German Higher Regional Courts approve prohibition of eBay sales in distribution agreements

14 December 2009

Dr Jörg Witting, Fabian von Busse

In relation to the recently highly disputed question of whether suppliers may prohibit online auction sales in distribution agreements with retailers, German courts have rendered two important decisions in favour of suppliers, by allowing such prohibitions.

On 2 July 2009, the Munich Higher Regional Court left open the question of whether a prohibition on online auction sales constitutes an appreciable restriction of competition pursuant to Article 101 TFEU/Section 1 of the German Act against Restraints of Competition (ARC) as it would in any case be exempted by the Block Exemption Regulation on Vertical Restraints (Vertical-BER). According to the Munich court, a prohibition on online auction sales does not constitute a customer restriction pursuant to Article 4 b) of the Vertical-BER, as online auction buyers do not constitute a separate group of customers within the group of internet buyers.

In its decision of 25 November 2009, the Karlsruhe Higher Regional Court also allowed a prohibition on online auction sales in selective distribution systems. The Karlsruhe court stated that, within a permissible selective distribution system, a prohibition on online auction sales does not constitute a restriction of competition, so an exemption pursuant to the Vertical-BER or Article 101(3) TFEU is not even required.

In the case underlying the Karlsruhe court decision, a German manufacturer of popular satchels and backpacks had stopped supplying a retailer who had, inter alia, distributed those products via the online auction platform eBay. Such sales did not meet the quality requirements set out in the selective distribution agreement between the manufacturer and the retailer. The retailer subsequently sued the manufacturer demanding continuance of supply. The Karlsruhe Higher Regional Court upheld the first instance judgment and declined to impose a duty to supply on the manufacturer.

According to the Karlsruhe Higher Regional Court, selective distribution systems may set out quality requirements for internet distribution, as these requirements – insofar as comparable to requirements regarding retail stores – relate to the distributor’s equipment and thus to objective aspects. If distribution via online auction platforms such as eBay does not meet those requirements, that distribution channel may be excluded. According to the court, this is also unobjectionable on the basis of discrimination (Section 19, 20 ARC), as the supplier’s interest in a positive market placement of its products prevails over the retailer’s interest in making use of online auctions.

The Karlsruhe Higher Regional Court further clarified that the setting-up of selective distribution systems is not limited to luxury products calling for an “aura of exclusivity”. According to the court, the principles for selective distribution systems also apply in the case of manufacturers of proprietary products (such as the satchel maker in the case at hand) placing their products as top products on the market and thus having an interest in obliging retailers to have a certain level of product presentation, product guidance and brand maintenance.

Both decisions show that German courts take into account the interest of suppliers in actively maintaining distribution channels and brand reputation. However, the question has not been finally decided by the German Federal Supreme Court and uncertainty also remains in cases where the Vertical-BER is not applicable due to the supplier’s market share. Finally, the new Vertical-BER is expected to come into force in 2010.

Source: http://www.olg-karlsruhe.de, http://www.olg-muenchen.de

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