1. The Coty Case and its implications on the selective distribution of luxury goods online
On 30 March a hearing took place at the ECJ concerning the Coty case (C-230/16), a landmark case in which the Court will have to decide on the limits to online sales via third-party platforms within the scope of selective distribution systems.
Selective distribution systems allow the manufacturer or supplier of a given product to guarantee certain minimum quality and service standards in the distribution of its products through the selection of distributors that will make up its network. Selection is carried out by establishing certain criteria, generally quality-based, that the distributors will have to comply with in order to be a member of that distribution network. The ultimate goal of selective distribution systems is to protect the distribution of a product that, due to its nature and characteristics, calls for special protection.
Along with the development of the digital economy, manufacturers have had to accept the possibility that the members of a selective distribution system could market their products via the internet. Nevertheless, a series of limits or guarantees have been established in order to allow manufacturers to preserve the brand image of its products and the quality of the service presented to their end-customers.
In particular, the European Commission has ruled that a selective distribution system of a manufacturer or supplier requiring its distributors to comply with certain criteria in order to maintain a minimum quality standard in the presentation and sale of its products online is legitimate. This way, a supplier may demand the distributor to have at least one physical store to be able to operate a web page, and such web page must meet the equivalent criteria to the brick and mortar shop. Similarly, a supplier may require its distributors to use third party platforms to distribute the contracted products only in accordance with the standards and conditions agreed between the supplier and its distributors for the distributors' use of the internet. For instance, where the distributor's website is hosted by a third party platform, the supplier may require customers not to visit the distributor's website through a site carrying the name or logo of the third party platform (see paragraph 54 of the Guidelines on vertical restraints).
Nonetheless, the protection of the brand image is not sufficient to justify an outright ban on online sales, as declared by the European Court of Justice (ECJ) in the Pierre-Fabre case. In this case, dating back to 2011, it was discussed whether the ban on online sales imposed by the brand as a consequence of the requirement to have a specialized pharmaceutical company making the sale, amounted to an infringement of EU competition laws. As a response to the prejudicial questions raised by the Parisian Cour d’Appel, the ECJ declared that a prohibition on online sales, despite constituting a restriction of competition by object, is legitimate if it can be objectively justified. However, it clarified that neither the need to provide personalized advice to the customer, nor the prestigious image of a product, could be construed as legitimate goals to justify such a prohibition.
In this case, the discussion revolves around whether it is lawful, from a competition law perspective, to establish a complete ban on online sales via third-party platforms. In particular, the case raises the question as to whether Coty, a recognized beauty and perfume multinational owning brands such as Marc Jacobs, Calvin Klein or Chloé, could prohibit its distributors (the German Azkente in this case) from selling its luxury-products on Amazon. Under such premises, the Regional Court of Frankfurt has submitted the following questions to the ECJ:
- Whether the protection of a product’s luxury image gives enough reason to establish, after the Pierre-Fabre case, a selective distribution system. If affirmative:
- Is it lawful to impose an outright ban on sales via third-party platforms on authorized distributors, regardless of whether they meet the manufacturer’s quality requirements?
- Could a sales ban on third-party internet platforms within a selective distribution system be construed as a serious restraint of the retailer’s clientele or the passive sales of end customers?
The (direct or indirect) sales ban on third-party internet platforms such as Amazon or eBay under selective distribution systems is a fairly widespread practice within the EU, and some national competition authorities have ruled on this matter. The German competition authority found that the prohibitions established by the sport brands Adidas and Asics concerning online sales via third-party platforms restricted intra-brand competition and damaged small retailers that depended mainly on platforms such as Amazon and Ebay to sell their products (see here). The French authority also decided to close an open investigation on Adidas based on the same facts after the sports company eliminated the disputed clause (see here).
The decision on the Coty case will be decisive for future relations between manufacturers and distributors, since the Court will determine a path that national competition authorities can follow with regard to this type of case. No matter what the court decides, it will surely entail the revision of many luxury-good manufacturer’s selective distribution systems in order to comply with EU Competition Law.
Finally, the ruling on the case is of special interest for the European Commission which, as we explained in this newsletter is carrying out a sectorial investigation on e-commerce, with the purpose of evaluating whether certain online sales practices hinder consumers from enjoying the many options that the internet offers.
Kraft Heinz / Unilever (Press release)
17/02/2017. Kraft Heinz, one of the biggest food groups in the world, has recently submitted an offer to buy Unilever, an Anglo-Dutch group dedicated to food, among other businesses, and owner of well-recognized brands in the market. If the acquisition is approved, the resulting entity will become the second biggest player in the industry after Nestlé, hence acquiring a significant market share.
For the moment, Unilever has rejected the USD 143 billion offer made by Kraft Heinz, although the latter assures that it will keep negotiating in order to reach an agreement. However, Unilever believes that at the present time such an operation would not yield any “strategic or financial” benefits that would make them consider the offer. If the parties reach an agreement, the operation will surely have to be reviewed under merger control rules.
HP / Samsung Electronics printing business (Press release)
28/02/2017. On 12 September 2016, HP and Samsung reached an agreement by virtue of which HP would acquire total control of the printing business owned directly or indirectly by Samsung.
The notification of such operation was presented to the European Commission on 28 February 2017, which has until 4 April to reach a decision on its compatibility with Competition Law.
J. García Carrión / DAFSA (Case file)
28/02/2017. J. García Carrión, a multinational that owns 19 wine brands and is a market leader in the juice sector due to brands like Don Simón, has reached an agreement to buy the company DAFSA (Development of Fresh Foods), another major brand of juices, gazpachos and horchatas that is also an inter-supplier of Mercadona. After analysing the effects of this operation on the market, the CNMC (Spanish Competition Authority) has authorized the operation in the first phase without commitments in a decision dated 28 February, which is not public yet.
Metro AG / Colruyt France (Case file)
02/02/2017. The Autorité de la Concurrence has authorised the acquisition of exclusive control by Metro AG, a wholesaler of ordinary products in the food sector, over the company Colruyt France SAS and its affiliates with presence in the food delivery sector.
After performing an extended inquiry in the sector, the French authority has reversed its decisional practice and considered that the analysis should be centred on the general market of food products for the HORECA channel, but still including cash & carriers (normally excluded from such market).
Additionally, the Autorité has deemed it pertinent to analyse the effects of the operation on the generalist distribution segment, without distinguishing by type of product. Under this approach, the Authority verified that the operation will not lead to a significant market share at national or local level and that the resulting entity will have to confront many specialized or generalist wholesalers in the market (Pomona, Promocash, Transgourmet, Brake, France Frais, etc.).
Moreover, the Autorité has carried out a meticulous analysis on the purchasing power of the parties involved in the supply market, taking into account for the first time the joint purchasing agreements between Metro and Auchan on the one hand, and between Auchan and Système U on the other hand. This analysis has led the French Authority to conclude that there is no risk of putting the suppliers in a situation of economic dependence nor causing them any other damage.
Les Maîtres Laitiers du Cotentin / Yeo Frais (Case file)
21/02/2017. The Autorité de la Concurrence has authorized the acquisition of Yéo Frais by the company Evoling, affiliate of the group Les Maîtres Laitiers du Cotentin (MLC). The Autorité has determined that the operation does not pose any risks to competition within the market of non-biological fresh cream, where a horizontal overlap occurs, regardless of the distribution channel. Moreover, the competition authority has established that the operation will not involve a foreclosure of the milk-supply market, as long as MLC’s market share in the raw milk supply market is not too significant, either on a national or local level.
Groupe Agrial / Société Brient (Case file)
17/02/2017. The acquisition of exclusive control of Brient by the Agrial group has been authorized. The former is a company active in the butchery sector, and the latter, a cooperative with presence in multiple farming sectors and processed foods sectors (including milk, meat, cereal, legumes, drinks, etc.), that acts as a supplier of goods and services for its members (such as seeds, animal feed, animal nutrition, farm/agricultural equipment and rural distribution). After analysing the potential effects of the operation, both horizontally and vertically, the Autorité has concluded that its execution will not pose any risks to competition in the sector at issue.
Newell Brands / Stanley Black & Decker (Case file)
15/02/2017. On 15 February, Stanley Black & Decker, an American manufacturer of industrial tools and domestic hardware, informed the UK competition authority (CMA) of its intention to purchase Newell Brands’ tool business. The CMA has opened an investigation of the agreement with the purpose of analysing its implications, even though it has not announced a deadline to reach a decision. The operation has been already authorized by the German and American authorities, and is pending the authorization of the Brazilian one.
Reckitt Benckinser / Mead Johnson Nutrition (Press release)
08/03/2017. Reckitt Benckiser, a multinational British enterprise that manufactures, among others, different types of products for household care, healthcare, personal care and cleaning products, has notified the Polish competition authorities of the acquisition of the American company Mead Johnson Nutrition, a producer of baby food. The Polish authorities have until mid-April to decide on the viability of the operation. It is unknown whether the operation must be analysed by other competition authorities.
Spar / Billa (Press release) The Austrian group of supermarkets Spar has been granted authorization to buy its competitor Billa. Both operators’ main activity is the retail distribution of foods and household products.
3. Anticompetitive practices
Online Sales (Press release)
02/02/2017. The European Commission has launched three separate investigations to assess if certain online sales practices prevent, in breach of EU antitrust rules, consumers from enjoying cross-border choice and being able to buy certain products and services at competitive prices. Investigations are being carried out in the following fields:
- Electronics: The Commission is investigating whether Asus, Denon & Marantz, Philips and Pioneer have breached EU competition rules by restricting the ability of online retailers to set their own prices for widely used consumer electronics products such as household appliances, laptops and hi-fi products.
- Video games: The Commission is investigating bilateral agreements concluded between Valve Corporation, owner of the Steam game distribution platform, and five PC video game publishers, Bandai Namco, Capcom, Focus Home, Koch Media and ZeniMax.
- Hotel pricing: the Commission is investigating agreements regarding hotel accommodation concluded between the largest European tour operators (Kuoni, REWE, Thomas Cook, TUI) and hotels (Meliá Hotels). The agreements in question may contain clauses that discriminate between customers based on their nationality or country of residence. As a result, customers would not be able to see full hotel availability or book hotel rooms at the best prices.
The consumer electronics and video games investigations mentioned above are the first following the Commission's competition sector inquiry on e-commerce, detailed here.
De’Longhi Kenwood (Press release)
20/02/2017. Austria’s Cartel Court has imposed a fine of EUR 650,000 on the household appliances manufacturer De’Longhi Kenwood for resale maintenance practices regarding coffee-machines in the Austrian market.
In particular, the Court established that from January 2006 until September 2016, De’Longhi had restricted online and cross-border sales of coffee-machines and fixed resale prices with a number of retailers. These agreements included the establishment of minimum and uniform sale prices for retailers, which De’Longhi regularly monitored, and contacts with retailers that did not apply said fixed prices. Since the retailers were aware of those minimum prices, the Court has found the practice to constitute a horizontal cartel.
The investigation started due to a leniency application filed by De’Longhi, which denounced the fixing of resale prices on coffee-machines and other household appliances. However, during the inspections, the authority only gathered evidence of the infringement with regard to the coffee-machines.
The EUR 650,000 fine refers to the anticompetitive behaviour in the coffee-machine sector, despite the ruling of the Court determining that the conduct had affected other household appliances, and is the result of a 40% reduction granted to De’Longhi.
Consumable Goods (Case file)
16/02/2017. The UK’s antitrust authority has started a new investigation into the market for consumable goods concerning the use of loyalty-inducing practices. The Competition and Markets Authority did not disclose the name of the company under investigation, but said it would reach an initial decision on whether to continue with the investigation by June.
Hondos Center (Press release)
03/02/2017. Eight cosmetics retailers controlled by the Greek Brand Hondos Center have been sanctioned with fines of more than USD one million by the national competition authority for price-fixing practices. The Hellenic Competition Commission’s ruling granted the companies a 15% reduction of the fine for admitting the facts under the new Greek settlement procedure. The retailers admitted fixing prices of the products of the brand Hondos Center between June 2003 and June 2006, in breach of national and EU antitrust rules.
Gorenje Zagreb (Press release)
14/02/2017. The Croatian Competition Agency (CCA) has fined the company Gorenje Zagreb for entering into a forbidden agreement that contained restrictive provisions on resale price maintenance for white goods and small household appliances of the Gorenje brand.
The investigation carried out by the CCA has proved that Gorenje Zagreb used its rebate policy to induce the resellers to observe a fixed or minimum resale price. Additionally, the brand suspended the delivery of its products to those companies that did not comply with the restrictive agreement, thus preventing deviations from the standard price level by other undertakings, and implemented a monitoring system that enabled it to identify any breaches.
The CCA did not open any proceedings against retailers as weaker parties complied with what was imposed on them by Gorenje Zagreb.
DO Valdepeñas (Judgment)
March 2017. A Supreme Court ruling of 30 January has recently been published upholding the appeal filed by Asevivaldepeñas and thus reversing the High Court decision rejecting the appeal lodged by this association against a decision passed by the extinct National Competition Commission (CNC) on 29 November 2012. Said decision found Asevivaldepeñas and other wine associations liable for an infringement regarding the agreements on grape prices entered into by grape growers from Valdepeñas and La Mancha and imposed on said association a fine of EUR 746,871.
The Supreme Court considers that Asevivaldepeñas is right to argue that the principle of proportionality regarding sanctions was violated since the Commission applied the Communication on calculation of fines of 2009.
Consequently, the Supreme Court has overturned the condemnatory sentence and instructed the current CNMC to recalculate the sanction, sustaining the facts observed in the appealed decision, but not increasing the fine initially imposed.
Paper envelopes (Judgment)
10/02/2017. A new ruling by the High Court (Audiencia Nacional, AN) has been published with regard to a CNC decision dated 25 March 2013 concerning the paper envelope cartel, which this time was appealed by ARGANSOBRE.. The AN confirms, in the same way as regards SOBRINSA, the existence of a cartel and the participation of ARGANSOBRE in the terms established by the decision in question, but upholds the appeal with respect to the quantification of the sanction, ordering the CNMC to recalculate it.
Macedonian Thrace Brewery / Heineken & Athenian Brewery (Press Release)
24/02/2017. Macedonian Thrace Brewery (MTB), a leading independent brewery in Greece, has filed legal action against Europe’s largest brewer, Heineken NV, and its Greek affiliate, Athenian Brewery (AB), before the Court of Amsterdam, for nearly two decades of anti-competitive market abuse.
The action is based on a 12-year-long investigation carried out by the Hellenic Competition Commission (HCC), which finally found that the Greek affiliate AB had abused its dominant market position in Greece, in violation of Greek and EU competition laws.
In particular, the HCC found that from 1998 to 2014 AB had adopted and implemented a single and targeted policy that sought to exclude its competitors from all segments of the market and to limit their growth possibilities. The national authority further stated that AB had “employed various commercial practices aimed at exclusivity, including significant payments conditional upon exclusivity”.
The HCC finally imposed a record fine on AB of EUR 30 million and instructed it to immediately cease the infringement with threatening fines of EUR 10,000 a day for any continuing abuses.
MTB is now seeking damages in excess of EUR 100 million before the commercial courts of Amsterdam.
Swedish Match (Press release)
15/02/2017. In its ruling of 15 February the Patent and Market Court has stated that Swedish Match has restricted the opportunities for competing manufacturers of snus tobacco (moist powder tobacco made of tobacco salt and sodium carbonate taken orally) to market their products in refrigerated snus displays in stores.
The Swedish Match strategy to exclude other competitors consisted of removing the shelf labels of competing snus manufacturers in snus displays, and replacing them with greyish-white and less-visible labels, often without price information.
The Patent and Market Court has confirmed that this behaviour does constitute an illegal abuse of dominant position and therefore the Company must pay fines amounting to SEK 38 million, which is equivalent to almost EUR 4 million.
Carrefour Hypermarchés SAS / ITM Alimentaire International SASU (Press Release)
08/02/2017. The European Court of Justice (ECJ) has answered the Cour d’Appel of Paris on whether it is lawful, in light of the Directive concerning misleading and comparative advertising, to issue an advertisement that compares the prices of products sold at shops of different sizes and formats and whether the information that addresses the type of shop can be considered essential in such a case.
The disputed facts date back to December 2012 when Carrefour launched a publicity campaign on TV named “best price guarantee at Carrefour”, in which prices from different top brands were compared between Carrefour shops and other competitor shops (such as Intermarché), offering to reimburse the consumer double the difference in price if he found lower prices at another shop. However, said comparison did not point out, except in the small print, that shops such as Intermarché were supermarkets while Carrefour were hypermarkets. In light of these facts, ITM, the enterprise in charge of Intermarché’s strategy and commercial policy, sought before the French courts to put an end to this advertising activity, as well as to be awarded damages in excess for misleading advertising.
In the judgment of 8 February 2017, the Court pointed out that all comparative advertising must be objective and non-misleading. In such regard, the ECJ states that:
- When the comparison does not involve shops of the same size and format, and such information is not clearly indicated, the objectivity of the comparison may be distorted, since it is possible that the prices vary depending precisely on the size and format of the commercial establishment.
- Such an advertisement could influence the economic behaviour of the consumer, leading him to make a decision based on the false idea that he will benefit from better prices at the advertiser’s shops than those of any other competitor. It will be misleading if it is not clearly stated in the ad that the comparison is made between different types of shops.
In light of this response, the Cour d’Appel of Paris will now have to verify if these criteria are met by the advertiser and rule accordingly.