The EU Commission vs. Amazon for an alleged abuse of dominant position as a marketplace service provider

The European Commission gave its latest warning to one of the richest high-tech industry of digital services, Amazon. On 10th November, issuing the Statement of Objections within the context of an antitrust proceedings, the European Commission has informed Amazon of its preliminary view that it has breached EU antitrust rules by distorting competition in online retail markets, using sensitive data from independent retailers who sell on its marketplace.

Indeed, on 17th July 2019 the European Commission opened a formal antitrust investigation, under Article 11(6) of the Antitrust Regulation, to assess whether Amazon’s activity was in breach of EU competition rules, particularly Article 101 and Article 102 TFEU. In particular, Article 101 TFEU prohibits a list of agreements between undertakings, decisions by associations and trade practices which may restrict or distort the normal functioning of the internal market. Article 102 TFEU prevents the abuse of dominant position made by any undertaking as incompatible with the competition principles regulating fair trade between companies.

To date, Amazon is one of the biggest e-commerce platforms in the world. Thus, as the Executive Vice-President Margrethe Vestager, in charge of competition policy, commented, “with e-commerce booming[…] a fair and undistorted access to consumers online is important for all sellers”. The Commission, in its preliminary fact-finding, analyzed the Amazon’s double nature: it is a retailer itself, since it produces and stores its own products, but it works also as a digital platform that provides a marketplace where independent sellers can sell products directly to consumers. In this last case, Amazon is just responsible of the transaction and the shipping of the products sold, but it has access to a number of non-public data on the business of third-party retailers, such as the number of goods ordered and shipped to customers or the number of visits to offers. This great “store” of sensitive data concedes it a relevant position on the market.

Particularly, the Commission’s findings show that very large amounts of non-public seller data are available to employees of Amazon’s retail business and flow directly into the automated systems of that business: these systems aggregate the accessible data and use them to adjust 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 on the best-selling products across product categories and to calibrate its offers along with non-public data of competing sellers. “We analysed a data sample covering over 80 million transactions and around 100 million product listings on Amazon’s European marketplaces” as stated by Margrethte Vestager. “Our investigation shows that very granular, real-time business data relating to third party sellers’ listings and transactions on the Amazon platform, systematically feed into the algorithms of Amazon’s retail business”.

The Commission’s view, outlined in its Statement, is that the use of sensitive sellers’ data allows Amazon to avoid the normal risks of retail competition and to take advantage of its dominance in the market in providing its services. The Commission found that this happens especially in France and Germany, which are the biggest markets for Amazon in the EU: indeed, following the statements of the Executive Vice-President, more than 70% of consumers in France and more than 80% of consumers in Germany that made online purchases bought something from Amazon in the last 12 months.

Moreover, the Commission opened a second antitrust investigation into Amazon’s business practices concerning whether the mechanisms of the so-called “Buy Box” and the use of Amazon’s Prime loyalty programme could lead to a preferential treatment of Amazon’s retail business or of the sellers that use Amazon’s services.

The former is the window displayed prominently on Amazon’s websites which allows customers to read information on and add items from a specific retailer directly into their shopping carts, without details about the retailer being provided since the quality of the product is certified and guaranteed by Amazon marketplace. In order to have its product shown in the Buy Box, the “lucky” retailer must be chosen by Amazon through its algorithms systems. Winning the Buy Box is fundamental to Amazon’s sellers as it prominently shows the offer of one single seller for a chosen product on the platform’s marketplaces and generates the vast majority of all sales. Thus, the task of the Commission is to investigate the way the criteria that Amazon sets to select the winner of the “Buy Box” are chosen. The other side of the investigation will focus 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. Both these two practises would be a reiterated breach of the Article 102 TFEU, regarding the abuse of dominant position in the market.

Within the scope of the Antitrust Regulation procedure, Amazon is allowed to examine the documents in the Commission’s investigation file, make a reply in writing and request an oral hearing to present its defense on the case before representatives of the Commission and national competition authorities. The initial comments of the company, reported by the Wall Street Journal, are that it disagrees with the allegations and would continue to deal with the commission “to ensure it has an accurate understanding of the facts”.

In the last years, the EU has tightened the competition enforcement over high tech giants’ activities. The development and the spread of the digital platforms of e-commerce, according to the Commission approach, have enhanced the responsibility of the big companies in profiting from the huge quantity of data from consumers and sellers they accumulate every day, which is a powerful source of competitive advantage when operating in the markets. Indeed, in the last years there have been many examples of unfair practices put in place by big high-tech giants. In 2017 the European Commission fined Google €2.42 billion for abusing of its market dominance, giving an illegal advantage to another Google product, its shopping service, in respect to the competing ones through the use of the algorithms criteria. Following several investigations, the EU commission and consumer authorities invited also Facebook to use more transparency in updating the terms of its use of consumers’ data in providing its digital services and advertisements.

The regulation of this activity of these giants has been at the center of new proposals made by the Commission, especially in reference to the use of sensitive information in order to tip the market. With the aim of reforming the still unchanged regulatory framework on digital services, provided by the e-Commerce Directive in 2000, the European Commission has announced a Digital Services Act package, which is expected to be proposed on December, to strengthen the Single Market for digital services and foster innovation and competitiveness of the European online environment.

In a resolution of 20th October 2020, the European Parliament has already underlined the fundamental points of the forthcoming proposal. The Digital Services Act must be aimed at ensuring a high level of transparency as regards the functioning of online services and a digital environment without any discrimination and aimed at enhancing the responsibilities of digital services providers to address the risks faced by their users and protect their rights. Particularly, the Parliament stressed that, besides the existing strong regulatory framework that protects privacy and personal data (i.e. the so-called GDPR, in force since 2018), an obligation for online platforms is needed to ensure the legitimate use of algorithms. Moreover, in order to preserve the competition principles, the Digital Services Act package would propose ex ante rules covering large online platforms acting as gatekeepers, which now set the rules of the game for their users and their competitors.

The initiative should ensure that those platforms behave fairly and can be challenged by new entrants and existing competitors, so that consumers have the widest choice and the Single Market remains competitive and open to innovations. As Ms. Vestager further added in her Statement on the Amazon case, these investigations “are crucial in today’s platform economy where more and more businesses depend on dominant platforms, and where more and more consumers use these platforms’ services. It is the role of competition law enforcement to keep these markets open and to ensure undistorted competition”.