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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] Bridgewater Place Water Lane Leeds LS11 5DR eversheds.com ©2016 Eversheds LLP Eversheds LLP is a limited liability partnership