German Federal Cartel Office launches consumer protection sector inquiry into user reviews on the Internet

German Federal Cartel Office launches consumer protection sector inquiry into user reviews on the Internet (press release of 23.5.2019) (see here).

Online user reviews can refer to products such as sewing machines brand XY or service providers such as retailers and doctors.  User reviews on online platforms distinguish between open and closed review systems.  A characteristic feature of an open system is that users can also provide an online review if they have not purchased the product or service via the platform.  A closed review system, on the other hand, requires a transaction on the platform.

With the sector inquiry, the FCO is using an instrument for consumer protection that has been available to the authority since mid-2017. After the areas Smart TVs (see here) and comparison portals (see here) it is the FCO’s third sector inquiry based on its new consumer protection competence.

In contrast to the sector inquiry based on competition law, the FCO’s measures on consumer protection are limited to the publication of a final report.  It does not initiate any procedures, but merely identifies abusive practices.

The FCO is not the only European competition authority looking into the subject of online user reviews. As early as 2015, the Competition & Markets Authority (CMA) published a report on “Online Reviews and Endorsements” (see here). The CMA dealt extensively with the subject of “fake reviews” and described examples of abusive practices.  The authority also stressed the importance of user reviews for consumers’ purchasing decisions.  More than half of UK citizens would actively consider user reviews.

The issue of online user reviews is also discussed at EU level.  With a new directive, the EU wants to strengthen the rights of consumers in the area of online commerce and ensure greater transparency in connection with online user reviews (see here). English version is available: https://www.consilium.europa.eu/media/38907/st08021-en19.pdf 

In addition, the FCO is currently investigating in administrative proceedings whether Amazon is abusing is dominant position regarding product reviews on a possible market for marketplace services for online sales to consumers. (see here). Moreover, the FCO stated in its final report on the consumer protection sector inquiry in the area of comparison portals that user reviews regularly only came from users who successfully completed a transaction via the comparison portal (see here and see here) , exclusively in German). The FCO concluded that this restriction would make fake reviews more difficult, but it would also limit the “spectrum of reviews” of online user reviews.

The initiation of the sector inquiry on the subject of user reviews on the Internet is a further step which illustrates the FCO’s focus on the Internet industry and a topic which has relevance both in terms of competition law and consumer protection law.  It would therefore be desirable for the investigation to also deal – like the CMA – with competition law aspects of user reviews (e.g., the pro-competitive effect), which can then be used in competition law proceedings where the authority has more extensive powers.

The next measures are likely that the FCO is going to send questionnaires to market participants and consumer protection organizations.  The presentation of the results will be followed by a consultation phase during which interested market participants and other interested parties will have the opportunity to comment on the consultation paper.  Subsequently, the FCO will publish a final report.  Further measures, such as the remedying of any legal infringements by official measures, are not provided for by law.

There is no dedicated time frame for carrying out consumer protection sector inquiries.  In comparison portals, the FCO needed approx. 19 months for the entire sector inquiry.  In SmartTVs, the sector inquiry was initiated about 19 months ago and its conclusion is announced for 2019.  Results in the form of a final report on the sector inquiry on user reviews on the Internet are therefore not expected before the end of 2020 or rather mid-2021.