Prime Suspect? European Commission launches second parallel investigation against Amazon

On 10 November 2020, the European Commission (the Commission) announced that it had issued a Statement of Objections to Amazon in its investigation into Amazon’s use of non-public data of sellers gathered from its marketplace platform to the benefit of its competing retail businesses. Simultaneously, the Commission launched a second formal investigation into Amazon’s possible preferential treatment of its own retail services, and marketplace sellers that also use Amazon’s logistics and delivery services.

These investigations come at a time of intense scrutiny over the competition impact brought about by the major internet platforms by antitrust regulators around the world, such as the European Commission’s recent consultations on a New Competition Tool and a Digital Services act which suggest, inter alia, introducing an ex-ante regulation vis-à-vis digital gatekeepers.  They also raise interesting issues in applying existing competition law principles in novel situations arising in the tech context.

Amazon’s dual-role as a platform and a competitor

Background

The key concerns of the European Commission arise from Amazon’s dual role as a marketplace platform for independent sellers to sell to consumers, and a retailer selling products in competition with those sellers on the same platform.

In its role as a marketplace platform, Amazon has access to a large amount of business data relating to independent sellers, such as prices & revenues, promotional activity, sales volumes and customer preferences. The Commission has found that a large amount of this data flows freely to Amazon’s retail business, where it is used to influence Amazon’s business decisions in its retail activities to the detriment of these marketplace sellers.

The Commission is investigating this conduct as a potential abuse of dominance infringing Article 102 of the Treaty on the Functioning of the European Union (TFEU), on the basis that Amazon’s conduct is leveraging its dominance in the provision of marketplace services to avoid the normal risks of competition in its retail activities.

Comment

The Commission’s investigation highlights a new angle of competition law risk for internet platforms (particularly those that also compete with their users), more specifically in light of their control of large amounts of user data.

This fact pattern is not entirely new. In traditional industries, undertakings that play multiple roles within a supply chain (for example, manufacturers that both distribute directly to market and through other distributors, or retailers which market both their own private label brands as well as third party brands) have long been wary of the potential risks of exchanging competitively sensitive information with actual or potential competitors. Safeguards can be put in place in such scenarios to avoid in particular any price fixing or other collusive arrangement in breach of Article 101 TFEU, which prohibits anti-competitive agreements between undertakings.

However, there is one important distinction in Amazon’s case, in that much of the data being used is not received from another undertaking (at least not directly), but rather generated by its own upstream business as the third party undertaking uses the platform; and of course according to the Commission that upstream business is considered dominant. This is may be one reason as to why the Commission is not prosecuting the practice as a breach of Article 101 TFEU, but rather Article 102 TFEU, the prohibition on abuse of a dominant position.

This gives rise to two main questions at least. First, the Commission will need to prove that Amazon is dominant in a properly defined market. Amazon has already stressed that it competes strongly with retailers online and offline and that the market is very competitive. Second, when it comes to proving abuse, it will be interesting to see how precisely the Commission will categorise this allegedly abusive conduct.  The Commission refers to Amazon “leveraging its dominance” across markets, but stops short of elaborating further to which specific category of abuse this belongs.  However, as there is no exhaustive list of conduct that may infringe Article 102, it is open to the Commission to find that this is a novel category of conduct altogether. Indeed, the concept of self-preferencing, for instance, which has been widely condemned by the Commission recently, is a relatively newly categorised form of abuse.

Preferential treatment of Amazon’s integrated downstream services

Background

The Commission opened a second antitrust investigation into Amazon’s practices that could favour both its own retail sales, and also marketplace sellers that also use Amazon’s “fulfilment by Amazon” (FBA) logistics and delivery services.

The Commission’s concerns relate to two different aspects: (i) the mechanism used by Amazon to select products to be placed in its “Buy Box”, a feature that is displayed prominently on Amazon’s websites and which leads to a large proportion of sales on the platform; and (ii) the manner in which Amazon enables sellers to offer products to its users that are part of its “Prime” loyalty programme, which has a growing number of members that also generally tend to make more purchases on Amazon than non-Prime users.

The Commission is also investigating this conduct as a potential abuse of a dominant market position in breach of Article 102 TFEU.

Comment

The concerns that the Commission has in relation to the two business practices that are the subject of this second investigation have elements which seem to be along the lines of the “self preferencing” allegations considered in the Commission’s 2017 decision that Google had infringed Article 102 TFEU in relation to its comparison shopping services, which resulted in a €2.4bn fine and is currently under appeal.

The outcome of the appeal, despite a different factual framework, will inevitably be influential on the Commission’s approach to this investigation and other pending investigations in the tech sector more generally, as well as having a broader impact on the Commission’s approach to regulate the conduct of the technology majors. The Commission has recently also put forward proposals to regulate gatekeeper platforms and to adopt a new competition tool enabling it to investigate particular markets and impose remedies (see our blog post here).

Given the EU regime’s influence over other competition law regimes around the world, repercussions of these initiatives may also be felt further afield in the enforcement activity of regulators in many other jurisdictions.