Selective distribution is again in the spotlight in France

Written on 12 Oct 2017

The French Court of Cassation has in two recent decisions confirmed a recent trend in case law favouring legal protection of selective distribution networks. However, by remaining silent on other outstanding issues, such as the validity of contractual clauses prohibiting resale of products by online marketplaces, uncertainty surrounding those issues remains. Manufacturers should therefore retain a cautious approach when dealing with marketplaces.

French Courts’ jurisdiction to enforce takedowns against unauthorised online resellers operating abroad is confirmed…

On 5 July 2017, the Court of Cassation confirmed a recent ruling of the Court of Justice of the European Union (CJEU), and granted the French Courts jurisdiction in a case of the violation of a selective distribution (SD) network by unauthorised online retailers who had been operating through a marketplace’s websites located in different Member States of the EU.

In this case, the Paris Court of Appeal had ruled that it did not have jurisdiction since these websites did not target the French public. The authorised retailer challenged that analysis on several grounds, but primarily because the website was accessible and could deliver the products in France.

On reference to the CJEU from France’s highest court, the Court of Cassation, the CJEU determined that the location of such websites in Member States other than that of the court seized was irrelevant.  Damage occurred in France and so the French Courts could have jurisdiction.

The Court of Cassation recalled the Court of Appeal’s analysis and, in view of the CJEU’s analysis in this respect, sent the case back to the Court of Appeal to revisit its decision.

…but the validity of clauses prohibiting resale of products on online marketplaces needs further clarification

On 13 September 2017, the Court of Cassation quashed another decision from the Paris Court of Appeal in a case of a cosmetics manufacturer acting against a retailer who was selling its products online on a specialised marketplace. This was in violation of its selective distribution contract terms, which absolutely prohibited resale on marketplaces. Those terms had previously been examined by the French Competition Authority and found to be valid.

The manufacturer brought its claim originally before the Paris Commercial Court, seeking both a takedown of its products and damages. From a procedural perspective, the action was brought before the Court on summary proceedings (“référé”), based upon the judge’s power in such proceedings to pronounce injunctions in order to stop an “obviously illegal nuisance” (article 873 of the French Code of Civil Procedure).

In a ruling of February 2016, the Court of Appeal rejected the manufacturer’s claim. Based upon several decisions from the French and German competition authorities and an opinion from a French law professor, the Court of Appeal ruled that there was “solid and consistent evidence that absolute prohibition of resale on online marketplaces, regardless of their characteristics, was likely to be a restriction of competition” excluding such behavior from the benefit of the block exemption provided for by EU Regulation No 330/2010. On that basis the Court of Appeal concluded that there was in this case no “obviously illegal nuisance” to stop.

The manufacturer appealed this decision. It argued that the Court of Appeal, ruling in summary proceedings, exceeded its powers by challenging the FCA’s original finding on the merits of the validity of its selective distribution network. The Court of Cassation agreed with this approach, ruling that the Court of Appeal had not explained how the French and German competition authorities’ decision it referred to were a sufficient basis to deny the manufacturer relief from what was an obviously “illegal nuisance”, in the form of the breach of the selective distribution system.

What is to be learned from these decisions?

Although these decisions show an interesting trend in favor of strengthening legal actions to protect selective distribution networks from parallel trade, it is notable that the reasoning is reliant on jurisdictional grounds only.

Pending a decision in these cases from the Paris Court of Appeal in France, or else the European Commission’s or the CJEU’s formal position regarding these topics, manufacturers should continue to be cautious in their approach towards online sales and marketplaces.