Competition: Focus on the new exemption regulation on vertical restraints and online sales
As a reminder, under the previous regulation, the prohibitions or restrictions imposed by suppliers on their distributors’ online sales were the subject of particular attention from the competition authorities, of several case law rulings (including the Pierre Fabre and Coty rulings by the CJEU) and of numerous debates.
The Exemption Regulation and the new Guidelines clarify both the restrictions on online sales that remain prohibited and cannot be exempted, and the requirements imposed by suppliers who can benefit from them. Furthermore, as online sales no longer require the same degree of protection, certain restrictions have been relaxed.
Prohibition on suppliers to prevent effective use of the Internet by their distributors
Under Article 4(e) of the Exemption Regulation, it is now a hardcore restriction, excluding the benefit of the exemption, to “prevent the effective use of the Internet by the buyer or its customers to sell the contract goods or services, as this restricts the territory in which, or the customers to whom, the contract goods or services may be sold”.
This very vague concept of “effective use” will allow a case-by-case analysis of restrictions imposed by suppliers.
According to the new Guidelines, these are first and foremost direct prohibitions, de jure or de facto, on a distributor’s use of the Internet: obligations not to sell in specific territories or to specific customers, obligations to pass on customer orders to other distributors, obligations designed to reduce the volume of online sales, total bans on the use of certain online advertising channels (search engines or price comparison tools), or obligations preventing the distributor from setting up or using its own online store.
The new Guidelines also give numerous examples of indirect prohibitions, such as the need to obtain the supplier’s authorization to sell online, the deprivation, in the event of online sales, of certain financial advantages, the refusal or limitation of product supply, the threat of termination of the agreement, warranty exclusions, etc.
Measures enabling the destination of the goods supplied to be verified (differentiated labels, specific languages or serial numbers, audits) do not constitute restrictions per se, but may form part of a hardcore restriction when used to control the destination of the goods supplied and, ultimately, prevent online sales.
Obligations indirectly aimed at preventing the effective use of the Internet may also include :
- The obligation to redirect customers located in another territory to another site;
- The obligation to terminate transactions when credit card information indicates an address not located in its territory;
- Obligation to sell only at a physical point of sale;
- The obligation to obtain the supplier’s authorization before carrying out individual transactions online;
- The prohibition on using the supplier’s brand or name on its own site;
- The distributor is prohibited from operating its own online store;
- Prohibition on the buyer’s full use of an online advertising channel, whether direct or indirect (obligation not to use the registered trademark, for example).
The supplier may, however, impose other restrictions on online sales or restrictions on online advertising, provided that these restrictions are not intended to prevent the use of an online advertising channel in its entirety (Article 4, e) i° and ii) of the Exemption Regulation).
The supplier may thus impose quality requirements relating to the online store or product presentation, or require the operation of physical outlets or a minimum of offline sales, particularly in selective distribution networks.
To take account of the Coty ruling, and thus put an end to much debate, the new Guidelines specify that the supplier may prohibit the use of marketplaces, and, more generally, exclude certain specific online sales channels, provided that the distributor remains free to operate its own online store and to advertise online. The supplier may also impose certain restrictions on online advertising, such as compliance with certain quality standards by the advertisement or the supplier, the inclusion of specific content or information, or the absence of use of the supplier’s trademark in the domain name of the online store, provided that these restrictions are not intended to prevent the user from making full use of an advertising channel.
Relaxation of certain rules on online resale.
The 1st relaxation takes into account the development of online sales, and now allows suppliers to differentiate their prices according to whether products are to be resold by distributors in their physical outlets or online (“dual pricing”). This dual pricing practice, previously considered a hardcore restriction, can now be exempted if the difference in wholesale prices is reasonably linked to the differences in investment and costs borne by distributors in each channel, and if its purpose is not to prevent effective use of the Internet (online sales rendered unviable or unprofitable, limitation of the quantity of products intended to be sold online) (point 209 of the new Guidelines). The Commission now considers that this possibility of charging double prices can encourage or reward an appropriate level of investment in the sales channel concerned.
The 2nd relaxation concerns the principle of equivalence between quality requirements imposed online and offline in selective distribution. In principle, the qualitative and/or quantitative criteria on the basis of which distributors are approved must, in a selective distribution system, be set for both online and physical sales outlets. The new Guidelines now provide that a supplier may impose different criteria for online sales from those applied to physical sales, such as the creation and operation of an online after-sales assistance service, the obligation to cover the cost of returning products, or obligations linked to the security of payment systems, provided that this lack of equivalence is not intended to prevent online sales (point 235).
In conclusion, the new Exemption Regulation and Guidelines, by incorporating both feedback and case law, offer a more comprehensive guide to self-assessment of the requirements that may be imposed on distributors in relation to the sale of products or services online. The application of the notion of “effective use” of the Internet, given its imprecision, is bound to fuel new debates, particularly in the event of new technologies or new tools enabling online sales.
Our lawyers are at your disposal to answer all your questions and advise you. Our meetings can be held face-to-face or by videoconference. You can make an appointment directly online at www.agn-avocats.com.
AGN AVOCATS – Distribution Department
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