Are platform bans anti-competitive? While brand owners, distributors, platforms and the antitrust community are clinging to the edge of their seats waiting for the final determination from the European Court of Justice (CoJ) in the Coty judgment awaited on December 6, 2017, we are reporting on an interesting development in France on this topic.
On September 13, 2017, the French Supreme Court (Cour de cassation) delivered its judgment in the Caudalie case. The judgment overturns a previous ruling of the Paris Court of Appeal (Cour d’appel de Paris) which found that platform bans may be restrictive of competition. Below we take a look at the judgment, as well as its practical implications (spoiler alert: Caudalie does not settle the debate on platform bans).
The dispute involves Caudalie, a French cosmetic manufacturer, and eNova, an online platform. Caudalie distributes its products via a selective distribution network. As per Caudalie’s selective distribution contracts, distributors may resell Caudalie’s products online, on the condition that they do so via their own websites. Accordingly, distributors are de facto prohibited from distributing on online platforms.
Despite the prohibition, eNova commercialized Caudalie’s products on its platform. Caudalie opposed this commercialization and applied for interim measures against eNova, requesting the cessation of sales of the products on eNova’s online platform as well as the award of damages.
In support for its application, Caudalie argued that eNova allowed authorized distributors to act in breach of the platform ban. According to Caudalie, this put eNova in breach of Article L.442-6 I-6° of the Commerce Code, which prohibits the participation, either direct or indirect, in the resale of products outside of their relevant selective distribution system.
In a judgment dated February 2, 2016, the Paris Court of Appeal rejected Caudalie’s application, on the basis that Caudalie had not proved that eNova’s practices were patently unlawful (the required standard when dealing with interim applications). Specifically, the Paris Court of Appeal took the view that there was evidence suggesting that platform bans may amount to a hardcore restriction under EU competition law. The Paris Court of Appeal reached this conclusion on the basis of:
- Two decisions of the French Competition Authority (FCA), dated July 23, 2014, and June 24, 2015, whereby the FCA found that ‘it [could] not be excluded that the clauses prohibiting distributors from reselling Samsung’s products on marketplaces may amount to a restriction of active and passive sales.’ The FCA is still investigating these concerns;
- A FCA press release of November 18, 2015, announcing that the FCA closed an investigation against Adidas, following the removal from its distribution contracts of a clause prohibiting distributors from reselling products on marketplaces;
- The position of the German Competition Authority in the Adidas case, similar to that of the FCA;
- A note produced by a law professor.
As a result of the above, the Paris Court of Appeal rejected Caudalie’s application for interim measures against eNova. Caudalie challenged this judgment before the French Supreme Court.
The French Supreme Court’s Take on the Case
As part of its appeal, Caudalie argued that the Paris Court of Appeal erred in finding that there was evidence suggesting that platform bans may amount to hardcore restriction under EU competition law. In particular, Caudalie contended that, while the elements on which the judgment relied (see above) revealed the existence of a debate on platform bans, they did not prove to the requisite legal standard that such bans were anticompetitive.
The French Supreme Court sided with Caudalie. According to France’s highest court, the Paris Court of Appeal failed to explain why the evidence on which it relied suggested that platform bans may amount to hardcore restriction under EU competition law. Importantly, the French Supreme Court did not make any finding as to whether platform bans are anticompetitive or not; rather, it criticized the way the lower court substantiated its judgment.
On the basis of the above, the French Supreme Court decided to refer the case back to the Paris Court of Appeal, which will have to take a second look at Caudalie’s interim measures application against eNova.
The Platform Ban Conundrum Still Unsolved
Platform bans have been one of the hottest antitrust topics of the year. On the one hand, brand owners argue that they need to ban the use of online marketplaces (e.g. Amazon or Ebay) to protect the image and positioning of their brands. On the other hand, certain EU regulators (including the German FCO and the French Competition Authority) have taken the view that platform bans are anticompetitive, as they hinder the distributors’ ability to resell the products online.
The Caudalie saga does not settle the debate yet, as the judgment of the French Supreme Court does not take a position as to whether platform bans should be deemed anticompetitive.
But more clarity will be cast on this important topic on December 6, 2017 when the CoJ delivers the eagerly awaited Coty judgment. As a reminder, in an opinion dated July 26, 2017, Advocate General Wahl sided with brand owners, on the basis that platform bans could well be pro-competitive (see our briefing here). Judges are still debating, verdict next month…