Restrictions on resale of branded goods via online marketplaces “justifiable” says the European Commission

Written on 1 Feb 2017

In recent times, EU competition regulators have taken a hard line against a range of online sales restrictions – some, not least the German and Austrian regulators, perhaps more so than others.

E-tailing provides the ultimate “open border” experience for consumers, which all competition authorities are keen to protect. However, in the battle between luxury goods manufacturers (who often worry that the sale of their products on third party online marketplaces, such as Amazon and E-bay, may devalue their brand) and online discounters (who are keen to take full advantage of online marketplaces as a low-cost and convenient sales channel), the tide may at last be turning in favour of brand owners.

On 31 January 2017, the Director General of the European Commission’s Competition Directorate presented the Commission’s view that brand owners might be justified in prohibiting the resale of their products on online marketplaces and that such bans are not “hardcore” restrictions of competition law.

What does this mean for brand owners?

Brand owners typically operate selective distribution systems, whereby only resellers that meet pre-defined standards and criteria are permitted to purchase and sell the brand owner’s products.  While not a binding decision, the Commission’s statement is a clear declaration that it does not regard an online platform ban in a selective distribution agreement as a hardcore restriction of competition law.

This does not mean carte blanche approval of all platform bans in selective distribution.  However, it does mean that, where a brand owner’s share of the relevant market is less than 30%, such a restriction will be enforceable, by virtue of the Vertical Restraints Block Exemption (absent any other hardcore restriction).  Outside the Block Exemption, a platform ban will still be caught by the competition rules, but will at least potentially be capable of individual exemption (such as where the restriction is necessary to protect brand image, ensure appropriate pre- or post- sale services or to protect against free-riding).            

The context

The Director General presented his comments at a conference in Brussels, where he reported that the Commission had made a submission to the Court of Justice of the European Union (CJEU), setting out its views on the controversial “Coty Case” (Case C-230/16 Coty Germany GmbH vs. Parfümerie Akzente GmbH).  Coty concerns a dispute in Germany between a luxury perfume manufacturer, Coty, and one of its distributors, Parfumerie Akzente, around the lawfulness of certain online selective distribution criteria.  In a reference to the CJEU, the German court had asked the CJEU to rule on whether online marketplace bans in selective distribution agreements were hardcore restrictions of competition law.

The Commission’s submission adopts the position taken in its preliminary report on the on-going e-commerce sector enquiry.  In particular, the Commission makes clear that it does not regard marketplace bans as hardcore restrictions of competition law and that these restrictions will be protected by the Block Exemption where the parties have less than 30% market share, and acknowledges that the “importance of market places and, consequently, the impact of marketplace bans, vary significantly” depending on the market context.

Brand owners will be encouraged by the stance that the Commission has taken on this issue, but still need to look carefully at the enforceability of any platform restrictions to ensure they do not fall outside what is permissible.  Conversely, of course, platforms and retailers will be keen to ensure that any platform restrictions imposed are kept within the limits of competition law.