More latitude for the organizers of the selective distribution system? | SSW Legal Alert
On July 26th, 2017 the opinion of the advocate general of the Court of Justice of the EU on the high-profile case Coty Germany GmbH v Parfümerie Akzente GmbH (C‑230/16) has been delivered. The case concerns, among others, admissibility of applying clauses in selective distribution agreements aiming to restrict using third-party platforms (in this case amazon.de) for Internet sales by retailers. Although this opinion is not binding for the Court it may help to reasonably predict which direction the Court will follow in its judgement (since in practice Court’s judgments are often compatible with the opinion of the advocate general).
A selective distribution is a system where the supplier undertakes to sell the goods or services covered by a vertical agreement, either directly or indirectly, only to distributors selected on the basis of specified criteria and where these distributors undertake not to sell such goods or services to unauthorized distributors. In case of the qualitative selective distribution, distributors are selected solely on the basis of the objective criteria related to the character of the product. Such model is generally admissible provided that the following criteria are cumulatively met (so called Metro criteria):
- introduction of the selective distribution system is justified by the character (features) of the products, in particular their high quality or highly technical nature, in order to preserve their quality and to ensure that they are correctly used;
- resellers must be chosen on the basis of objective criteria of a qualitative nature which are determined uniformly for all potential resellers and applied in a non-discriminatory manner;
- the criteria defined must not go beyond what is necessary.
The advocate’s general opinion is crucial for the entrepreneurs active in the selective distribution network due to, at least, two reasons.
Firstly, as the advocate general indicates, the character of the products justifying introduction of the selective distribution system, including their characteristics may result not only from material features (such as high technical quality), but also from the “luxury” image of the products (brand). Consequently, the selective distribution agreement aiming to ensure such image is compatible with the EU competition law as long as Metro criteria are met.
Secondly, in the advocate’s general view, as long as Metro criteria are met, a contractual clause incorporating a prohibition on authorized distributors of a distribution network making use in a discernible manner of third-party platforms for online sales (so called platform/marketplace bans) is also compatible with the EU competition law. It is pointed out in the opinion that such a ban is admissible as long as it may improve competition based on the qualitative criteria (i.e. other than the product’s price). The advocate general indicated in this context that the ban may be justified by meeting and controlling qualitative criteria (such as providing additional services or presenting the product in a given manner). As rightly noticed, in case of using third-party platforms, the organizers of the network no longer have control over presentation and image of their products.
The advocate’s general opinion is undoubtedly advantageous for the entrepreneurs organizing selective distribution systems. If the Court of Justice shares the advocate’s opinion, the entrepreneurs will be ensured with more latitude in drafting distribution agreements and imposing obligation on their resellers. It seems that the advocate’s general opinion is coherent with the European Commission’s approach that has been recently taken in the final report on the e-commerce sector inquiry. The Commission indicated in its report that marketplace bans should not be considered as hardcore restrictions of competition. It means that the Commission also sees the possibility to apply block exemptions from the general prohibition on anticompetitive agreements to marketplace bans.
SSW constantly monitors development on the Coty Germany case as well closely follows the approach of Polish and EU bodies on restrictions applied on the e-commerce market.
SSW specialists assist the Clients in designing and/or optimizing their distribution/franchise systems and drafting relevant agreements (including dedicated financial programs) in accordance with competition law as well as represent the Clients in disputes and proceedings regarding competition law infringements.
Jakub Jędrzejewski, Counsel, Attorney at law
Filip Drgas, Junior Associate