The 196-page Federal Cartel Office (FCO) decision of August 2015 in the ASICS case has finally been published. The FCO has decided that the prohibition in a distribution agreement against authorised ASICS retailers allowing a third party to use ASICS brand names on third-party websites in order to guide customers to the websites of authorised ASICS retailers and the prohibition on supporting price comparison engines violated Article 101 of the Treaty on the Functioning of the European Union (TFEU) and Section 1 of the Act Against Restraints of Competition. The decision is highly relevant for the ongoing debate about whether online sales restrictions in distribution agreements are violating the aforementioned provisions.
Sport shoe manufacturer ASICS operates selective distribution. Under the former distribution agreement, authorised retailers were prohibited from:
- allowing third parties to use ASICS brand names on their websites in order to guide potential customers from the third websites to the website of the authorised retailer;
- supporting online price comparison engines; and
- selling ASICS shoes via third-party online marketplaces (eg, eBay and Amazon).
Restriction of competition by object
The FCO regarded the prohibition of the use of brand names and the prohibition on supporting online price comparison engines as restrictions of competition within the meaning of Article 101(1) of the TFEU and Section 1 of the Act Against Restraints of Competition.
The FCO held that the ASICS retailers were prevented from enlarging their geographic reach by use of a specific internet feature, since the prohibition of the use of brand names restricted their freedom to use online advertisements to attract business. In the FCO's view, the prohibition on supporting online price comparison engines blocked authorised retailers' access to an online sales channel that is of major significance for end customers.
The FCO regarded these restrictions of competition to be restrictions by object. According to the FCO, a prohibition of the use of brand names limited retailers' online sales, since this prohibition made it considerably more difficult for end customers to find the authorised retailers. The prohibition on supporting price comparison engines also constituted a restriction of online sales in the FCO's view. Such price comparison engines help end customers to filter out suitable offers within the wide range of online products available from a seemingly endless number of retailers. If a retailer is not connected to such a price comparison engine, a majority of end customers will not shop on its website.
According to the FCO, the exception from Article 101(1) of the TFEU for potentially restrictive clauses in distribution agreements – which the European Court of Justice (ECJ) established in Metro – did not cover these restrictive clauses. For such an exception, ASICS's distribution system would have to have been purely qualitative; it was, however, a combination of qualitative and quantitative distribution.
Neither restriction was exempted. For the FCO, the prohibition of the use of brand names and the prohibition on supporting price comparison engines were hardcore restrictions within the meaning of Article 4(c) of the Block Exemption Regulation for Vertical Agreements. Both prohibitions constituted a restriction of sales to end users by members of a selective distribution system operating at the retail level of trade. The FCO left open the question of whether online sales by the authorised retailers are active or passive sales.
No further justification
Despite regarding the restrictions as hardcore restrictions within the meaning of Article 4(c), the FCO stated that there were three possible ways to justify such restrictions:
- if such restrictions were permissible for offline sales according to the principle of equivalence;
- if such restrictions constituted a legitimate quality requirement; or
- if such restrictions were justified from the viewpoint of trademark law considerations.
Principle of equivalence
The FCO decided that this possible justification did not apply to the restrictions in question. Both restrictions on retailers concern online sales. There is no equivalence for offline sales to the prohibition of the use of brand names or the prohibition on supporting price comparison engines. Such actions are possible only online. Therefore, considerations of equivalence could not justify these prohibitions according to the FCO.
Quality requirements which could justify such restrictions must relate to aspects that influence distribution quality or efficiency. The prohibition of the use of brand names totally excluded all advertising features with ASICS brand names and did not take the justified interests of the retailers into account. The prohibition on supporting price comparison engines was not regarded as necessary to protect brand image or to resolve a free-rider problem. In its assessment, the FCO referred to ECJ case law – according to which protection of brand images is not a justification for restrictions of competition. In the FCO's view, the free-rider problem is not a problem that results specifically from authorised retailers supporting price comparison engines, but exists in online sales in general. Therefore, a total prohibition on supporting price comparison engines is not an appropriate way to resolve the free-rider problem.
In its assessment of the prohibition of the use of brand names, the FCO referred to ECJ case law where the use of another company's brand as a keyword in Google Adwords did not necessarily constitute a trademark violation. To constitute a trademark violation, a specific trademark function must be impaired by such use of the mark. The FCO stated that it would have been possible for ASICS to set out in the distribution agreement how the ASICS brand name should be used on third-party websites. The total prohibition therefore was regarded as unnecessary and disproportionate.
Obiter dictum on market place restrictions
The FCO did not decide on the prohibition of the use of third-party marketplaces. However, it stated that such restrictions violate Article 101 of the TFEU and Section 1 of the Act Against Restraints of Competition. In the FCO's view, there were good reasons why such restriction was deemed a hardcore restriction within the meaning of Article 4(c) of the Block Exemption Regulation for Vertical Agreements. The FCO held that for small and medium-sized retailers, it is decisive that they are present on such marketplaces so that customers can find them. The justifications do not apply to such restriction. The FCO position contradicts the European Commission's view in the 2010 Vertical Guidelines.
The decision clarifies the FCO's position regarding online sales issues. In the FCO's view, a supplier may not totally prevent its retailers from using the supplier's brand on third-party websites to guide customers to the retailers' website, and retailers cannot be prevented from supporting online price comparison engines. It did not decide on the much-debated issue of restrictions on the use of internet sales platforms. This issue has been dealt with by German courts with varying outcomes. It remains to be seen what the final competition law position on such restriction will be. The commission has begun a sector inquiry into online sales, the results of which could change or confirm the positions taken on this issue. However, the FCO's view has been criticised, as it is deemed to be stricter than that of other European competition authorities. The FCO's decision is not yet final, as ASICS has appealed the decision.
For further information on this topic please contact Rolf Hempel or Martin Cholewa at CMS Hasche Sigle by telephone (+49 711 9764 308) or email (firstname.lastname@example.org or email@example.com). The CMS Hasche Sigle website can be accessed at www.cms-hs.com.
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