Download A cloak of respectability to disguise attempts to limit online price

Competition and Regulation in Digital
Markets
Selective distribution: a cloak of respectability to
disguise attempts to limit online price competition?
Friday 9 September 2016
Adam Collinson
Partner
Competition, EU & Regulatory
Introduction
Introduction (1)
−In many markets the ability to purchase online has
become synonymous with the ability to secure the
lowest price
−Online selling raises particular issues for suppliers of
prestige brand / high value products
−Developments in online trading have meant online
sales restrictions have come to be seen as a new
manifestation of RPM (an issue that has traditionally
been dealt with by NCAs)
−Certain NCAs have been very active in relation to
these restrictions
Eversheds LLP | 15/09/2016 | Competition and Regulation in Digital Markets
Introduction (2)
−EU competition law has a dual purpose:
• to stimulate competition and the benefits this brings
• to help underpin the fulfilment of the single market
−Online trading is a key focus for the Commission – the development and
functioning of online markets is seen as essential for both improving crossborder trade and allowing consumers to compare prices and offerings
−Estimated that around half of EU consumers shopped online in 2014, but
only 15% of them purchased a product or a service located in another EU
Member State
“European citizens face too many barriers to accessing goods
and services online across borders. Some of these barriers are
put in place by companies themselves. With this sector inquiry
my aim is to determine how widespread these barriers are and
what effects they have on competition and consumers. If they
are anti-competitive we will not hesitate to take enforcement
action under EU rules.”
Margrethe Vestager, Commission Press Release
on launch of E-Commerce Inquiry
Eversheds LLP | 15/09/2016 | Competition and Regulation in Digital Markets
Selective Distribution – case law development and
divergent approaches
Selective Distribution – case law development and
divergent approaches
−Not surprising that selective distribution should have been a focus for
enforcement attention from NCAs?
• third party platforms regarded as a facilitator of e-commerce and a stimulus for
price competition
• many selective distribution systems have incorporated a ban on sales via third
party platforms
• bans on distribution via third-party platforms bound to impact consumers’ ability
to find and execute the best deal?
−But NCA focus has meant scope for inconsistent approaches and lack of
coherent EU legal framework on which companies (and practitioners) can
effectively rely
−Compounded by
• confusion as to the Commission’s guidance on
ability to constrain use of third party platforms in
a selective distribution context
• potentially divergent approaches to inclusion of such
a ban even within individual Member States
Eversheds LLP | 15/09/2016 | Competition and Regulation in Digital Markets
European Commission
−The imposition of restrictions on resale via online platforms is only
permissible where used to implement a quality standard for
distributors
−A standalone ban on sales via online platforms cannot be
considered as a qualitative criterion
BUT the Commission’s approach seems to have been widely
misinterpreted by businesses and bans on sales via online
platforms have been imposed in many cases
AND it has been the NCAs and national courts (in the main) who
have had to consider whether these restrictions are lawful
Eversheds LLP | 15/09/2016 | Competition and Regulation in Digital Markets
Germany
−The Bundeskartellamt has made online sales restrictions
one of its enforcement priorities, with high profile cases
against big name brand owners / manufacturers,
including:
•
•
•
•
•
Scout Satchels
adidas
Asics
Coty
Deuter
Eversheds LLP | 15/09/2016 | Competition and Regulation in Digital Markets
This is about keeping the internet open as a
distribution channel... We have seen something
that came along as a quality requirement, and in
the very end it was nothing else than foreclosing
the distribution channel of the Internet.
Andreas Mundt, President of the Bundeskartellamt
(ABA Antitrust Law Spring Meeting 2016)
Scout Satchels
−Scout refused to supply satchels to a retailer who had sold them
via eBay
−Berlin Appeal Court ruled:
• legitimate in principle for manufacturer to try to protect high quality brand
image by prohibiting resale via eBay
• but Scout was allowing its satchels to be sold offline in discount stores
• this was not consistent with protecting high quality brand image
• therefore Court ruled in favour of retailer because Scout was behaving in
a discriminatory manner (the restriction had to be regarded in this
context as a restriction on sales to a specific customer group)
Eversheds LLP | 15/09/2016 | Competition and Regulation in Digital Markets
adidas
−adidas had a selective distribution system in Germany (and
France)
−Prohibited the use of online platforms and third party
marketplaces completely
−Bundeskartellamt (and FCA) initiated investigation after
receiving complaints from resellers – found that restrictions
“gave cause for serious competition concerns”
−Investigation closed after adidas agreed to remove the
restrictions of concern
−adidas also agreed to drop a restriction preventing resellers
from using terms related to adidas brands as search words for
advertising on internet search engines
Eversheds LLP | 15/09/2016 | Competition and Regulation in Digital Markets
Asics (1)
−Restrictions in relation to online sales:
• No use of trademarks / brand names as search function in search engines
• No support (e.g. interfaces) for price comparison engines
• No advertising or sales via online marketplaces
−Asics distributors complained to the Bundeskartellamt, which
then initiated proceedings
−The restrictions relating to the use of brand names and price
comparison engines were viewed by Bundeskartellamt as
hardcore restrictions
−The issue of online marketplaces was left open due to other
restrictions having been established. However, Bundeskartellamt
argued that it should also be deemed
hardcore
Eversheds LLP | 15/09/2016 | Competition and Regulation in Digital Markets
Asics (2)
−Asics dropped the restrictions during the investigation, but
Bundeskartellamt issued a declaratory decision at the end
−Subject to appeal to Düsseldorf Appeal Court
“It is generally acknowledged that manufacturers can select their dealers
according to certain criteria and can set quality requirements. However,
Asics prohibits its dealers from selling on online marketplaces and
supporting price comparison engines. This is overshooting the mark.”
Andreas Mundt, Bundeskartellamt President
Eversheds LLP | 15/09/2016 | Competition and Regulation in Digital Markets
Coty
−Coty makes branded perfumes which it sells through a selective distribution
network
−Coty’s SD network blocks sales over platforms such as eBay and Amazon
−Reseller sells through its own online shop as well as through online platforms
−Coty sued the reseller over the reseller’s use of online platforms
−Frankfurt Appeal Court is seeking guidance from the ECJ on whether a
manufacturer can impose an outright ban on sales across online platforms
regardless of whether the reseller is able to meet the manufacturer’s quality
criteria
−The Court also wishes to know if an outright ban on the use of online
platforms amounts to a restriction of the customer group to whom a reseller
may resell or a restriction of passive sales to end users (i.e. a hardcore
restriction)?
−Amazon is understood to have requested permission to intervene in the case
Eversheds LLP | 15/09/2016 | Competition and Regulation in Digital Markets
Deuter
−Deuter manufactures backpacks
−Cortexpower is an authorised reseller under Deuter’s SD system
−Deuter attempted to restrict Cortexpower from selling on online
marketplaces and through price comparison websites
−In June 2014 a Frankfurt regional court ruled that Deuter had acted
anti-competitively by attempting to restrict online sales
−Frankfurt Appeal Court partially overturned the earlier ruling and
held that Deuter had lawfully prevented Cortexpower from selling
on online marketplaces on brand protection grounds
−However, Court upheld previous ruling that a ban on sale through
price-comparison websites was anti-competitive
−Cortexpower has appealed the ruling to the German Supreme Court
−Bundeskartellamt had asked the appeal court to
send the case to the ECJ for clarity, however the
Court turned down this request and ruled on the
case itself
Eversheds LLP | 15/09/2016 | Competition and Regulation in Digital Markets
France
−Pierre Fabre Dermo-Cosmetique SAS
−Bang & Olufsen
−Caudalie
−Coty
−Concurrence / Samsung
Eversheds LLP | 15/09/2016 |
Pierre Fabre Dermo-Cosmetique SAS
−Proceedings at the ECJ were the result of a request for a
preliminary ruling made by the Paris Court of Appeal
−Pierre Fabre’s selective distribution system only allowed
products to be sold through authorised distributors such
as pharmacies
−Criteria imposed included the guaranteed presence of a
pharmacist at all times, i.e. eliminating the possibility of
online sales
−Found to be an object restriction as de facto it prohibited
the internet as a method of marketing
Eversheds LLP | 15/09/2016 | Competition and Regulation in Digital Markets
Bang & Olufsen
−Selective distribution system banned distance selling (agreements
entered into before internet came of age)
−B&O argued general distance selling restriction was lawful and
necessary given the technical nature of its high end products
−It also highlighted that none of its dealers had ever asked if they
could sell over the internet
−FCA considered nevertheless that this amounted to a de facto ban
on internet sales
−This sales channel could have given resellers access to a greater
number of customers and customers could have benefited from
greater choice, easier access to B&O products and lower prices.
Eversheds LLP | 15/09/2016 | Competition and Regulation in Digital Markets
Caudalie
−Caudalie sought and obtained an injunction against the
1001pharmacies.com online marketplace, preventing it from
selling Caudalie personal care and beauty products
• not an approved distributor
• approved distributors were only permitted to sell online via their own websites
(not via online marketplaces)
−1001pharmacies.com appealed and got the injunction lifted
−Paris Court of Appeal implicitly recognised blanket prohibition
of internet marketplace sales could be hardcore restraint of
trade
Eversheds LLP | 15/09/2016 | Competition and Regulation in Digital Markets
Coty
−Coty discovered some of its brands were being sold on
www.iloveparfums.com at discounts of up to 70%
−Brought proceedings to prevent iloveparfums from selling
products (not authorised reseller)
−Paris Commercial Court confirmed Coty’s selective
distribution system was lawful and iloveparfums had engaged
in unfair competition by selling Coty’s perfumes on its
website
−Paris Court of Appeal overturned this finding. The authorised
reseller agreement included a series of hardcore restrictions:
• a restriction as to the end users to whom the reseller could sell
• a restriction as to the territory into which the reseller could sell
the contract goods
• a prohibition on sales to unauthorised resellers in territories in
which a selective network was not in operation
Eversheds LLP | 15/09/2016 | Competition and Regulation in Digital Markets
Concurrence / Samsung
−Reference to the ECJ from the Cour de Cassation
−Concurrence seeking to prevent rival companies selling Samsung products
on Amazon’s websites in France, Germany, Italy, Spain and UK
−Samsung revoked Concurrence’s right to sell its products after Concurrence
made the products available via Amazon in breach of a prohibition on sale
via online marketplaces in the distribution agreement
−Concurrence claiming that Amazon should not be able to host sales by other
retailers who have breached the same prohibition
−Brussels Regulation case, but bizarre for a retailer in effect to be
encouraging the court to “bless” what is a ban on sales via online market
places
−“Inconsistency” in Concurrence’s arguments in that FCA is continuing to
investigate Concurrence’s complaint re Samsung’s restrictions on sales via
online marketplaces
Eversheds LLP | 15/09/2016 | Competition and Regulation in Digital Markets
UK
−Roma Medical
−Bathroom Fittings
Eversheds LLP | 15/09/2016 |
Roma Medical
−Formal investigation in the wake of a market study
−Access to Roma’s selective distribution system only granted if
retailer could provide customers with specified pre- and aftersales support
−Introduction of online sale prohibition and online price
advertising prohibition part of an ongoing effort to achieve
particular price points for sale of Roma branded mobility
scooters
−Evidence that retailers agreed to abide by / acquiesced in
Roma’s requests / instructions
−Monitoring of compliance / threats to withdraw
supply
−A prohibition on online sales undermines
the benefits of the transparency and enhanced
search functions brought about by the internet
and the possibilities offered by e-commerce
Eversheds LLP | 15/09/2016 | Competition and Regulation in Digital Markets
the
Bathroom fittings
─ Ultra Finishing Limited engaged in RPM in respect of the internet sales of its
Hudson Reed and Ultra branded products
─ Issued ‘recommended’ retail prices and threatened retailers with penalties
for not pricing at or above the ‘recommended’ price
─ Penalties included:
─ Charging the retailers higher prices for the products
─ Withdrawing rights to use Ultra’s images of the products online
─ Ceasing supply
─ Ultra claimed rationale was to protect brand value and address poor service /
poor quality websites from online resellers
─ CMA concluded objectives were at most subsidiary to that of protecting
resellers’ margins and that “maintaining a prestigious image is
not a legitimate aim for restricting competition”
─ Ultra agreed to pay a fine of £786,668 to settle the case
Eversheds LLP | 15/09/2016 | Competition and Regulation in Digital Markets
Price competition from online sales is usually intense, given
the ease of searching on the internet. Ultra’s practice of
setting minimum online prices stopped retailers from offering
discounted prices online, reducing competition across online
and ‘bricks and mortar’ sales, and denying consumers the
benefit of lower prices for Ultra’s bathroom fittings. The CMA
takes such vertical price-fixing seriously and is focused on
tackling anti-competitive practices that diminish the many
benefits of e-commerce.
Ann Pope, CMA Senior Director
Conclusion
Conclusion
−Recent years have seen a number of proceedings at the national
level with Germany (and France) taking a particularly active and
strict approach
−Position in rest of Europe on issues such as online marketplace
bans is somewhat unclear leading to uncertainty for companies
as to the legality and enforceability of their pan-European
distribution agreements
−Amendments to VABE / Guidelines? Both expire in 2022
−Enforcement action against companies for breaches as a result
of evidence obtained from e-commerce sector inquiry (Energy
and Pharmaceutical sector inquiries led to a number of
investigations including those that commenced with dawn
raids)?
Eversheds LLP | 15/09/2016 | Competition and Regulation in Digital Markets
Competition and Regulation
in Digital Markets
Adam Collinson
Partner
0113 200 4234
[email protected]
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