Saturday, September 20, 2008

BPN 1226 Making online commerce a reality

Ms Neelie Kroes (see photograph), European Commissioner for Competition Policy, made closing remarks at the Online Commerce Roundtable in Brussels on 17 September 2008,

“Ten years ago The Economist proclaimed "The Death of Distance". It was right. Liberalisation of telecommunications services has meant that the internet is now within reach of the 500 million people in the 27 countries of the European Union. So consumers now have the internet, with global means of payment, and global distribution systems.

But consumers do not yet have global commerce. Far too often they do not even have pan-European commerce. Consumers are not happy with this. We have heard from one highly respected consumer organisation today, and I have heard similar complaints from other organisations and from individual consumers in the past. So have my fellow Commissioners.

Consumers see the internet, and the borders that exist online, and feel that they are not getting a fair deal. The internet gives more power to the individual than any technological change in history. We cannot let that power be taken away.

This goes beyond narrow commercial interests. The people of Europe were promised a union, a place without borders: but on the internet they have not yet got it. Progress has been made; sometimes impressive, but it is not enough.

There seem to be many reasons for this, some common to the online and the offline worlds, including tax systems, consumer protection laws, guarantees and after-sales service. My colleagues in the Commission are doing their best to address these, knowing that there is a lot more to be done.

But even in areas where these concerns have been overcome, consumers often find that the products they are looking for are not available to them. As Competition Commissioner, I want to know why.

- If this is because the competition rules are not clear enough, I will clarify them.
- If it is because the competition rules are not up to date, I will update them.
- And of course, if this is because the competition rules are not being respected, consumers and companies should know that I will enforce them.
- If the problems do not lie with the competition rules, but are due to the wider regulatory environment I will support my colleagues in the Commission to make any changes that are needed.

The purpose of this meeting is to begin a discussion with consumers and with companies on online issues. I want to hear more views, of course, from other people not present here today, which is why I am inviting others to send me their views. I will also publish a short report of today's meeting on which people can comment. Today is the start of a discussion, not the end of one.

And to help that discussion prove fruitful, I want to outline some impressions that I take away from this meeting, and outline what I intend to do next.

The Single Market of the European Union is based on a relatively straightforward premise. The fewer the barriers between markets, the more efficiently those markets will work. That is why we have spent fifty years trying to create a Single Market for goods and services, for companies and workers, and for capital. And that is why, once state and regulatory barriers have been brought down, the competition rules are there to ensure that state barriers are not replaced by commercial ones.

There are well established competition rules for companies that enter into distribution agreements. They are due for review next year, and we are working hard on that review.

These rules already have provisions for internet sales, and if I hear that these rules are not being respected, then I will look into these allegations immediately. And if I find any company to have breached the rules, I will ask the Commission to act and punish the companies concerned.

There are also questions, however, about whether these rules strike the right balance when it comes to restrictions on internet sales. Should a company, for example, be allowed to exclude internet-only retailers from its distribution system? I have heard today from companies who think that that is the best way to protect a brand image. I have also heard from companies that use internet only retailers but impose strict conditions on them. And I have also heard from consumers who believe that consumers should have the right to choose.

This is going to be an important issue in the forthcoming debate and I hope that we receive more evidence as to the effects of these restrictions.

There are also questions about territorial restrictions. It is a long standing principle of Community law that a company can prevent its distributors from actively selling across borders - this helps to protect investments and efforts made by other distributors. However a company cannot prevent arbitrage and stop its distributors selling - passively - to consumers who are themselves active, and who seek out the distributor.

This distinction between active and passive sales is fundamental - but questions have arisen as to what this means on the internet.

Since the rules were last reviewed, there are a number of practices which are being used by companies to restrict cross border sales which I think require a closer look.

Website redirection, and credit card checks, to name just two practices, may be permissible if decided on by the distributor itself. But if these are imposed on the distributor by the manufacturer, then that seems to risk limiting passive selling - and that is clearly an infringement of competition rules. I intend to look very carefully at these practices, and any others brought to our attention.

So when it comes to physical products, there seems to be room to do more to enforce the competition rules more rigorously to help consumers.

For digitally-delivered products, such as music, the position seems more complicated. But no easier to explain to the consumer.

Why is it possible to buy a CD from an online retailer and have it shipped to anywhere in Europe, but it is not possible to buy the same music, by the same artist, as an electronic download with similar ease? Why do pan-European services find it so difficult to get a pan-European license? Why do new, innovative services find licensing to be such a hurdle?

The answer, as we have heard today is complex. The rights are more complicated, the licensing agreements are more complicated, the issue, so everyone has told me, is more complicated.

The world is always more complicated than we would like it to be. But that is no excuse for inaction. Collecting societies and music labels have come a long way since 1851, the time of Bourget and his sugared water, but the world has changed around them. Artists have changed, distribution has changed, and consumers have changed. There is a perception, though, that the collecting societies and the music labels have not.

Collecting societies have a vital responsibility in looking after the interests of artists. That is only right because music is a vital part of our society and our culture. It always has been and it always will be. But where regional monopolies are not necessary - in the online world - then I want to hear more about whether the current system really helps the artists and whether it serves the consumer.

As you know, I have been trying - through a range of cases in the telecoms and music sectors amongst others - to make the Single Market a reality for new products and services. Today's debate has provided me with useful input to better understand this market and see what needs to be done in the future. If the competition rules are breached, you know already that I will continue to be active. If other changes are needed, I will support my colleagues in making the necessary changes. However I believe that the music industry can reach sensible solutions, allowing simple, workable licensing systems to be created.

Historically, the copyright system has always found a solution for dealing with complex licensing issues and technological change. Indeed the collecting societies themselves developed to solve just such problems.

But if a solution to the problems we face today is not found, then the music industry can hardly complain if regulators or enforcers step in.

I want again to thank all of you for your contributions, and to repeat that this is the start of a discussion, and not the end of one. Each of you now has an opportunity to submit more detailed comments in writing, and I will be inviting third parties to do the same, and to comment on the report of this meeting that will be prepared".

Blog Posting Number: 1226


No comments: