04 Jan 2021

Amazon- One of “The Biggest Deals” for EU’s Antitrust Practice

Unbelievable numbers: 840,000 employees, USD 280 billion in revenue for 2019, USD 11.5 billion profit (for the same year) and first centi-billionaire owner ever.  Today, one of the biggest undertakings in global trade.  But, on the other side, one of “The Biggest Deals” for the EU, ever.  We bring you a story of to-ings and fro-ings between Amazon and the EU Commission.

Short Recap

Rewind to July 17, 2019.  On that day, the Commission opened an investigation into possible anti-competitive conduct by Amazon.  More precisely, an investigation was opened to assess whether Amazon’s use of sensitive data from independent retailers who sell on its marketplace is in breach of EU competition rules.

Since then, the Commission has been working on this case ‘in silence’ until recently.  On November 10, 2020, the Commission did two things.  Firstly, it sent a Statement of Objections to Amazon for the use of non-public independent seller data.  In this Statement, the Commission has given a preliminary view that Amazon has breached EU antitrust law.  Secondly, the Commission has opened a new investigation into Amazon’s e-commerce business practices.  It is a 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.

How is this possible?

First of all, we need to explain in brief how Amazon could have made these potential breaches.

Namely, Amazon is an undertaking that has a dual role and 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, competing with those sellers.

The ground for first investigation stems from both roles.  Firstly, Amazon, as a marketplace, has a mechanism to collect and use a range of non-public data from third party sellers, e.g. 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.  However, operation of the mechanism alone is no infringement because standard agreements between Amazon and sellers allow Amazon’s retail business to analyze and use third-party seller data.  The potential problem lies in the use of these data in a secondary role –to boost its own-label products and services.  That would see it fall foul of Article 102 of the Treaty on the Functioning of the European Union (“TFEU“).

The ground for second investigation is alleged preferential treatment on Amazon’s site to its own products and for sellers who paid extra for Amazon’s logistics and delivery services.  The Commission will investigate whether the criteria that Amazon sets to select the winner of the “Buy Box” and to allow sellers to offer products to Prime users, under Amazon’s Prime loyalty program, constitutes preferential treatment.  If proven, the practice under investigation may also breach Article 102 of the TFEU that prohibits the abuse of a dominant position.

Another angle

So, what we have here is a potential double breach of the TFEU regarding the dominant market position.  But is it as clear cut as that? No so.  Let us look at it from another angle.  The Commission noted that these activities represent a potential improper method of competition and it states that, because of this improperness, Amazon “avoids the normal risks of retail competition”.  The inevitable question is: What exactly is improper in Amazon’s practice?  This whole investigation hangs on the answer to this question because improperness is not obvious for at least two reasons.

Firstly, we cannot easily ignore the possibility Amazon’s practices actually improving competition, even if it contains the use of non-public data.  If this practice competitively affects the position of other well-established players, the probability of accuracy for this perspective would be higher.  So, how market behavior that increases competitive pressure be deemed improper?

Secondly, it is not clear what exactly it is about Amazon’s activities that is improper?  “Hunting” business opportunities by reproducing what someone else is doing?  Engaging in a practice that is as old as humanity, and as old as doing business. So long as there is no infringement of intellectual property, this is normal market behavior.  It is very prevalent in retail. Moreover, it should be noted that dominant position is not forbidden, if it is not abused.  This leaves the ball is firmly in the Commission’s court – to identify what is so improper and what is the difference between Amazon and other undertakings employing the same market behavior.  To sum up, the Commission needs to prove that Amazon’s activities produce negative effects on the market, and thus there is an abuse of dominant position.

The significance of this case

As you can see, there are good reasons for both outcomes.  We wish to point out that this investigation is not nearing completion and that a clearer picture will unfold in the months ahead.  However, the significance of this case is already visible in the sentiments of the Executive Vice-President Margrethe Vestager who said: “We must ensure that dual role platforms with market power, such as Amazon, do not distort competition.  With e-commerce booming, and Amazon being the leading e-commerce platform, a fair and undistorted access to consumers online is important for all sellers.”  On the back of those words and bearing in mind Amazon’s “numbers”, it is fair to say that what we have before us is, besides the Microsoft case, probably “the biggest deal ever” in terms of the market influence of a single undertaking.

Stay tuned for more news about this case and we will make sure to keep you informed.

Author: Miloš Brkić