The French Competition Authority fines Stihl €7 million for de facto prohibition of online sales

Written on 26 Oct 2018

By its decision 18-D-23 dated 24 October 2018, the FCA has adopted its first post-CJEU Coty case decision on selective distribution and online sales. The legitimacy of selective distribution for high-quality or technology products (as is the case here) is confirmed. However, by requiring its retailers to hand-deliver certain products to customers, Stihl has de facto disproportionately restricted online sales. According to the FCA, this decision is meant to set the standard for assessing the validity of selective distribution and related online sales.

Background

The FCA has fined the chainsaw manufacturer Stihl €7M for having disproportionately restricted its retailers’ online sales between 2006 and 2017. In particular, the FCA considered that, although Stihl’s products (chainsaws) were eligible for selective distribution, online sales of such products should not have been restricted by the obligation imposed on retailers to hand deliver these products to customers. This obligation resulted in a de facto unjustified restriction of online sales.

On the legitimacy of selective distribution for any kind of high quality or technical products

One of the main takeaways of this decision is that, once a manufacturer has selected its distributors on objective qualitative criteria which are set uniformly for all the candidates to the network and applied without discrimination, high-quality or technological products are eligible for selective distribution and, as a principle, the validity of the network shall not be questionable. This is an interesting step forward, as certain commentators have taken the view that, after the Coty case, only luxury products would be eligible for the full benefits of selective distribution.

Based on the present decision, the fact that Stihl’s chainsaws (and certain other products) were delicate to handle and required maintenance meant that they presented “obviously a certain technicity”. According to the FCA, their distribution “effectively requires assistance and advice in order to preserve their quality and ensure their good usage”.  This suggests that the test for eligibility for selective distribution of non-luxury products can include a requirement for evidence of the products’ technicity as well as a customer need for assistance and advice. This does not necessarily exclude non-technical (and non-luxury) products from selective distribution, but at least confirms that technical products are eligible to selective distribution.

On the disproportionality of a hand-delivery requirement

As stated by the European Commission’s guidelines on vertical restraints, the qualitative criteria set for a selective distribution network should not go beyond what is necessary. In this respect, the FCA considered that the obligation on retailers to hand deliver Stihl’s products to customers “eliminates one of the main advantages of Internet sales and leads de facto to prohibit these kind of sales”.

What is also interesting is the high burden facing manufacturers in attempting to justify even a partial restriction on online sales. Even products as potentially dangerous as chainsaws should not be restricted from being sold online.

It is also noteworthy that Stihl’s selective distribution contract did not expressly forbid online sales – indeed, online sales were possible and were offered by the retailers. The manufacturer was simply imposing a hand delivery requirement,.

What to take away from this decision?

Selective distribution is undoubtedly a powerful legal tool allowing all kind of manufacturers to control the distribution of their products (including on the Internet) and it has rightly become the distribution mode of choice for many manufacturers of branded products. However, there are limits: as the Stihl case shows (and as also shown in the UK case of Ping earlier this year, which also involved a partial online sales ban), attempts to restrict sales over the Internet run the risk of substantial fines. Satisfying the test for an individual exemption is far from easy, and should not be relied on without expert advice.