Brussels, 14/10/2011 (Agence Europe) - A clause in a selective distribution contract banning the distributors of a company from selling its products online amounts to a restriction on competition by object, unless that clause is objectively justified, ruled the European Court of Justice on Thursday 13 October 2011 in Case C-439/09). “Such a ban may not benefit from a block exemption but may, if certain conditions are met, benefit from an individual exemption”, explains the court.
The case concerns the company Pierre Fabre Dermo-Cosmétique (PFDC), which manufactures and sells cosmetics and bodycare products in France and the EU. Although not medicines, the company bans the distributors from selling the products online, requiring them to be sold from a physical location attended by a qualified pharmacist. To justify these restrictions and the requirement for a pharmacist to be present, the company said it needed to ensure the product's high quality was maintained and prevent counterfeiting, and consumers were provided with wise advice to prevent them from misusing the products, thus protecting their prestige image.
In October 2008, following an investigation, the Autorité de la concurrence (French Competition Authority) decided that, owing to the de facto ban on all internet sales, PFDC's distribution agreements amounted to anti-competitive agreements contrary to both French law and European Union competition law. The Competition Authority found that the ban on internet selling necessarily had as its object the restriction of competition and could not benefit from a block exemption. The Authority also decided that the agreements could not benefit from an individual exemption either. The company appealed and the Paris Appeals Court asked the European Court of Justice whether the general ban on online sales was an objective restriction of competition and thereby covered by an individual exemption under Article 101, paragraph 3, of the EU Treaty.
As regards the first question, the court says that “in the absence of objective justification”, “such agreements are to be considered as 'restrictions by object'. However, a selective distribution system is compatible with European Union law to the extent that resellers are chosen on the basis of objective criteria of a qualitative nature, laid down uniformly for all potential resellers and not applied in a discriminatory fashion, that the characteristics of the product in question necessitate such a distribution network in order to preserve the product's quality and ensure its proper use, and, finally, that the criteria laid down do not go beyond what is necessary.” It is up to the French court to check the criteria but the need for personalised advice to consumers or to protect a product's prestige cannot be used to justify a ban on online sales or restricting competition.
As to whether a selective distribution contract may benefit from a block exemption, the Court points out that “the exemption does not apply to vertical agreements which have as their object the restriction of active or passive sales to end-users by members of a selective distribution system operating at the retail level of trade. A contractual clause which de facto prohibits the internet as a method of marketing at the very least has as its object the restriction of passive sales to end users wishing to purchase online and located outside the physical trading area of the relevant member of the selective distribution system. Consequently, the block exemption does not apply to that contract.”
The European Court of Justice adds, however, that “such a contract may benefit, on an individual basis, from the exception provided for in Article 101(3) TFEU, if the referring court finds that the conditions laid down in that provision are met” (such as improving production or distribution, promotion of technical progress while providing users with a fair share of the resulting profits or ensuring competition among companies without imposing non-essential restrictions). (FG/transl.fl)