Manufacturers of brand-name products typically aim to ensure the same level of quality of distribution throughout all distribution channels. To achieve this aim, they provide criteria how to resell their products. With the increase of internet sales, the use of such criteria has been increasing as well.
Best example: Asics. Until 2010, the German subsidiary Asics Deutschland GmbH supplied its distributors in Germany without applying special criteria. In 2011, Asics launched a selective distribution system called “Distribution System 1.0“. It provided, inter alia, for a general ban on distributors to use price comparison tools in online sales:
“In addition, the authorized B … distributor is not supposed to … support the functionality of price-comparison tools by providing application-specific interfaces (” API”) for these price comparison tools.” (translated]
The German Federal Antitrust Authority (“Bundeskartellamt”) has determined by decision of 26 August 2015 that the ban of price-comparison tools against distributors based in Germany was void because it infringed Article 101 (1) TFEU, sec. 1 Act on Restraints of Competition (see the 196-page decision here). Reason given was that such ban would primarily aim at controlling and limiting price competition at the expense of consumers. Asics, instead, filed a complaint before the Higher Regional Court of Düsseldorf to annul the Bundeskartellamt’s decision. Asics argued that this ban was a proportionate quality standard within its “Distribution System 1.0“, aiming at a uniform product presentation.
Now the Higher Regional Court of Düsseldorf on 5 April 2017 confirmed the Bundeskartellamt’s decision that within selective distribution systems the general ban to use price comparison tools was anti-competitive and therefore void (ref. no. VI-Kart 13/15 (V); see also the Bundeskartellamt’s press release in English):
- In particular, the ban of price comparison tools was not exempt from Art. 101 (1) TFEU by way of teleological interpretation (“Tatbestandsreduktion”). According to the court, it was not necessary in order to protect the quality and the product image of the Asics brand (same argumentation as the Higher Regional Court of Frankfurt in its judgment of 22.12.2015, ref. no. 11 U 84/14 regarding Deuter’s functional back-up bags; the Federal Supreme Court will, however, still decide on this, ref. no. KZR 3/16). The court declared that the ban was intended to restrict the buyers, arguing that distributors would be restricted in entering into a price competition with others. The presentation of products in price comparison tools would not damage the quality or brand of Asics products. It would neither give a “flea market impression“, ostensibly also not from the simultaneous presentation of used products. Also, the ban of price comparison tools would not solve the problem of “free-riding“. In any event, the general ban of price comparison tools was not necessary and therefore unlawful.
- The ban would also not be exempt under the Vertical Block Exemption Regulation. Instead, the court argued, the ban would limit passive sales (over the internet) to end customers, contrary to Art. 4 (c) Vertical Block Exemption Regulation (referring to the CJEU decision in the case of Pierre Fabre, 13 October 2011, ref. no. C-439/09). The “equivalence principle” (i.e. restrictions for offline as well as online sales should not be identical, but functionally equivalent) would not apply as there were no comparable functions to price comparison tools in the stationary trade.
- Finally, the ban would also not benefit from the individual exemption under art. 101 (3) TFEU (“efficiency defence”).
- According to the Higher Regional Court of Düsseldorf, manufacturers might not generally prohibit their distributors from using price comparison tools. At the same time, the court also refused to grant leave to appeal against its decision – which, however, can be challenged separately by way of an appeal (sec. 74, 75 Act on Restraints of Competition).The future development of criteria limiting distributors in reselling online remains open, especially as (i) the Coty case is pending at the CJEU (see below) and (ii) the EU Commission in its sector enquiry into e-commerce currently appears to favour manufacturers of brand-name products (see below).
- The court has explicitly left open – arguing that they were not relevant for its decision – whether
- the ban of search engines is anti-competitive (para. 44 et seq. of the decision);
- the general ban of third-party platforms is anti-competitive (para. 7) – although Asics’ “Distribution System 1.0” also banned third-party platforms such as Amazon or eBay.
- Whether and how manufacturers of luxury or brand-name products can continue to ban their distributing via Amazon, eBay and other marketplaces in general in the future will likely be decided by the CJEU in the coming months – in the case of Coty (see our post “eCommerce: restrictions on distributors in Germany”) where a hearing has been just recently been held end of March 2017.
- Without prejudice to the Coty case, the EU Commission has however, in its sector enquiry into e-commerce of May 2017, declared that
- “marketplace bans do not generally amount to a de facto prohibition on selling online or restrict the effective use of the internet as a sales channel irrespective of the markets concerned …,
- the potential justification and efficiencies reported by manufacturers differ from one product to another …”,
- (absolute) marketplace bans should not be considered as hardcore restrictions within the meaning of Article 4(b) and Article 4(c) of the VBER…,
- the Commission or a national competition authority may decide to withdraw the protection of the VBER in particular cases when justified by the market situation”
(41–43 Final Report on the e-commerce sector inquiry).
Hence, on the basis of the EU Commission’s most recent position, there is room for arguments and creative contract drafting since even general marketplace bans can be compatible with the EU competition rules. However, the courts may see this differently in the single case. Therefore, especially the CJEU with its Coty case (see above) will likely bring more clarity for future online distribution.