E-commerce under scrutiny - The Commission sets out its interpretation of the Coty judgment

By Richard Eccles, Ariane Le Strat

07-2018

Nearly a year after the publication of its final report on its E-commerce sector enquiry, and following the European Court of the Justice's (CJEU) long awaited Coty judgment, the European Commission published a Competition Policy Brief in April 2018 (the Brief) setting out its interpretation of the judgment, in relation to bans on the use of online marketplaces. The Brief aims to address the status of such contractual bans which had been left open in the E-commerce sector enquiry report pending the judgment in Coty.

Background

In May 2017, the Commission published its final report on e-commerce across the EU. You can find our summary here.  On the subject of marketplace bans, the final report confirmed the Commission's preliminary conclusions that absolute marketplace bans generally should not be considered as hardcore restrictions. However, the Commission was careful to make this statement without prejudice to the then pending CJEU decision in Coty.

The Coty judgment was given in December 2017. You can find our summary here. The CJEU concluded that a marketplace ban in the context of the selective distribution of luxury products was not a hardcore restriction and therefore benefited from the safe harbour of the Vertical Agreement Block Exemption (VABER), which gives automatic exemption under the EU competition rules provided the agreement meets certain conditions. 

Whilst the reasoning behind the judgment suggested that the principle was of general application to any distribution network and any products, Andreas Mundt, the President of the German competition authority had hinted at a narrower interpretation, raising legal uncertainties for distributors across the EU. With the Brief, the Commission aims to remove such doubts about the meaning of the judgment.

The main contents of the Commission's Competition Brief

The Brief focuses on the application of EU competition law to marketplaces bans. Addressing the questions referred to the CJEU in turn, the Commission states that:

  • A selective distribution system for luxury goods can comply with Art 101(1) TFEU as long as the criteria in the so-called Metro  case  are fulfilled; namely provided that resellers are chosen on the basis of objective criteria of a qualitative nature, laid down uniformly,  not applied in a discriminatory fashion and as long as the nature of the products justify such a network and that the criteria do not go beyond what is necessary.
  • A selective distribution system compliant with Art 101(1) TFEU can be operated for the purpose of preserving the luxury image of goods.
  • A marketplace ban imposed by a supplier of luxury goods is appropriate and also does not go beyond what is necessary to preserve the luxury image of the goods. The Coty judgment does not exclude that marketplace bans in selective distribution agreements for other products categories could also comply with Art 101(1) TFEU, if the Metro criteria are fullfilled; this would need to be assessed case-by-case, but some of the considerations expressed by the CJEU are, in the Commission's view, equally applicable to non-luxury products.  The CJEU stressed that the lack of a direct contractual link between the supplier and a third party platform chosen by the distributor prevents the supplier being able to require the platform to compy with quality conditions stipulated in the selective distribution agreements.
  • In view of the Court's reasoning, marketplace bans cannot be qualified as "passive sales" or "customer group" restrictions under Art 101 TFEU (hardcore restrictions for purposes of the VABER). The Commission stated that marketplace bans are therefore unlikely to be restrictions by object under Art 101(1) . 
  • The arguments provided by the CJEU are valid irrespective of the product category concerned and are equally applicable to marketplace restrictions relating to non-luxury products. The Commission states that the treatment of marketplace bans cannot depend on the nature of the product concerned as legal certainty would not be possible if the application of the block exemption depended on the product category. Also as Art 4(b) of the VABER applies outside of as well as within selective distribution, the product category cannot matter. 
  • Thus agreements containing a marketplace ban can obtain automatic exemption under the VABER provided that the parties are each within the applicable 30% market share threshold.

Conclusions

It is worth noting that the Brief is not law. It merely sets out the Commission's interpretation of the Coty judgment. 

The Commission generally welcomes the judgment for providing legal clarity in the dynamic and increasingly important e-commerce sector. The Commission is of the view that the judgment establishes a "clear legal framework for assessing marketplace bans under Art 101(1) TFEU", namely

i. If the marketplace ban is imposed regarding luxury products in the context of a selective distribution system which fulfils the Metro criteria, it will escape the application of Art 101(1) TFEU. 

ii. If such a ban is imposed regarding non-luxuryproducts in the the context of such a selective distribution system, it may likewise escape Art 101(1) TFEU because the considerations expressed by the CJEU will still apply, but a case by case assessment will be needed.

iii. The Commission regards marketplace bans, in the light of the CJEU's judgment, as not being "by object" restrictions for the purposes of Art 101(1) TFEU.

The Commision also states that if a marketplace ban is imposed outside of the Metro selective distribution criteria, it is not to be regarded as a hardcore restriction within Art 4(b) or (c) of the VABER, and so should not prevent the application of the VABER, irrespective of whether the contract products are luxury or non-luxury products.