In 2006 the French Competition Council opened proceedings against eleven cosmetics producers for having imposed an absolute and general ban on members of their respective selective distribution systems from selling their products to end customers via the internet. This was considered to represent a hardcore restriction of competition, contrary to the French Commercial Code and to Article 81(1) of the EC Treaty (now Article 101 TFEU).
In March 2007, proceedings were closed against ten of the producers, who offered commitments to amend their contracts. However, the market leader, Pierre Fabre, refused to do so. As such, the Council opened formal proceedings and adopted a decision finding the practice to be anti-competitive. The Council fined Pierre Fabre 17,000 EUR and ordered it to remove, from its selective distribution contracts, any clause that effectively prohibited internet sales of its cosmetics and personal hygiene products.
Pierre Fabre appealed this decision to the Paris Court of Appeal (“The Court”). The European Commission (“Commission”), of its own initiative, intervened in the proceedings as amicus curiae. In line with the views currently expressed in its draft revised vertical Guidelines, the Commission submitted that a total ban of internet sales constitutes a hardcore restriction of competition by object, which may be objectively justifiable only in limited circumstances, such as for reasons of public order, public safety or public health (e.g. the prohibition of sale of weapons over the internet).
In its ruling of 29 October 2009, the Court decided to stay proceedings and to request a preliminary ruling from the European Court of Justice (“ECJ”) on the grounds that, firstly, neither the Guidelines, nor the written submissions of the Commission are binding upon the national Court; and secondly, that although the Commission and the French Competition Council reached the same conclusion, they relied on different arguments to this end. The Court also recognises that the arguments brought forward by Pierre Fabre are not unfounded.
One could indeed agree with Pierre Fabre that it is difficult to understand how the French Competition Authority can, on the one hand, argue that an absolute ban on internet sales is a hardcore restriction, and, on the other hand, accept that procedures against the suspected infringers could be settled using the commitment procedure (not generally suitable for hardcore restrictions, according to the French Authority’s own policy).
It is probably an understatement to say that the preliminary ruling of the ECJ will have a tremendous impact on the future of distribution in the EC and that it will be awaited with much interest. Let us just hope that the ECJ will not take too long to issue its ruling.