Resale price maintenance in vertical agreements (ie, establishing a fixed or minimum resale price or distribution margin to be observed by the buyer) constitutes a hardcore restriction under EU and French antitrust regulations (as opposed to maximum or recommended prices, which are lawful). This means that, as a matter of principle, distribution and franchising agreements containing resale price maintenance provisions may not benefit from the EU Block Exemption Regulation (330/2010).(1) However, pursuant to the guidelines on vertical restraints,(2) undertakings may demonstrate the pro-competitive effects arising from hardcore restrictions in individual cases.
Online sales in vertical agreements (eg, franchising) give rise to a variety of legal issues, including the extent to which franchisees may be bound to observe the prices of the products advertised on the network's website, which is managed exclusively by the franchisor.
The Commission for Examination of Commercial Practices (CEPC) is a consultative body with a mission to give opinions or make recommendations anonymously on questions, commercial or advertising documents and practices concerning commercial relations between producers, suppliers and retailers which are referred to it. The CEPC recently had the opportunity to clarify the issues regarding online sales in franchise agreements.
In response to a query made by a law firm representing a franchisee association, the CEPC examined several circumstances, including the nature of the website, the product seller's identity and the methods of product delivery. This gave rise to the following conclusions.
If the website managed by the franchisor is a "showcase" site (ie, it does not allow consumers to make online purchases), the prices displayed online are recommended prices or maximum prices, depending on the franchise agreements concluded. In this circumstance, consumer law requires that the consumer be clearly informed that the displayed prices are only recommended or maximum prices.
If the franchisor's website is a "merchant" website (ie, it allows consumers to make online purchases), the following principles apply.
Where the franchisor is the seller and sells the products online, it sets its own selling prices and the franchisee is under no obligation to match these online prices in its sale outlet(s), regardless of its own economic considerations:
- If the franchisor offers a home delivery system, it sends products directly from its stock to the end customer and sets the price.
- If the franchisor offers the customer a "click and collect" option in the franchisee's outlet, two different situations may arise:
- If the product comes from the franchisor's stock and is delivered to the franchisee, the franchisor determines the online sales price.
- If the product comes from the franchisee's stock, the online price is determined by the franchisor and a compensation mechanism may be provided for between the franchisor and the franchisee, in accordance with their respective economic considerations.
Where the franchisee is the seller and sells its products online using the franchisor's website, the franchisee uses the interface provided by the franchisor. The franchisee is then free to set the resale prices. However, a distinction must be made between the delivery and the in-store collection options available to consumers:
- If the franchisee offers in-store collection (click and collect), the franchisee sets the collection price of the product online, which may be different from the home delivery price of the product displayed.
- If the franchisee also provides a home delivery service, the effectiveness of the online sale requires that a single price is displayed online so as not to offer the consumer a different price online depending on where they live (a different price may arise depending on the franchisee identified to make the delivery, which depends on the delivery location). A mechanism should be provided to preserve the commercial freedom of the franchisee, taking into account its own economic considerations, for example, by allowing the franchisee to not accept the order concerned or by setting up a compensation mechanism.
The above conclusions identified by the CEPC provide greater legal certainty to parties to franchise agreements with regard to the applicable competition rules (including the ban on resale at a loss).
Future price-fixing practices in relation to online sales in a franchise network will need to be assessed in light of the new EU Block Exemption Regulation, a draft of which was published by the European Commission on 9 July 2021. The main changes brought about by the new regulation relate to online sales and new market players (such as online platforms). The new regulation should enter into force on 1 June 2022.
For further information on this topic please contact Raphael Mellerio at Aramis Law Firm by telephone (+33 1 53 30 7700) or email ([email protected]). The Aramis Law Firm website can be accessed at www.aramis-law.com.
(1) EU Commission Regulation 330/2010 of 20 April 2010 on the application of article 101(3) of the Treaty on the Functioning of the European Union to categories of vertical agreements and concerted practices.
(2) Official Journal of the European Union, 19 May 2010, C130/1.