On 21 February 2020, the European Commission (the “Commission”) announced it had fined Spanish hotel group Meliá almost €6.7 million for restrictive clauses in its contracts with tour operators. The decision highlights the Commission’s ongoing targeting of unlawful restrictions on cross-border sales.
Meliá’s conduct and the relevant rules
Between 2014 and 2015, Meliá’s standard contracts with tour operators contained a clause preventing them from selling its hotel accommodation to customers outside their designated countries. As a result, consumers had access to different offers and different prices based on their nationality.
EU competition law prohibits businesses from imposing outright bans on distributors selling into particular territories. In some circumstances, a ban on “active” sales into particular territories may be permitted. Such a ban may prohibit distributors from actively approaching customers in the relevant territories through, for example, unsolicited emails or advertisements or other promotions specifically targeted at them.
Bans on “passive” selling into particular territories will almost always amount to a serious breach of EU competition law. Passive selling involves responding to unsolicited requests from customers. General advertising which reaches customers in “prohibited” territories but which is a reasonable way to reach customers in “permitted” territories is considered passive selling. In general, where a distributor uses a website to sell products or services, this is considered a form of passive selling.
Although, in this case, the Commission dropped its investigation into four major tour operators which were party to the offending contracts with Meliá, all parties to an arrangement which infringes competition law will usually be liable for the infringement. Businesses which infringe EU competition law face fines of up to 10% of their worldwide group turnover and can be sued for damages by third parties who have suffered loss as a result of the infringement.
The Commission’s probe into Meliá was opened in February 2017 following complaints from customers. Meliá was given a 30% reduction in its fine for cooperating with the Commission beyond its legal obligation to do so.
An ongoing focus on promoting the Single Market
The promotion of the European Single Market has long been a priority for the Commission, based on a strongly-held belief that consumers in one EU Member State should have unfettered access to better prices and/or offerings in other Member States. However, in recent years, its scrutiny of cross-border sales restrictions has notably increased.
In May 2015, the Commission launched an e-commerce sector inquiry in which it gathered evidence from 1,900 companies and reviewed 2,600 distribution contracts. A major concern identified by the Commission in its final report in May 2017 was that 11% of retailers indicated that they had contractual cross-border sales restrictions in at least one product category in which they were active.
Since the sector inquiry, the Commission has opened a number of probes into such restrictions:
- In February 2017, the Commission opened an investigation into allegations that five video game publishers and one online video game distributor entered into bilateral agreements to prevent consumers from purchasing and using video games acquired outside their country of residence, through the use of geo-blocked activation keys. The investigation is ongoing.
- In July 2018, the Commission fined a consumer electronics manufacturer over €10 million for restricting its retailers’ ability to set their own resale prices and for limiting their ability to sell cross-border, for example by blocking orders of retailers who did so.
- In December 2018, the Commission fined a clothing manufacturer €40 million for various infringements, including banning its authorised retailers from selling outside their allocated territories.
- In 2019 and 2020, the Commission fined three companies a total of €33 million for restricting cross-border sales of their licensed merchandise products.
Business who sell either B2B or B2C in the EU should also note that, since 3 December 2018, they have been subject to the EU Geo-Blocking Regulation.