French CC Festina

13 November 2006

Romain Ferla

In a decision dated 25 July 2006, the French Competition Council has confirmed its approach towards online selling within selective distribution networks. This decision follows the refusal by Festina France, a manufacturer of watches, to allow the online distributor Bijourama, which operates exclusively on the internet, to enter its selective distribution network.

Festina France based its refusal on the fact that Bijourama distributes its products exclusively through the internet, whereas Festina France only allows its products to be marketed by companies with “bricks and mortar” outlets.
Bijourama referred the case to the Competition Council claiming that such refusal was discriminatory vis-à-vis “pure internet sellers”.

Bijourama also challenged Festina France’s selective distribution agreement on the basis that it was unlawful under both EU and national competition law since it did not provide for the possibility for distributors to sell the products online.

Bijourama asked the Competition Council to force Festina France to open its selective distribution network to distributors which operate exclusively through the internet.

The Competition Council found that the absence of rules applicable to online sales, where some informal and individual authorisations had been granted at the same time to already approved distributors who had “bricks and mortar” sales outlets, were likely to raise competition concerns.

Therefore, Festina France undertook to amend its standard distribution agreement in order to introduce the possibility for its current and future distributors to sell the products through the internet and to set up a new contract fixing the conditions to be fulfilled by the members of its network for online distribution, while maintaining its refusal to approve companies selling exclusively on the internet.

With respect to this last point, the Competition Council gives interesting details on the conditions which can be imposed by a supplier regarding internet sales to ensure the appropriate distribution of its products.

Following the EU block exemption regulation on vertical restraints, the Competition Council cleared the restriction set up by Festina’s selective distribution network reserving online sales to distributors who also own a “bricks and mortar” point of sale (de facto preventing companies who sell only on the internet to market its products).

The Competition Council held that the commitments proposed by Festina imply a substantial modification of Festina’s challenged practises and will enable all approved distributors and/or any company wishing to join the network to know the selection criteria and the conditions for online distribution.

For those reasons, and given the position of Festina France on the market under consideration (its market share is above the 30% threshold set for automatic exemption) the Competition Council considered that the commitments proposed remedy the competition concerns raised by its previous selective distribution agreement, despite the fact that they do not meet Bijourama’s expectations of being admitted to Festina’s selective distribution network.

In reference to this last point, the Competition Council stressed that its mission, when assessing commitments, is not to defend private interests but only to ensure that they will allow to restore competition on an identified market, by putting an end to practises likely to create competitive restrictions.

The Competition Council therefore accepted the commitments proposed by Festina and decided to close the litigation procedure.

Source: Decision N° 06-D-24 of 24 July 2006