Court interprets case law on ban on internet sales
By Sophie Mosca | Thursday 13 October 2011
The clause of a contract that bans the sale of products via the internet could be contrary to Community law. The company Pierre Fabre Dermo-Cosmétique (PFDC) risks being affected by this. The case concerns the distribution contracts of cosmetics and personal care products, sold under the brands Klorane, Ducray, Galénic and Avène laboratories. The contracts for those products stipulate that sales must be made exclusively in a physical space and in the presence of a qualified pharmacist, thereby restricting de facto all forms of internet selling. In October 2008, the Autorité de la concurrence (French Competition Authority) decided that PFDC’s distribution agreements restricted of competition and could not benefit from a block exemption – as defined in Regulation (EC) No 2790/1999 on vertical agreements and concerted practices.
PFDC challenged that decision before the Paris Appeal Court (France), which has asked the Court of Justice whether such a ban amounts to a restriction of competition ‘by object’, whether such an agreement may benefit from a block exemption and whether, where the block exemption is inapplicable, the agreement may benefit from an individual exemption under Article 101, Paragraph 3 of the Treaty on the Functioning of the European Union.
Under established case law, such agreements are to be considered, in the absence of objective justification, as “restrictions by object”. However, a selective distribution system is compatible with European Union law to the extent that resellers are chosen on the basis of objective criteria of a qualitative nature, laid down uniformly for all potential resellers and not applied in a discriminatory fashion; that the characteristics of the product in question necessitate such a distribution network in order to preserve the product’s quality and ensure its proper use; and, finally, that the criteria laid down do not go beyond what is necessary.
It is for the referring court to examine whether all these conditions are met but judges guided the referring court by recalling that they have not accepted arguments relating to the need to provide individual advice to the customer and to ensure his protection against the incorrect use of products, or the need to maintain the prestigious image of PFDC’s as justification for restricting competition.
The judges ruled that this type of selective distribution contract may not benefit from a block exemption as per the regulation, since it leads to the restriction of passive sales to end users wishing to purchase online and located outside the physical trading area of the relevant member of the selective distribution system.
However, the court does not have enough information to decide whether this contract can benefit from an individual exemption; the Court of Appeal must therefore assess whether the four conditions laid down are met: improving the production or distribution of products or contributing to promoting technical or economic progress; reserving a fair share of the resulting profit to users; not having any indispensable restrictions for participating companies; and there being no possibility of eliminating competition for a substantial part of products at issue.