We identify two developments for 2018 regarding the application of competition rules to vertical agreements. First, the long-awaited judgment of the European Court of Justice (the “ECJ”) in the Coty case has made it possible to restrict sales via online marketplaces in distribution agreements. Secondly, the European Commission (the “Commission”) is expected in 2018 (and beyond) to focus its enforcement policy on geoblocking by means of vertical agreements, among other things.
The judgment in the Coty case was published in December 2017. In that case, the ECJ answered the question whether manufacturers of luxury goods may prohibit a distributor from offering those goods on online marketplaces such as Marktplaats, Bol.com and Amazon. The judgment was passed in a dispute between Coty, a supplier of luxury cosmetics, and Akzente, a distributor of Coty. Under a selective distribution agreement, Coty had prohibited Akzente from offering products of Coty on third-party online platforms. Akzente ignored that ban and the resulting dispute was submitted to the German court. The case was handled by the higher regional court in Frankfurt am Main, which requested the ECJ to issue a preliminary ruling on, among other things, the compatibility of the cartel prohibition with the ban on sales via online platforms. It is first of all apparent from the Coty judgment that manufacturers of luxury goods may use a qualitative selective distribution system to protect the luxury image of their products, provided that:
- the resellers are chosen on the basis of objective criteria of a qualitative nature, laid down uniformly for all potential resellers and not applied in a discriminatory fashion; and
- the criteria laid down do not go beyond what is necessary.
The Coty judgment has therefore clarified the earlier case law in this field. The ECJ found that in the context of selective distribution of luxury goods a ban on sales via online marketplaces is compatible with competition law. More information on the Coty judgment can be found here and here. It is noteworthy that the ECJ found in the Coty judgment that a restriction of sales via online marketplaces is not a restriction ‘by object’. This means that, also if no selective distribution system (of luxury goods) is involved, it may be possible to benefit from the exemption offered by Article 6(3) of the Dutch Competition Act / Article 101(3) of the TFEU or the “safe haven” offered by the Vertical Agreements Block Exemption.
The Coty case is a welcome clarification of the application of competition rules to selective distribution systems. Such clarification was needed, since European competition authorities and courts have different views on online marketplace bans. In the Asics and Adidas cases, for instance, the German competition authority (Bundeskartellamt or “BKartA”) found that a ban on sales via an online marketplace was in breach of the competition rules. A Dutch court, on the other hand, ruled in the Nike case (ahead of the ECJ’s judgment in the Coty case) that Nike was allowed to restrict sales via online marketplaces in its selective distribution agreements. But the BKartA remains critical, despite the Coty judgment. Andreas Mundt, the President of the BKartA noted that the Coty judgment does not give the manufacturers of non-luxury goods carte blanche to agree on restrictions (such as online marketplace bans). His position was corroborated on 12 December 2017 by the German Bundesgerichtshof, which found that with regard to non-luxury goods a blanket ban on the use of price comparison websites by buyers constitutes a restriction ‘by object’. It is remarkable that the German Bundesgerichtshof, unlike the Dutch court in the Nike case, found that sports shoes and running shoes are not luxury goods. It remain important when setting up and maintaining a distribution relationship to bear in mind that, despite the Coty judgment, the BKartA is still critical of restrictions of online resale. The same can be said of the German courts, one of which recently found that resale price maintenance (RPM) constitutes a restriction ‘by object’.
Geoblocking by means of vertical restrictions
For many years the Commission has stated that it considers the Digital Single Market Strategy a top priority. We have written in the past about the Commission’s approach to geoblocking (see here and here). With the adoption of the Geo-blocking Regulation, the EU legislator aims to tackle discrimination of end-users on the basis of their nationality or place of residence by suppliers of (online) cross-border goods and services. The Geo-blocking Regulation will come into force on 3 December 2018. Another way in which the Commission can take action against geo-blocking is via competition law. If manufacturers and distributors share the internal EU market by means of distribution agreements (for instance with price discrimination based on the buyer’s location or restriction of cross-border sales), they may be acting in breach of competition law. The Commission’s strong feelings on this point are apparent from the fact that it has already launched several investigations into geoblocking by Guess, Nike, Universal Studios and Sanrio, tour operators and hotels and game distributor Valve. Geoblocking is clearly on the Commission’s 2018 agenda.
Is the current framework suitable?
It is remarkable that the developments described above are driven by technological developments and the emergence of e-commerce. This gives rise to the question whether the current competition law framework is suitable to safeguard effective competition on the digital markets. The emergence of e-commerce was obviously not taken into account when the current vertical agreements block exemption was drawn up, for instance. The block exemption, which applies until 2022, therefore lacks a certain practical applicability in our modern-day economy. The Commission nevertheless seems to have no plans to significantly change its policy on vertical agreements any time soon. The Netherlands Authority for Consumers & Markets (“ACM”) is siding with the Commission. ACM is not a fan of hipster antitrust. It remains to be seen whether the Commission and ACM can persist in this (conservative) position. ACM is already retracing its steps in the field of online markets: it was certainly in no hurry to investigate the practices of Booking.com, although it did later subscribe to the views of other competition authorities.
We find that the focus of ACM is increasingly shifting towards consumer protection also in these types of cases; see our blog on the enforcement of consumer rules by ACM.
Stay up to date
E-commerce remains high on the EU agenda of both the European Commission and various Member States. The foremost information portal if you wish to keep abreast of the latest news of the Commission and other European competition authorities in the field of e-commerce is www.ecommercesectorinquiry.com. That portal is regularly updated on the basis of relevant legal developments and has a FAQ and a tips & tricks section.