When can suppliers ban resellers from selling on online marketplaces or E-commerce platforms?
We have long known that suppliers and manufacturers may not simply ban dealers and distributors from selling online without infringing EU/UK competition law.
However, the extent to which this rule applied to bans on selling on online marketplaces or e-commerce platforms (a la Amazon, eBay or Facebook) – particularly in the context of non-luxury goods – was mired in uncertainty, even after a landmark European court ruling in December 2017.
In the context of luxury branded goods sold by authorised resellers within a ‘selective distribution system’, our Commercial team discussed the implications of the Coty judgment of the Court of Justice of the European Union (ECJ) in our Retail Bulletin here.
It is fair to say that this case has attracted a great deal of heated debate and caused division amongst the antitrust community. A recent European Commission paper has now confirmed, though, what many ‘glass half full’ commentators had argued should be the wider implications of the Coty judgment.
Hence, even exclusive distribution agreements – or selective distribution agreements involving non-luxury goods – may contain ‘online platform sales bans’ provided both parties’ market shares do not exceed 30% (and the other ‘Vertical Block Exemption Regulation’ (VBER) conditions apply).
Coty Competition Policy Brief
On 4 April 2018, the European Commission issued a Competition Policy Brief (1/2018) setting out its view on the application of EU competition law to online marketplace bans following the Coty judgment.
Coty Judgment – Facts
Coty, a leading supplier of luxury cosmetics in Germany, sells its products through a selective distribution network designed to preserve the luxury image of its products. Akzente, one of its authorised distributors, operates one of Germany’s largest perfume shop chains and distributes Coty’s products both in its shops and on the internet. Internet sales were made through Akzente’s online store and via the online platform ‘amazon.de’. Coty amended its selective distribution agreement in March 2012 so that internet sales would only be valid if made through an ‘electronic shop window’ of an authorised shop and if the luxury character of the goods were preserved.
Akzente refused to accept this amendment arguing that the prohibition of distribution via online platforms was anti-competitive and a restriction of competition. Akzente continued to market Coty’s products via Amazon, which resulted in Coty issuing proceedings in order to prohibit Akzente from selling its branded products via the online platform ‘amazon.de’.
On 31 July 2014, the District Court of Frankfurt issued its judgment rejecting Coty’s action. Coty appealed to the Higher Regional Court of Frankfurt which decided to stay proceedings and sought clarification from the ECJ on the issue.
Coty Judgment – Ruling
On 6 December 2017, the ECJ issued its ruling (which followed the Advocate General’s opinion) that luxury good suppliers may restrict members of their selective distribution system from selling their products through third party online platforms without breaching EU competition law.
The ECJ ruled that a selective distribution system that provides for an online marketplace ban to preserve the luxury image of luxury goods does not infringe Article 101(1), provided the following cumulative conditions are met (often referred to as the ‘Metro-criteria’): (i) resellers are chosen on the basis of objective criteria of a qualitative nature, laid down uniformly for all potential resellers and applied in a non-discriminatory manner; (ii) the characteristics of the product in question necessitate such a system in order to preserve its quality and ensure its proper use; and (iii) the criteria laid down do not go beyond what is necessary.
As regards the second condition, the ECJ noted that luxury goods are not only defined by their material qualities but also by their ‘aura of luxury’ which enables customers to differentiate them from other goods. Any impairment of that aura of luxury will likely affect the actual quality of those goods.
Finally, the ECJ ruled that the online marketplace ban at issue was not a ‘hardcore restriction’ within the meaning of Article 4 of the VBER.
The ECJ found that the ban on ‘discernible’ third party online platforms did not limit ‘passive sales’ (sales made in response to unsolicited customer requests) to end users by authorised distributors. Nor did the ban limit the customers to which distributors could sell the product. The ECJ also noted that distributors were allowed to advertise the products via the internet on third party platforms (such as price comparison websites) and use online search engines with the result that customers could still find the online offers of authorised distributors. The ECJ also emphasised that an online marketplace ban differs from an absolute ban on online sales.
The ruling confirmed that a contractual clause which prohibits authorised distributors from using, in a discernible manner, third party online platforms, will be compliant, provided it meets the same criteria that the selective distribution system itself is required to meet (see the Metro-criteria above).
The Coty judgment was certainly a welcome development for suppliers of luxury goods wishing to restrict internet sales on third party online platforms, such as Amazon, eBay or Facebook, within a selective distribution system. Yet, the ECJ did not clarify explicitly the extent to which the same reasoning may apply to selective distribution systems for non-luxury goods or, indeed, to exclusive distribution agreements.
Nonetheless, the ECJ’s reasoning with respect to hardcore restrictions would seem to apply equally to other product categories such as ‘high-quality’ and ‘high-technology’ products if the Metro-criteria for selective distribution are fulfilled.
This is consistent with the European Commission’s view in the Competition Policy Brief. The ECJ’s technical reasoning for why a marketplace ban is not a hardcore restriction is not premised on the luxury identity of the products.
In practice, of course, it is only necessary to ascertain whether a selective distribution system itself (whether for luxury goods or not) meets the Metro-criteria – and therefore does not appreciably restrict competition under Article 101(1) – if the agreement falls outside the VBER.
Hence, even if one or more of the conditions in the Metro-criteria is not met – or, indeed, where exclusive distribution is being used – a marketplace ban is still likely to benefit from the ‘safe harbour’ afforded by the VBER if the parties’ market shares do not exceed 30% and there are no other hardcore restrictions.
The content of this page is a summary of the law in force at the present time and is not exhaustive, nor does it contain definitive advice. Specialist legal advice should be sought in relation to any queries that may arise.
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