outright prohibition on selling via the internet deemed anti-competitive
On 3 March 2011, the Advocate General, legal advisor to the European Court of Justice (ECJ), delivered an opinion to the ECJ in a case concerning Pierre Fabre, a French company which had absolutely prohibited its selected distributors from making sales over the internet (Pierre Fabre Dermo-Cosmétique SAS v Président de l’Autorité de la Concurrence, Ministre de l’Economie de l’Industrie et de l’Emploi). The case followed the introduction of the revised Vertical Agreements Block Exemption Regulation in 2010 (and its accompanying guidelines) which prohibit such outright bans.
facts:
- PF’s French distribution contracts included a clause that required all sales had to be made in a physical store and that a qualified pharmacist be present at the point of sale, thereby effectively preventing all forms of selling via the internet. Seemingly PF was trying to protect the luxury and aura of its products and the associated in-store customer service experience.
decision:
- The AG decided that although the aim of ensuring that there was good advice at the point of sale was legitimate, in most cases this could be achieved by providing advice/answering customer queries remotely over the internet.
- It was intimated that in certain very limited circumstances, (although rather unhelpfully, not spelled out) an outright ban on internet sales may be justified ‘in the public interest’. This might apply to highly complex, technical products where a physical demonstration would be essential but this would have to be very carefully considered in individual instances.
- Any suggestion that a prohibition on internet sales had the primary objective of protecting the image of the products in question or restricting the manner in which the products are sold would, almost certainly, render the prohibition anti-competitive and, therefore, unlawful. In this case the outright ban on internet sales was not regarded as being proportionate.
points to note:
- It will be many months before the ECJ gives its judgment on this and we see whether any further light will be shed upon the precise scope for manufacturers and brand owners to ban internet sales in the light of product characteristics. In the meantime, manufacturers and brand owners will, if they want to restrict internet sales, need to rely on other mechanisms expressly allowed by the Block Exemption such as:
- a requirement that online sellers must, in addition to an online presence, have a physical store from which they make sales;
- minimum sales targets for in-store sales;
- the imposition of a fixed fee to support the in-store sales effort; and
- compliance with certain minimum standards when using websites.
- If the ECJ follows the AG’s opinion, then the fine which had been levied on PF by the French competition authorities will be upheld and the restrictions in the agreements will be unenforceable.
- Simply having a web site is regarded as a prime example of so called ‘passive selling’ and it is generally not permitted to prevent or restrict passive selling within the EU. In contrast, the legislation regards online advertisements (such as territory based banners on third party websites) that are specifically targeted at certain customers as a form of active selling. Further, paying a search engine or online advertisement provider to have advertisements displayed specifically to users in a particular territory will amount to active selling. These activities can be restricted consistent with the Block Exemption. We will report further when the final judgment of the ECJ is delivered.