Online sales restrictions in the European Union

Online selling restrictions in selective distribution agreements are allowed in the EU provided that requirements of the CJEU are met

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I

Legal framework for online sales restrictions

Online selling is considered a type of “passive” sales, as specified on the Guidelines on Vertical Restraints (paragraph 51): “In general, where a distributor uses a website to sell products that is considered a form of passive selling”.

The article 4 of the Commission Regulation (EU) No 330/2010 covers the restrictions of passive sales, which are considered as “hardcore restrictions”. Therefore, they are not exempt of the prohibition established in the article 101.1 of the Treaty on the Functioning of the European Union (hereinafter, the “TFEU”). Consequently, according to the European regulations, it is forbidden to restrict online sales.

The relevance of this prohibition in the common market and its consequences have been the subject of discussion in recent years. Thus, the Guidelines on Vertical Restraints and the Court of Justice of the European Union case-law (“CJEU”) have qualified this prohibition over the years.

In fact, there are certain circumstances in which passive sales can be restricted

II

Case law

In 2011, the CJEU’s Judgementon Pierre Fabre’sCase (C-439/09) stated that restricting online sales ona selective distribution networkis against the Competition rules(paragraph 46): “The aim of maintaining a prestigious 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”.

In 2017, the CJEU’s Judgementon Coty’sCase (C-230/16) qualified itsprevious statements. Therefore, the CJEU established that the article 101.1 TFEU does not prohibit the organization of a selective distribution network to the extent that:

(i) The characteristics of the product in question necessitate such a network in order to preserve its quality and ensure its proper use.

(ii) Resellers are chosen on the basis of objective criteria of a qualitative nature, laid down uniformly for all potential resellers and not applied in a discriminatory fashion and, finally, that the criteria laid down do not go beyond what is necessary.

III

Guess Case

In December 2018, the European Commission fined the clothing company Guess (imposing a €39,821,000 finefor restricting retailers from online advertising and selling cross-border to consumers in other Member States (“geo-blocking”), inbreach of EU competition rules (see the Commission Decision of 17.12.2018 and the Summary of Commission Decision of 17.12.2018).

Specifically, the provisions and practices implemented by Guess formed part of an overall company strategy that was aimed at diverting online sales of Guess products towards Guess' own web site and restricting intra-brand competition among authorized distributors.

The Commission investigation found that Guess’ distribution agreements restricted authorized retailers from (i) using the Guess brand names and trademarks for the purposes of online search advertising(ii) selling online without a prior specific authorizationby Guess (the company had full discretion for this authorization, which was not based on any specified quality criteria), (iii) selling to consumers located outside the authorized retailers’ allocated territories(iv) cross-selling among authorized wholesalers and retailers and (v) independently deciding on the retail price at which they sell Guess products.

IV

Conclusions

Coty’s Judgement clarified various doubts regarding the possibility of online sales restrictions that a supplier can impose to hisdistributors. However, new issues arise.

On the one hand, it is worth considering whether CJEU’s statement is only enforceable to luxury products or, by contrast, it can be extended to other types of products.

On the other hand, it is interesting to consider whether the online sales restrictions have to be applied only to selective distribution networks or they are likely to be applied in other sorts of distribution networks.