DISTRIBUTION NETWORK AND RESTRICTIONS ON INTERNET SALES

After sentencing Mariage Frères (Decision 23-D-12 of 11 december 2023), to a fine of €4 million for a cartel aimed at prohibiting online sales by its retailers, the French Competition Authority (AdlC) sentenced Rolex a few days later(Decision 23-D-13 of 19 december 2023), to a fine of €91,6 million for a similar practice prohibiting the online sales of its watches by the distributors of its selective distribution network.

Key takeaways
 

In the context of the online resale of its products by its distributors, the supplier cannot:

• stipulate clauses in its general terms and conditions of sale, or any other contractual document prohibiting the absolute resale of its products by the distributor on its own website;
• impose resale prices.
   

However, the supplier may control the resale of its products by its distributors on their websites:

• by setting qualitative criteria to be respected by distributors’ websites;
• by prohibiting the use of third-party platforms (marketplaces) for luxury (Coty case law) or high-tech products (Stihl decision, 24 10 18, n°18-D-23) in selective distribution networks or « high-end » products(Damman Frères tea decision, 03 12 20, n°20-D-20);
• by applying a differentiated pricing policy (« dual price »), for online and offline sales, provided that such price differentiation (i) encourages or rewards the distributor’s level of investment in the relevant channel, and (ii) does not have the object or effect of depriving the distributor of the possibility of selling the products online.

A restriction of competition by object, heavily sanctioned
 

A prohibition on online resale imposed on a distributor by a supplier restricts the territory in which, or the customers to whom, the contract goods or services may be resold, and as such constitutes a restriction of competition by object, qualified as a hardcore restriction (art. 4. e) of EU Regulation no. 2022/720 from the Commission of May 10, 2022, on « vertical restraints »).
 

The administrative fine imposed by AdlC can amount up to 10% of the annual worldwide turnover of the group or company (Article L.464-2, I of the French Commercial Code):

• Stihl was sentenced to a fine of €7 million (2018);
• Dammann Frères was fined €226,000 (2020);
• Mariage Frères was fined €4 million (2023);
• Rolex was sanctioned to a fine of €91,6 million (2023).

Mariage Frères and Rolex convicted for unlawfully prohibiting online resale on their distributors
 

The Mariage Frères group has been convicted of prohibiting its distributors from reselling its brand products on Internet, through a clause of its general terms and conditions of sale stipulating that:

« The resale of Mariage Frères products on the Internet and other networks is subject to a separate contract (…). Obtaining an agreement to resale Mariage Frères products in an individual point of sale does not give the right to place and resell these same products in another individual point of sale « .
 

According to AdlC, this clause assimilated the distributors’ website to a distinct individual point of sale, whose opening required Mariage Frère’s authorization and the conclusion of a separate contract (no online sales contract was concluded, however), which « constitutes a restriction of competition comparable to an explicit absolute prohibition« .
 

Mariage Frères tried to justify this prohibition by the necessity of preserving the prestigious image of its products. However, AdlC did not follow this argument, since according to the Coty case law, « the contractual clause giving the supplier the possibility of regulating the online sale of its products must have an objective and proportionate justification with regard to the objective pursued, such as ‘preserving the image of luxury and prestige of the products concerned’ in the context of a selective distribution network, and must be applied in a non-discriminatory manner, without however ‘absolutely prohibiting authorized distributors from selling the contractual products on the Internet' ». Therefore, AdlC decided that « the criteria set out in case law (…) have not been met, particularly in the absence of a selective distribution network ».
 

Rolex has been condemned for prohibiting its authorized distributors, in its selective distribution agreements, from « any sale outside the point of sale or by mail order (…) ».
AdlC considered that this clause resulted in a general and absolute prohibition on distributors in a selective distribution network to sell by Internet, and that it constituted a restriction of competition by object in the light of the economic and legal context in which it was applied.

Rolex argued that this prohibition was justified particularly by the objectives of ensuring a satisfactory purchasing environment for consumers, fighting against counterfeiting and parallel networks, and preserving the image of the Rolex brand, specifically when products were sent at distance. AdlC examined the justifications and referred to its decision-making practice, according to which general and absolute prohibitions on distributors in a selective distribution network to sell by Internet are neither justified nor proportionate to the pursuit of a legitimate objective, and less restrictive alternatives must be considered.
AdlC concluded that « none of the evidence gathered during the investigation justifies departing from this decision-making practice and established case law, insofar as less restrictive alternatives could be envisaged ».

Perspectives on the prohibition of online sales in distribution networks
 

As regards selective distribution, supplier may not:
 

• insert clauses in its general terms and conditions of sale, or any other contractual document that prohibit or restrict the resale of products by the distributor, on its own website;
• prohibit its distributors from advertising online;
• restrict active and passive sales by its distributors (retailers) to end-users.

However, supplier may control the resale of its products, and in particular:
 

• impose quality standards on distributors for the use of their website, such as the requirement to have one or more physical point of sale (excluding pure players), or qualitative criteria relating, for example, to the graphic charter of their website;
• prohibit its distributors from reselling products on third-party platforms,if such a prohibition is necessary for the objective pursued (brand image, consumer safety) and applied in a uniform and non-discriminatory manner;
• prohibit its authorized distributors from reselling products outside the network;
• restrict sales to end-users when the distributor is a wholesaler.

As regards exclusive distribution, supplier may not:

• insert clauses in its general terms and conditions of sale or any other contractual document that prohibit or restrict online resale of products by the distributor, on its own website;
• prohibit resales on third-party platforms (subject to the exception of Damman Frères Tea);
• prohibit online resales (passive, solicited by a customer) of products to a customer located outside its territory, nor impose geo-blocking measures on its website (having the effect of restricting passive sales).

  However, it may:
   

• prohibit its distributors from actively selling products to a customer located outside its territory, if this customer is located in the exclusive territory of another distributor (up to a limit of 5 distributors) or if the supplier has reserved this territory for itself;
• insert a clause limiting active targeting by a distributor, by Internet, to customers located in the exclusive territory of another distributor.

What Altaïr Avocats can do for you
 

• Drafting and negotiating general terms and conditions of sale which set the basis of the commercial relationship and the supplier’s pricing policy.
• Implementation of contractual documentation for a simple, exclusive or selective distribution network.
• Audit of online sales distribution practices.
• Support and advice in the choice and implementation of a distribution network.
• Dispute resolution in the event of breach of an exclusive or selective distribution network.

  By Altaïr Avocats Distribution-Competition team – January 2024 – Christophe HERY (partner) and Mégane BOUSSEREAU (associate).