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25. October 2011 | Category: Newsflash Kartellrecht

ECJ Decides on the Restriction of Online-Sales

Even under a selective distribution system, producers are not allowed to ban their distributors from selling their products online, unless the conditions of Art. 101 (3) TFEU are met.

Pierre Fabre Dermo-Cosmétique

The Court of Justice of the European Union (ECJ) decided on questions concerning the selective distribution system of Pierre Fabre Dermo-Cosmétique in a preliminary ruling (Art. 267 TFEU) on 9 October 2011 (decision).

Pierre Fabre manufactures and markets cosmetics and personal care products. Selective distribution contracts of such products stipulated several provisions that cosmetics and personal care products were to be sold exclusively in a physical space and by qualified staff only.

According to the French Competition Authority, this amounted to a de facto ban on all internet sales. The authority prohibited the further use of such restrictions and imposed a fine on Pierre Fabre which challenged the decision before the French Cour d’appel de Paris. On 18 February 2009, the court had suspended the enforcement of the competition authority’s decision until the ECJ would issue a final ruling.

Decision of the ECJ

First, the ECJ recalled the wide leeway producers enjoy when marketing their products via a selective distribution system. Such agreements are not to be considered as a violation of competition law, in case resellers are chosen on the basis of objective criteria of a qualitative nature that are not applied in a discriminatory fashion and the characteristics of the product in question necessitate such a distribution network.

However, the ECJ hold that there were no legitimate aims in the underlying case justifying a restriction. According to the ECJ, the products in question did not require a ban of online sales. Among others, Pierre Fabre had brought forward the prestigious character of its products, but remained unsuccessful though.

Also, the court hold that Pierre Fabre was not allowed to benefit from the block exemption for vertical agreements (present version). The block exemption grants members of the selective distribution system the right to ban the sale out of an unauthorized place of establishment. This was hold to be an exception applicable only to unauthorized specific establishments, but not to online distribution in general.

However, the ECJ considered an exception on an individual basis as provided for in Art. 101 Abs. 3 TFEU to be possible. This point is not governed by the ruling and will be subject to the decision of the court that requested the preliminary decision.

Background: Restriction of online sales in selective distribution

The needs of makers of brand name products to market their products utilizing qualified advice or a high-class atmosphere often clashes with interest of retailers in using the internet as a distribution channel. Several courts had to decide on the issue of whether or not internet sales must be permitted in selective distribution systems. Under EU law as well as German law, this question is governed by the block exemption for vertical agreements. The European Commission has published guide lines on this issue (present version).

Accordingly, the producer is not capable of preventing stationary retailers from selling products online. Also other restraining measures such as dual pricing forcing the retailer to sell products online for a higher price are prohibited.

At the most, specifications concerning quality (ex. website design) or – in selective distribution systems – the requirement of maintaining at least one physical retail shop (so called brick-and-mortar-clause) are permissible. The German OLG Karlsruhe (link) ruled that a ban of sales using auction platforms like ebay might constitute a feasible selection criterion.

Background: Individual exemption according to Art. 101 (3) TFEU

The prohibition of cartels set out in Art. 101 TFEU (under German law sec. 1 Act against Restraints of Competition (GWB)) applies to agreements and practices that restrict competition. However, those can be subject to exemptions from the prohibition. Several block exemptions cover special types of agreements in case they meet the conditions. Currently, existing block exemptions cover

· Vertical agreements in general

· Vertical agreements in the motor vehicle sector

· Licensing agreements for the transfer of technology

· Certain research and development agreement

· Sector specific issues (e.g. insurance)

Other agreements can be subject to an individual exemption according to Art. 101 (3) TFEU, in case the restriction of competition provides several advantages (wording of Art. 101 TFEU). Usually the application of Art. 101 (3) TFEU requires a complex economic analysis. The burden of proof is with the undertaking that seeks to rely on the exemption.

&nb

Dr. Christian Bahr

Partner, Kartellrecht

bahr@sbr-net.com

Dr. Sascha Dethof

Partner, Kartellrecht

dethof@sbr-net.com

SBR Schuster Berger Bahr Ahrens

Lawyers

Office Hamburg

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