Post-Coty NCA Decision on Selective Distribution Systems and Online Sales
News    ·   06-11-2018
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AUTHOR: Ron Galea Cavallazzi; Lisa Abela; Amy Busuttil

Background

This October, the French Autorité de la Concurrence (“Autorité”) issued its first post-Coty decision [18-D-23 dated 24 October 2018] subjecting Stihl, a leading manufacturer of outdoor power tools, to a fine of 7 million Euros for restricting sales by its authorised distributors over the internet. On the other hand, the Autorité considered that selective distribution systems could also be used for (non-luxury) high quality tools, and declared that the prohibition of sales of such goods on third-party platforms was permissible in terms of EU competition law.

Last year, the Court of Justice of the European Union established, in its Coty judgment [Case (C-230/16)], that luxury goods, in particular, may require the implementation of a selective distribution system in order to preserve the quality of those goods and to ensure that they are used properly. Accordingly, suppliers of luxury goods may prohibit their authorised distributors from selling the luxury goods on third-party platforms in certain circumstances (see our Press Release here [http://camilleripreziosi.com/en/news-resources/1/2520/the-coty-judgment-in-a-nutshell]).

The Autorité, therefore, seems to have answered one of the main questions left open by Coty - the reasoning laid down in the Coty Judgement may extend beyond luxury goods.

Summary of the Case

According to the Autorité, it is entirely legitimate for a manufacturer to adopt a selective distribution system for the sale of high-quality or high-technology products. In this case, the tools sold by Stihl (chainsaws, brushcutters, pole-saws, electric pruners), justified the consultancy services in order to preserve their quality and ensure their proper use. Additionally, the necessity to verify compliance with these obligations and to preserve its brand image also justified the ban on online sales from third-party platforms.

 
However, with regard to the terms of online sales established by Stihl, although not expressly forbidding its distributors from sales over the internet, by requiring hand-delivery to the customer, Stihl was effectively, forbidding the sales on its distributors' websites. The Autorité found, that by imposing such a requirement of hand-delivery, Stihl was divesting online sales of their main advantage, that is, being able to purchase goods without actually visiting the retail outlet physically. Consequently, Stihl was imposing a de facto prohibition on online sales. 

What does this mean for Businesses?

The significant fine imposed on Stihl for its de facto prohibition of online sales, reflects the harsher stance being taken by the enforcement authorities when confronted with this type of violation of competition law. Indeed, by way of comparison, in the Pierre Fabre case [Case C-439/09], the fine imposed was significantly lower, amounting only to 17,000 Euro. Thus, businesses should be aware that attempts to restrict sales over the Internet run the risk of substantial fines.

Furthermore, the Autorité cleared a platform ban that Stihl imposed on its distributors, thus extending the reach of the Coty judgment to high-quality or high-technology products. This also reflects DG Competition’s view: bans on sales of goods, other than luxury goods, on third-party platforms may be compliant with EU competition law where they fulfil certain criteria (see the Competition Policy Brief April 2018 at [http://ec.europa.eu/competition/publications/cpb/2018/kdak18001enn.pdf]).

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