A move towards allowing online marketplace bans in selective distribution systems?

The pending Coty case before the Court of Justice of the European Union (CJEU) is a referral from the Higher Regional Court Frankfurt am Main which is seeking guidance on the interpretation of the Vertical Block Exemption Regulation (Regulation (EU) 330/2010) and its application to restrictions imposed by manufacturers regarding online distribution.

In particular in Germany, the Bundeskartellamt as well as the courts have been concerned with various restrictions in distribution agreements with regard to online sales. One of the restrictions which proved to be highly controversial is the so called "online marketplace ban". This is a prohibition imposed on resellers preventing them from offering and selling products on third party platforms and marketplaces such as eBay or Amazon Marketplace which have not been authorised by the manufacturer. Contrary to the position taken by the EU Commission in its vertical guidelines, the Bundeskartellamt took a strict view on such online marketplace bans and forced manufacturers to drop such restrictions in their distribution agreements. Paticularly, for example, in relation to sporting goods such as running shoes. Some German courts followed the approach of the Bundeskartellamt and interpreted such marketplace bans as a hardcore restriction falling outside the scope of the Vertical Block Exemption Regulation while other courts took a more generous approach.

The case which has been referred to the CJEU concerns a dispute between Coty Germany GmbH (Coty), a leading supplier of luxury cosmetics in Germany, and Parfümerie Akzente GmbH (Parfümerie Akzente), an authorised distributor of those products. Coty brought an action against Parfümerie Akzente in order to enforce the prohibition on the use of non-authorised third undertakings to sell the contract goods on the Internet. The Regional court dismissed the action in first instance and found that the prohibition in question was a hardcore restriction under Article 4 lit. c) of the Vertical Block Exemption Regulation. The Higher Regional Court Frankfurt am Main, hearing the appeal against the decision, referred the case to the CJEU.

The Advocate General recalled that price competition may not be the only effective form of competition, and that other legitimate requirements may justify a reduction of price competition.

The Advocate General relies on the Metro case law (case 26/76 and 75/84), stating that a selective distribution system does not fall under the prohibition of Article 101 paragraph 1 TFEU if:

1. the properties of the product necessitate a selective distribution system, in the sense that such a system is based on the legitimate requirement to preserve the quality of the product and to ensure that the products are used correctly
2. resellers are chosen on the basis of objective criteria of a qualitative nature which are determined uniformly for all potential resellers and applied in a non-discriminatory manner, and
3. the criteria defined does not go beyond what is necessary.

With regard to the first criterion the Advocate General explains that the luxury image of a product can be legitimate interest to introduce a selective distribution agreement. He considers that the Pierre Fabre ruling gave rise to some uncertainties, as this ruling indicates that the aim of maintaining a [prestige] image is not a legitimate aim for restricting competition and cannot therefore justify a finding that a contractual clause pursuing such an aim does not fall within Article 101(1) TFEU. For him, this finding of the court needs to be seen in connection with the specific facts of the case and cannot be interpreted as a move away from earlier case law. Rather, he considers that selective distribution systems which aim to preserve the luxury image of the products may constitute aspects of competition which are compatible with Article 101(1) TFEU.

As for the legality of an online marketplace ban, the opinion states that the prohibition to use recognisable third party platforms can be justified as such a clause is comparable to requirements that can be made for brick-and-mortar sales in particular as the authorised reseller does not have (full) control over the product presentation on the third party platform. Additionally despite an increasing significance of third-party platforms in the marketing of retailers’ products, online marketplace bans are, in the present state of development of e-commerce, not comparable to an outright ban on or a substantial restriction of internet sales.

Therefore, online marketplace bans should not be "by object” restrictions as they do not have such a degree of harm on competition as compared to an outright ban of internet sales. They are not hardcore restrictions under the Vertical Block Exemption Regulation as those provisions cannot be interpreted as excluding restrictions that determine the methods whereby the products can be sold. Firstly online marketplace bans do not amount to a sharing of customers or territories in the sense of Article 4 b) of the Vertical Block Exemption Regulation as the Advocate General could not conclude that customers purchasing on such third party platforms form a separate customer group which the distributor could otherwise not reach through its own website. Secondly online marketplace bans do not amount to a prohibition of passive sales to end customers in the sense of Article 4 c) of the Vertical Block Exemption Regulation as they do not prevent all internet sales and allow the distributor to operate its own website which complies with the provisions designed to preserve the manufacturer’s brand image.