Selective Distribution – Some recent developments in the adidas case: when can sales via online platforms be restricted?
On 18 November 2015, the Autorité de la concurrence (the “French Competition Authority” or “FCA”) obtained confirmation from adidas that it will withdraw from its contracts any clauses prohibiting its distributors from using marketplaces for their online sales.
In line with precedents from the German Competition Authority (the “Bundeskartellamt” or “BKA”), the FCA’s case handling seems to lead toward a new standard in prohibiting restrictions on the use of online platforms. The ongoing European Commission e-commerce sector inquiry, which is exploring restrictions on online sales, should provide further guidance to manufacturers, retailers and online platforms all over Europe.
What is the specific issue here?
It is not unusual for manufacturers to seek to impose contractual restrictions that prevent retailers from marketing their products via online marketplaces (such as Price Minister, Amazon and Fnac.com) and internet auction sites (such as eBay). Such contractual clauses usually appear in selective distribution agreements for luxury or highly technical products.
From a general standpoint, both the European Commission (the “Commission”) and National Competition Authorities (“NCAs”) are keen to preserve effective competition in online markets in order to enhance consumer choice and price competition.
In this respect, these restrictions may be subject to the EU competition rules on vertical restraints.
EU Guidelines on Vertical Restraints
As a reminder, the Commission set out its general approach to distribution agreements in its 2010 Guidelines on Vertical Restraints under art. 101 TFEU prohibiting anti-competitive agreements (the “Guidelines”).
Three main points must be noted:
- A distinction is made between “active” sales (i.e. actively approaching individual customers) and “passive” sales (i.e. responding to unsolicited requests from individual customers including delivery of goods or services to such customers). Internet sales are considered a form of passive selling. In that respect, a ban on Internet sales, even in a selective distribution system, is generally prohibited as a hardcore restriction of competition. Under both EU and French competition law, the Commission and the FCA held that a supplier cannot prohibit its distributors from selling online.
- However, manufacturers remain free to organise their selective distribution network and may require some quality standards. It means that they can regulate Internet sales within their network by requiring some quality standards just as for “brick-and-mortar” shops.
- Regarding online sales on third-party platforms, the Commission’s position in 2010 was that “where the distributor's website is hosted by a third party platform, the supplier may require that customers do not visit the distributor's website through a site carrying the name or logo of the third party platform”. This may have been interpreted by the industry as legitimating restrictions on online platforms in practice.
Although an absolute ban on online sales would be illegal, most of these rules however flow from the so-called EU and French ‘soft’ law and are non-binding, as the FCA expressly mentioned in a prior report on e-commerce.
The FCA is in line with the BKA
Germany at the cutting edge for an antitrust review of online platform restrictions
The BKA appears as one of the EU’s most active regulators when it comes to tackling the issue of vertical restrictions (see our prior e-briefing here). In the last two years, the BKA carried out a review of both Asics’ and adidas’ selective distribution systems. Both companies were imposing online marketing restrictions on their retailers. In substance, the BKA found in both cases that the restrictions raised serious competition doubts since these restrictions were going far beyond the simple requirement of quality standards. Commitments have finally been adopted. The action especially forced adidas to shift its trade policy in Germany last summer (see prior e-briefing about the adidas case before the BKA here).
adidas’ selective distribution system was also reviewed in France by the FCA in 2015. The investigation by the FCA was undertaken in liaison with the BKA. adidas’ decision to amend its conditions for online sales channels in France is therefore linked to the case in Germany.
The “quick” FCA investigation
The FCA’s investigation focused on the adidas selective distribution network, which restricts the sale of its products to authorised sporting goods retailers, chosen on the basis of specific criteria. In particular, the adidas selective distribution agreements prohibited the marketing of its products via online platforms.
The FCA’s investigation aimed to assess these contractual practices. The main issue was to determine if the online sales terms and conditions imposed on adidas’ distributors were curbing the development of e-commerce within the meaning of the FCA’s decisional practice.
However, the FCA terminated its investigations at a very early stage after adidas decided to remove from its selective distribution agreements the restriction which prevented its distributors from using online marketplaces and internet auctions.
Does that mean that restrictions on online platforms are now prohibited in France?
adidas’ decision to remove certain clauses from its agreements is not properly a “commitment” to the extent that it was not taken in the formal framework of settlement procedures within the meaning of Art. L464-2 of the French Commercial Code. In particular, it occurred before the opening of the formal investigation procedure (no statement of objections had been sent). The FCA merely decided to close its investigation following adidas’ decision to remove the restrictions from its selective-distribution agreements.
In any case, adidas has chosen not to challenge the FCA’s position. This does not mean that the debate in respect of restrictions on online platforms has been concluded, although it does set a soft precedent in the meantime.
The Commission’s e-commerce sector inquiry keeps moving forward
The most important insight is still to come. In France, the FCA is reportedly investigating the ban imposed by Samsung on its authorised dealers for online sales on third-party marketplaces in France. At the EU level, the Commission launched a two-year industry-wide inquiry into online businesses in May 2015. The inquiry is designed to assess how future enforcement actions after the review should be prioritised (see prior e-briefing on the e-commerce sector inquiry here). Based on the responses to questionnaires sent to companies recently, the Commission will provide specific guidance to e-commerce issues all over Europe when it issues its final report in 2017.