E-commerce and antitrust: The Luxembourg Competition Authority rules out that Amazon breaches competition refusing a retailer access to its e-market platform

By the decision of 21 June 2017 handed down in the case no. 2017-C-02 Amazon Services Europe, the Luxembourg Competition Authority (LCA) has cleared Amazon Services Europe Sarl (Amazon) from the allegation that it had infringed Article 102 TFEU and the corresponding national provision, Article 5 of the Luxembourg Competition Law (LCL).  The LCA took the view that the decision of Amazon to terminate the contract with a retailer giving the latter access to the on-line platforms owned by Amazon was justified and, accordingly, did not constitute an anti-competitive abusive conduct.

The facts of the case

X was a Germany-based retailer trading both through ‘click & mortar’ shops and in an on-line environment, being active in many e-commerce platforms including www.amazon.de. Amazon managed the on-line platform Amazon Marketplace that facilitated the matching retailers and purchasers. Typically, Amazon and retailers concluded a contract, named ‘Amazon Services Europe Business Solutions Agreement’ (the BSA contract) whereby Amazon allowed retailers to sell their products through all the on-line platforms managed by Amazon across the EU. In return, the retailer has to pay Amazon a monthly fee plus a fee on any transaction completed via the Amazon platforms.

In the Amazon Services Europe case, Amazon and X entered into a BSA contract in 2007. In addition to the terms indicated above, this contract also laid down a number of criteria concerning the conducts of retailers and the quality of goods put on sale that retailers, such as X, have to comply with in order to adhere with the Amazon commercial policy.

Starting from 2012, Amazon had concerns that X did not abide by those criteria. Consequently, Amazon sent X several warning letters to X. In 2014 representatives from Amazon voiced their concerns about that at a face-to-face meeting they had with their X counterparts.  Notwithstanding that, X continued offering non-compliant products on the Amazon platforms. Eventually, on 25^th March 2015 Amazon communicated to X its intention to immediately terminate the 2007 BSA contract without further notice. X was, however, allowed to continue selling all its good still in stock until the deadline of 4^th May 2015.

As a reaction to the termination of the BSA 2007 contract, in June 2016 X lodged a complaint with the LCA. X claimed that by terminating the 2007 BSA contract Amazon had abused its dominant position. In that regard, X contended that Amazon decision to terminate the contract was without any objective justification. Moreover, when making this decision, Amazon did not consider that the length of the contractual relationship between Amazon and X was more than 10 years and that the level of customers satisfaction of those that made purchases from X was consistently higher than the qualitative standards required by Amazon. Lastly, X argued that Amazon Marketplace constituted an essential facility. The termination of the 2007 BSA contract resulted in a refusal to access to an essential facility, which should trigger the competition liability of Amazon according to the seminal Bronner judgment of the CJEU.

The decision of the LCA

The LCA correctly qualified the Amazon Marketplace platform as a two-sided market that generates indirect network effects. On one side, the more customers visit the Amazon sites the more the platform is attractive for retailers. On the other side, the more retailers trade on the platform, the wider the choice for customers is, the stronger the competition amongst the participating retailers is  and, accordingly, the more the platform is attractive for buyers as well.

Following the approach taken by the French Competition Authority when assessing the competition compliance of the Booking.com online platform, the LCA distinguished the two markets concerned by the Amazon Marketplace: the upstream market where Amazon provides retailers with access services to its on-line platforms; and the downstream market where Amazon supplies end-customers with access services to such platforms. Because the allegations made by X focused on the business practice of Amazon in the upstream market, consistently with the decisional practice of the other national competition authorities, the LCA identified the relevant product market in the market for the provision of access services to retailers. Yet, the LCA refrained from also determining whether Amazon enjoyed a dominant position in this market. The question was left open because the contested conduct of Amazon was not an abuse of dominance.

That said, the LCA correctly pointed out that competition law and contract law are two separate legal systems. A contractual breach does not necessarily lead to a competition infringement whereas the discharge of all contractual obligations does not shelter the parties to that contract from the risk of breaching competition. In addition to that, as consistently held by the European Commission, a dominant firm is free to choose its trading partners. Whether a dominant form terminates a contract without any objective justification does not suffice to establish a competition breach in the shape of foreclosing of the counterparty. The categorization of a termination of a contract as an anti-competitive practice requires the dominant firm to have an interest in foreclosing the firm with which it concluded the terminated contract. This is all the more true, especially with regard to two-sided markets with indirect network effects. Logically, in this scenario, Amazon had no or little interest in foreclosing X. In fact, its business model requires as many as retailers trading on its platforms as possible. Clearly, the termination of the 2007 BSA contract with the ensuing eviction of X from Amazon’s on-line platforms was at odds with its business model. Equally important, the decision of Amazon to terminate the BSA contract was grounded on objective justifications regarding the X conducts in the Amazon’s platforms. More specifically, X put on sale defective products, products with a damaged packaging or products that did not corresponded to the description in the ad published on the web. All these conducts were a violation of the obligations of X stemming from the 2007 BSA contract.

Lastly, the LCA firmly rejected the application of the doctrine of essential facilities to the Amazon Marketplace as claimed by X. For the doctrine of essential facility to apply, there must exist the conditions of non-duplication and indispensability of the facility. None of these conditions was, however, met by the Amazon Marketplace. The LCA pointed out that there are many available on-line platforms other than Amazon Marketplace as reflected by the fact that X continued its on-line retailing activity using competing platforms.

Therefore, the LCA drew the conclusion that the complaint filed by X was ill-grounded. On the basis of the collected facts and evidence it was not possible to establish that Amazon violated Article 102 TFEU and the corresponding Article 5 of the LCL. Therefore, the LCA closed the investigation against Amazon with a non-infringement decision.

Conclusion

Apparently, Amazon Services Europe is the first case in which the LCA considered the application of competition provisions to the digital economy. The question whether Amazon complied with competition law arose as part of a litigation strategy aimed at challenging the legality of the termination of a contract made on the ground of several breaches of this contract. In other words, X used the competition provisions as a shield to attack Amazon, alleging that the termination of the 2007 BSA contract was an abuse of dominant position. Incidentally, the LCA did not consider whether Amazon effectively had a dominant position in the relevant product market. Bearing in mind the transient nature of shares in digital markets that would be no an easy task and also superfluous because the X’s allegations against Amazon appeared to LCA as clearly groundless.

The LCA strongly rejected the categorization of the Amazon’s termination of 2007 BSA contract as abusive conduct in the shape of a refusal to supply. Given that there may be many plausible explanations for a refusal to supply, for such a conduct to be caught by Article 102 TFEU it must be established that the refusal is devoid of any objective justification. This was the key question addressed by the LCA in Amazon Services Europe. A typical scenario where there is an objective justification for the refusal to supply is where the customer failed to discharge its contractual obligations. As seen above, X breached the 2007 BSA contracts several times even after the warnings received by Amazon. A further argument against the finding of a competition breach, as correctly observed by the LCA, is that the business model of Amazon is such that the decision to remove a retailer from the on-line platforms requires a careful consideration. As this decision reduces the choice of products offered on the on-line platforms, it may negatively impact on the indirect network effects that are an essential ingredient of the business model of Amazon.