EU competition regulator sets out view on legitimacy of online marketplace sales bans

Out-Law News | 11 May 2017 | 4:22 pm | 2 min. read

It is not an automatic breach of EU competition rules for manufacturers to prevent retailers from selling their goods on online marketplaces, according to the European Commission.

However, the Commission admitted that position could change as a result of an ongoing case before the EU's highest court, and added that manufacturers that impose marketplace restrictions relating to retail distribution of their goods cannot assume those arrangements will be compliant with EU competition rules.

The Commission's comments were outlined in the final report (16-page / 270KB PDF) of its e-commerce sector inquiry.

EU competition generally prohibits businesses from making agreements which have as their object or effect the restriction of competition. However, selective distribution systems are permitted, under an exemption to those laws, provided the systems fulfil certain criteria. The relevant exemption is the Vertical Block Exemption Regulation (the VBER), also called the Vertical Agreement Block Exemption (VABE).

In its report, the Commission said: "The findings [from the e-commerce sector inquiry] indicate that marketplace bans do not generally amount to a de facto prohibition on selling online or restrict the effective use of the internet as a sales channel irrespective of the markets concerned. The findings of the sector inquiry also indicate that the potential justification and efficiencies reported by manufacturers differ from one product to another."

"As a result, without prejudice to the pending [CJEU case], the findings of the sector inquiry indicate that (absolute) marketplace bans should not be considered as hardcore restrictions within the meaning of … the VBER," it said. "This does not mean that absolute marketplace bans are generally compatible with the EU competition rules. The Commission or a national competition authority may decide to withdraw the protection of the VBER in particular cases when justified by the market situation."

The Court of Justice of the EU (CJEU) is currently considering whether brand owners that want to ensure their products are seen as luxury items can restrict the distribution channels retailers use to market their goods.

The case before the CJEU concerns a dispute between US beauty products manufacturer Coty and German business Parfümerie Akzente, which sells perfumes and other toiletries over the internet. Coty has objected to Parfümerie Akzente selling its cosmetics via Amazon's marketplace.

The Commission's report also addressed instances where manufacturers charge the same retailer two different wholesale prices for its products. Manufacturers sometimes enter into so-called 'dual pricing' agreements with retailers to reflect the fact that retailers sell their goods in physical stores and online.

The Commission said dual pricing agreements are generally barred under EU competition law, but said some such arrangements could be permitted "on an individual basis" where they are shown to "be indispensable to address free-riding".

'Free-riding' is a term used to describe when consumers go into bricks-and-mortar shops to assess goods they are interested in before completing a purchase of the goods online, often for a cheaper price, or alternatively where they search and compare goods online before going in-store to buy the product.

In its report, the Commission said it would seek to ensure that national competition authorities apply EU competition rules consistently in relation to "e-commerce-related business practices", and said it would "target enforcement of the EU competition rules at the most widespread business practices that have emerged or evolved as a result of the growth of e-commerce and that may negatively impact competition and cross-border trade and hence the functioning of a digital single market" in the EU.

Earlier this year, as part of its e-commerce sector inquiry, the Commission opened three separate investigations into "suspected anti-competitive practices" allegedly engaged in by some consumer electronics manufacturers, hotels, tour operators and video game platforms and publishers.