In its judgment of 6 December 2017, the Court of Justice of the European Union (CJEU) upheld a clause prohibiting authorised retailers in a selective distribution system from selling luxury goods on third-party online platforms, such as Amazon (see our previous alert on the Coty case).
The CJEU ruled that to fall outside the prohibition laid down in Article 101(1) of the Treaty on the Functioning of the European Union, such a clause must (i) have the objective of preserving the luxury image of the goods, (ii) be laid down uniformly and not applied in a discriminatory fashion, and (iii) be proportionate in the light of the objective pursued.
This decision constitutes a shift from what has been EU and French decisional practice in recent years, which tended to favour the development of e-commerce over the protection of brand owners.
It clarifies both the CJEU’s and the French court’s position in Pierre Fabre, by drawing a distinction between an absolute ban of online sales – which breaches Article 101(1) – and a prohibition from selling on marketplaces.
This clarification is more than welcome, in particular in light of the European Commission’s E-commerce Report, in which the Commission stated that absolute marketplace bans should not be considered as hardcore restrictions, but added that this did not mean that such bans were generally compatible with EU competition rules.
FCA’s approach towards prohibition from selling on marketplaces
In 2012, in its opinion on e-commerce, while indicating that manufacturers could restrict sales on marketplaces, the French Competition Authority (FCA) stressed that marketplaces were able to meet a selective distribution network’s criteria and that quality requirements imposed on online platforms should be proportionate to the objective pursued, namely the protection of the brand image and prevention of off-network selling.
In Samsung, the FCA considered that a general prohibition from selling on marketplaces may constitute a restriction of competition, in particular, a restriction on active and passive sales, and therefore decided to carry out an in-depth investigation of this practice.
More recently, following the FCA’s investigation, Adidas undertook to amend its online marketing conditions to remove from its distribution agreements the general prohibition from selling on marketplaces. The FCA therefore decided to close its investigation but stressed in its press release that it will “nonetheless remain vigilant in order to verify that the authorised retailers benefit from effective access to online marketplaces”.
Therefore, the FCA so far frowned upon absolute bans on sales on marketplaces and seemed to require suppliers to authorise sales on online platforms meeting the suppliers’ quality-related criteria.
This approach will inevitably be impacted by the Coty case, as the CJEU noted that the prohibition imposed on authorised retailers from selling on third-party online platforms could be more effective than the authorisation given to those retailers to use such platforms subject to their compliance with pre-defined quality conditions.
A shift already underway
The French Supreme Court initiated this shift in Caudalie.
Caudalie had set up a selective distribution network to sell its cosmetic products and prohibited its authorised retailers from selling on websites other than their own. After having noticed that its products were being sold on the online platform 1001pharmacie, Caudalie brought an action for injunctive relief against eNova, the company operating the platform.
The Paris Court of Appeal considered that the prohibition from reselling products on third-party platforms was likely to constitute a hardcore restriction, unless it was objectively justified. The Court therefore ruled that Caudalie had failed to demonstrate that its distribution network was lawful and that eNova’s disturbance was thus “manifestly unlawful” – which is the threshold that needs to be met to obtain injunctive relief.
The French Supreme Court annulled the Court of Appeal’s ruling on the ground that it had failed to substantiate why, based on the above considerations, it could rule out the existence of a “manifestly unlawful disturbance”, and referred the case back to the Paris Court of Appeal.
The judgment of the French Supreme Court was rendered after Advocate General Wahl delivered his opinion in the Coty case, and it was seen as the adoption of a position in favour of network heads.
However, the Supreme Court only ruled on the appropriateness of interim measures; it did not decide on the validity of the marketplace ban. By referring the case back to the Paris Court of Appeal, the Supreme Court took a conservative position, pending the CJEU’s decision in Coty.
The Coty judgment will undoubtedly have an impact on how the Court of Appeal will decide this case.
It remains to be seen how exactly this judgment will be received and whether French courts will try to restrict its application, for instance, by limiting its scope to the luxury sector.
How Reed Smith can help
Reed Smith’s EU, Competition & Regulatory team can assist you in setting up a distribution network compliant with EU and French law, and defend your interests before French courts or the French competition authority.
Client Alert 2017-304
