commission observed problems of lack of transparency on data policies and differential treatment. It pointed out that “there is a lack of clarity as to the conditions for access and use of data, both regarding online platforms’ collection and use of businesses’ and transaction data, and the conditions for business users to use data collected from the online platform.” And subsequently, it noted that “favouring of own products or some business users takes place e.g. through …  use of transaction data to learn from downstream competitors and improve online platforms’ own competing service” (SWD(2018) 138 final – Part 1, pp.16-17). Such concerns are currently reflected in Art.9 and Art.10 (also recitals 33-36) of Regulation 2019/1150.

 

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The Commission’s investigation zooms in on the issue of Amazon’s “Buy Box”. “Buy Box” is the white box on the right side of the product detail page, where shoppers can readily add items for purchase to their shopping carts. As many retailers frequently sell the same item at the same time on that marketplace, Amazon picks one specific retailer’s item to be placed in the “Buy Box” according to certain standards. The question here is whether the standards are fair or discriminative. According to Bundeskartellamt, the 3rd party retailers complain that they are at a disadvantage compared to Amazon’s own service. Whilst Amazon is not rated as a seller itself, other retailers are subject to ratings that, in case of negative, may have disadvantageous consequences for the presentation of retailers’ offers in the “Buy Box” (BKartA, 2019, pp.5-6). Bundeskartellamt says this issue is currently addressed by the Commission.

 

Comments from antitrust experts

Many approve of the significance of this case as regards the competition assessment of big data. Nicolas Petit, a law professor at the University of Liége, said that ‘this is the first case that the central issue is the collection and use of data from its commercial partners by a tech giant.’ He said ‘the question whether the data can be a ‘strategic resource’ to be used to exclude its competing retailers from its platform can help to clarify what a platform can do or not with data from its trading partners’. Bas Braeken, a competition lawyer at Dutch firm bureau Brandeis, said: “competition professionals have been awaiting a ‘big data’ probe for years.” He pointed out that “Amazon’s insight into consumption patterns is commercially very valuable” and added, “data is different from traditional corporate assets because it is continually created as a company provides another service.”

In fact, the Commission is not the only authority targeting Amazon’s data practices. At the national level, Germany, Austria, Italy, and Luxembourg raised antitrust questions on Amazon’s practices, e.g. ‘self-preferencing’. Whilst Germany and Austria recently ended their investigations following settlements with Amazon, Italy and Luxembourg remain ongoing. It is not clear how the national settlements may impact on the Commission’s case. The Commission’s spokesperson just said that they “have been coordinating very closely” and “came to the conclusion that the investigation did not overlap.”

Self-preferencing by vertically-integrated online platforms has been an issue of modern competition law, inter alia, in the EU. According to Pablo Ibanez Colomo, a law professor at the London School of Economics, the Amazon case is just another example of the emerging trend in the EU competition law enforcement, under which discrimination by a dominant platform “is deemed problematic in and of itself – that is, absent actual or potential foreclosure, then the practice would have become prohibited by its very nature (that is, by object).” He has denounced such an approach in that it is inconsistent with the Court’s case law and the Commission’s practices in which self-preferencing “is not in itself an ‘abnormal act of competition’.” In order for self-preferencing to be illegal, a clear legal test such as evidence of indispensability of the platform service should be required, he said (c.f. in 2017, Luxembourg’s competition authority rejected the argument that Amazon’s marketplace should be considered ‘indispensable’ for the seller’s business activity given the existence of numerous competing platforms. See here).

In the same vein, Alfonso Lamadrid, an antitrust expert at EU and Competition Law Department of Garrigues, cast doubts on the threshold of effects. Pointing out that ‘Amazon has used data to ensure that the overall marketplace remains competitive and this is in the nature of the hybrid business model, which has worked well’, he questioned whether ‘indispensability and the elimination of all competition’ required in all similar cases like Bronner can be met in the Amazon case. He said that ‘merchants were not foreclosed/driven out of the market by Amazon’s conducts given the continuous growth in merchant sales on the Amazon marketplace and the existence of other substituting channels to market their products.’

As Rupprecht Podszun, a law professor at Heinrich Heine University, stated, the Commission case is likely to be based on infringements of Art.101 and/or exclusionary abuses under Art.102 TFEU, whilst Bundekartellamt tried to use the tool of exploitative abuse. Nevertheless, theoretically, it’s still possible to frame this case as an exploitative abuse. At the Union level, however, it would be pretty hard to meet the stringent conditions of “unfair price” or “unfair conditions.” As regards ‘unfair conditions’, the Court has required that ‘the contractual clauses in question are not reasonably necessary in view of the object of the contract in question and are unilaterally imposed by a dominant undertaking without objective justifications’ (See SBAM, Tera Park II, AAMS).

The Commission has not yet made use of its power to impose interim measures, but it could do so in future, so did in the recent Broadcom, to quickly cope with the issues (if any) in the fast-moving e-commerce sector. Although nothing is so clear so far, it needs to be wary over the development of the Commission’s Amazon case given that changing digital giants’ business models becomes a priority for European regulators and that this case is the most recent example of that trend.

 

 

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