GLOBAL ANTITRUST ALERT: ONLINE THIRD PARTY PLATFORM BAN FOR BRANDED BACKPACKS IS LEGAL, GERMAN COURT SAYS
On 22 December 2015, the Higher Regional Court of Frankfurt ("Court") decided that German backpack producer Deuter Sport GmbH ("Deuter") acted legally when banning its authorized retailers from selling Deuter products on online market places such as the Amazon marketplace and thereby (partially) overruled a decision of the Regional Court of Frankfurt ("Regional Court") but agreed with the Regional Court that the prohibition to use price comparison websites was illegal.
With its decision the Court (partially) contradicts the legal position of the German Federal Cartel Office ("FCO") who recently confirmed in its Asics case that third party platform bans and the prohibition to use price comparison websites infringe German/European competition law. The decision therefore apparently seeks to reasonably balance the manufacturers' interests that their products are perceived as high quality products and the retailer's interest to use the internet as a distribution channel. The case has thus the potential to mark the starting point for a more manufacturer friendly practice on online sales restrictions. It remains to be seen whether such position will prevail. The Court's press release can be accessed here (in German, the full decision text is not yet available).
1. Brief summary of the proceedings and the key findings
In 2013, Deuter introduced a selective distribution system. According to Deuter's terms and conditions, retailers were inter alia prohibited from (i) selling products via online market places (e.g., Amazon marketplace) and/or (ii) cooperating with price comparison websites without Deuter's prior written consent.
- With a decision dated 18 June 2014, the Regional Court found that the third party platform ban and the prohibition to use price comparison websites violated Art. 101(1) TFEU and Section 1 of the German Act against Restraints of Competition. The Regional Court further stated that the clauses constituted serious competition law restraints (so-called hardcore restrictions) and could therefore neither be justified by efficiencies nor prevailing interests of Deuter.
- The Court partially overturned that ruling finding a ban of third party platforms in line with German/European competition law. According to the Court's press release, a brand manufacturer has a legitimate interest that its branded products are perceived as high quality products coming along with excellent sales advice. Consequently, the manufacturer is in principle free to decide under which conditions its products are sold – provided that these conditions are necessary to meet the quality standards.
- The Court seems to suggest that from a customer's perspective, sales via Amazon marketplace are perceived as sales by Amazon and not such of an authorized retailer and should therefore be considered as sales by Amazon. As the brand manufacturer is in no contractual relationship with Amazon, allowing sales via Amazon marketplace would undermine the manufacturer's interest to monitor whether its authorised retailers are in compliance with the required quality standards.
- In the court's view, the manufacturer's interest (maintaining a high quality brand image) therefore outweighs the retailers interest to sell the brand products via online marketplaces. In particular, the Court holds that a brand manufacturer is not obliged to enhance the competitiveness of small-and-medium sized undertakings by authorizing sales via Amazon marketplace.
- In addition, the Court found that a prohibition to use price comparison websites, is not necessary to protect a brand image. Such search engines are not perceived as sales channels but as a tool to find a retailer offering the searched product. In the view of the Court, the brand image is not impeded if the products are displayed like mass products. In an obiter dictum, the Court further noted that only with respect to luxury products this might be of relevance.
2. Key takeaways
The ruling is the latest in a series of decisions of German courts dealing with restrictions on online sales. In absence of a decision of the German Federal Supreme Court, the practice of the lower courts is (at best) inconsistent:
- With its recent ruling, the Court sides with previous decisions of other German courts which considered similar restrictions in selective distribution agreements to be lawful;
- On the other side, the FCO and several other German courts take a very restrictive position on online sales restrictions;
- Notably the FCO adopted a landmark decision relating to online sales restrictions for members of the selective distribution arrangement by the sport-shoe maker Asics in August 2015. Authorised resellers of Asics were not allowed to use (i) third party platforms such as Amazon marketplace and eBay, (ii) Asics' brand names on third party websites to direct customers to their own online shops and (iii) to list their offering in price comparison websites for purposes of attracting customers;
- The FCO concluded that the prohibitions de facto undermined the visibility of the online offering of small-and-medium-sized resellers. Moreover, the authority found that the prohibition of price comparison websites unlawfully reduced incentives for price competition between authorised resellers;
- The legal position of the FCO apparently contradicts para. 54 of the Vertical Guidelines ("Guidelines") by the European Commission ("Commission"), where the European regulator indicates that suppliers may lawfully ban sales over third party platforms in selective distribution arrangements by requiring that customers do not visit the retailer's website through a site carrying the name or logo of the platform. According to public statements by officials from the FCO, the authority feels no legal obligation to follow the Guidelines and will continue to apply its restrictive approach on third party platform bans. Apparently, the FCO considers para. 54 of the Guidelines outdated as it was (allegedly) drafted to limit sales via auction platforms with "flea-market" character that in its view do not exist nowadays following changes to the business model of eBay and other platforms.
3. Impact of the decision
The decision of the Court is not final and can be appealed to the German Federal Supreme Court. In the interest of legal certainty, it has to be hoped that the Supreme Court, if invoked, will issue a clear position on the legality of third party platform bans in selective distribution systems. Together with the Commission's sector inquiry into the e-commerce sector which was launched on 6 May 2015 this might lead – at least in the long term – to a much needed harmonization of online sale restrictions across all Member States and may therefore open up possibilities for the industry to apply the same set of terms and conditions for selective distributions systems throughout Europe.
Interestingly, this was possibly what the FCO had in mind, when it apparently tried to convince the Court to refer the case to the European Court of Justice. With today's decision the Court implicitly turned this request down and has taken a step to favouring brand manufacturers. However, in light of the FCO's restrictive position, manufacturers should continue to be very cautious in imposing restriction on online sales