European Union: EU Antitrust Issues In Consumer Goods—Export Bans, Online Sales, And Pricing Restrictions

Several European competition authorities are showing a renewed focus on restrictions in distribution arrangements, particularly in the UK and Germany. Some of this originates in the rise of online platforms and e-commerce disruptors but its effects extend beyond the online world. We look at some recent trends and key issues that companies should keep in mind to avoid falling foul of these rules.

The EU vs. US Approach

EU antitrust agencies take a more critical view than their US counterparts of vertical restrictions, i.e. restrictions that a seller seeks to impose on its distributor.

While the basic principle remains that vertical agreements are less likely to give rise to competition issues than restrictions between competitors, the basic approach of EU antitrust rules is that a supplier cannot restrict a distributor's onward sales (subject to some clearly defined exceptions). There are many instances where such restrictions are prohibited, irrespective of their effect (so-called hardcore restrictions).

To guide companies when entering into vertical agreements, the European Commission has published two important documents: the Vertical Block Exemption 1 and the Vertical Guidelines.2 The Block Exemption creates a safe harbour for agreements that fulfil certain criteria. The Guidelines set out how to analyse vertical agreements that fall outside the safe harbour.

The difference between US and EU rules stems, in part, from the fact that EU institutions have used competition rules as a tool to integrate various national markets in the EU and this means that in certain circumstances unilateral actions that restrict trade amongst member states can also present antitrust issues where the company potentially holds market power.

Export Bans and Restricting Parallel Trade

EU competition rules take a very strict approach against agreements that seek to restrict onward exports of products. Whilst companies can generally set up a network of exclusive sales territories, they are generally allowed only to restrict active but not passive sales from one to another sales territory.

Active sales means actively approaching individual customers, for example through direct mail or visits. Passive sales are where the customer approaches the distributor on its own. Selling products over the internet through its own dedicated website or via an online platform is viewed as a passive, not an active sale (see more below).

The European Commission has not been shy in imposing fines for agreements that restrict sales between member states. For example, it imposed a €102 million fine on Volkswagen in 1998,3 a €42 million fine on Opel in 2000,4 a €39 million fine on JCB in 2002,5 a €149 million fine on Nintendo in 2002,6 and a €49.5 million fine on Peugeot in 2005.7

Restricting parallel trade can also be an issue when there is no agreement but where the company is in a dominant position. The European Commission is currently investigating whether AB InBev prevented imports of beer, particularly its famous Jupiler and Leffe brands into Belgium from the Netherlands and France, where its products are cheaper.8 At the end of last year, the European Commission alleged that AB InBev abused its position in the market in two ways:

  • It changed the packaging of beer cans in the Netherlands and France to make it harder to sell them in Belgium.
  • It limited access of Dutch retailers to key products and promotions, in order to prevent them from bringing less expensive beer products to Belgium.

The European Commission's investigation is on-going.

More recently, the Greek competition authority fined GSK for restricting parallel exports of pharmaceuticals by refusing to supply existing customers' "ordinary" order volumes. However, in the same decision the authority also said that GSK had not violated competition rules when it refused to meet orders that were "extraordinary" in nature.9

Online Sales Restrictions and Platform Bans

Online sales restrictions are viewed through a similar set of spectacles as export bans. Given that online sales are viewed as passive rather than active sales into neighbouring territories, an outright restriction on internet sales is likely to be problematic.

A more limited restriction on the use of third party sales platforms (such as eBay) as opposed to all online sales was the subject of a recent decision of the Court of Justice of the European Union in Coty. 10 The European Court held where the suppliers operate a valid 'selective distribution system' (which itself requires certain conditions to be met) then the suppliers of luxury goods can stop authorised suppliers from using third party online platforms in certain circumstances. In the context of luxury goods, such a ban imposed by a supplier in a selective distribution agreement may be allowed if it is necessary to preserve "an aura of luxury" and proper use of the products. 11

The European Court referred the case back to the Higher Regional Court in Frankfurt for final determination. The Frankfurt Court held that Coty had not breached competition law, a provider of luxury perfumes could restrict distribution partners from advertising and selling these products on Amazon.de.12

Companies should not view Coty as free rein on online sales bans since it only applies to bans on third party sales platforms in the context of a valid selective distribution arrangement (which itself is only possible if certain criteria are met). Moreover, some national competition authorities have taken a more restrictive approach.

Germany's Bundeskartellamt has also shown an interest in online sales bans. It pursued footwear manufacturers Adidas13 and Asics 14 in 2013 and 2014 finding that retailers should be allowed to sell their running shoes using online platforms. In response to Coty, the president of the Bundeskartellamt underlined the fact that Coty related to luxury brands and in his view "manufacturers have not received carte blanche to impose blanket bans on selling via platforms";.15

The UK's Competition and Market Authority (CMA) last year had little difficulty in adopting an infringement decision on an outright online sales ban in Ping.17 Ping tried to justify the restriction on the basis that it wanted retailers to provide "custom fitting" for all end-purchasers of its clubs which could not be done online. The CMA decided that it could have achieved its legitimate commercial aim of increasing custom fitting by different, less restrictive, measures. This decision is currently under appeal.

Resale Price Maintenance (RPM) and Minimum Advertised Prices

In the EU, it is generally not possible for a manufacturer or supplier to set a minimum price at which its downstream customer can resell its products. This is viewed as a hardcore restriction which the European Commission and national competition authorities have pursued rigorously.

The UK's CMA has been particularly active in this space. In 2017 it fined a supplier of light fittings for restricting resellers' freedom to set their own prices online.17 This follows a series of similar cases in 2016 where the CMA found that two businesses, one supplying commercial catering equipment and the other supplying bathroom fittings, broke competition law by dictating the minimum prices at which resellers sold their products online.

The prohibition on RPM is very wide and applies to any restriction on the buyer's freedom to set its own downstream prices. This also includes de facto restrictions. For example, while recommended prices are generally allowed, for a supplier to enforce those recommended prices would be anticompetitive. In the CMA's bathroom fittings case,18 the manufacturer threatened retailers with penalties for not pricing at or above a "recommended" online price as set out in "online trading guidelines". These threats included charging retailers higher prices for products, withdrawing rights to use the supplier's images online or withholding supply of products.

Similarly, minimum advertised prices (MAP), which are common in the US, are also not allowed in the EU. In the CMA's commercial catering equipment case, the supplier imposed a MAP policy that restricted the price at which retailers could advertise the supplier's product online. 19 It enforced this MAP policy by threatening to charge dealers higher cost prices for products, or stopping supply altogether, if they advertised below the minimum price.

The CMA fined the supplier of commercial refrigeration equipment over £2 million and the bathroom fittings manufacturer over £780,000.

Germany's Bundeskartellamt has also shown an interest in RPM. In particular, it has pursued a number of cases in relation to suspected RPM by brand manufacturers and retailers (grocery retailers and drugstores). In total, the Bundeskartellamt imposed fines on 27 companies amounting to €260.5 million in these cases between 2015 and 2016. In one of these cases, the Bundeskartellamt imposed a fine of €5.25 million on Dirk Rossmann GmbH. In March 2018, the Düsseldorf Higher Regional Court significantly increased this fine to €30 million.20

© Arnold & Porter Kaye Scholer LLP 2018 All Rights Reserved. This Advisory is intended to be a general summary of the law and does not constitute legal advice. You should consult with counsel to determine applicable legal requirements in a specific fact situation.

Footnotes

1 Commission Regulation (EU) No. 330/2010 of 20 April 2010

2 Guidelines on Vertical Restraints 2010/C 130/01

3 OJ {1998} L 124/60. This was reduced to €90 million on appeal, see Case C-338/00 P Volkswagen AG v Commission {2003} ECR I-9189.

4 OJ {2001} L 59/1. This was reduced to €34.5 million on appeal, see Case T-368/00 General Motors Netherlands and Opel Netherlands v Commission {2003} ECR II-4491.

5 OJ {2002} L69/1.

6 OJ {2003} L 255/33. This fine was reduced to €119.24 million on appeal, see Case C-260/09 Activision Blizzard Germany GmbH v Commission {2011} ECR I-419.

7 OJ {2006} L 173/120. The fine was reduced to €44.55 on appeal, see Case T-450/05 Automobiles Peugeot and Peugeot Netherlands v Commission {2009} ECR II-2533.

8 European Commission Press Release, 'Antitrust: Commission sends Statement of Objections to AB InBev for preventing cheaper imports of beer into Belgium' (IP/17/5041, 30 November 2017)

9 Hellenic Competition Commission Press Release, 'Decision concerning GLAXOSMITHKLINE SA and GLAXOSMITHKLINE plc's supply policy of medicinal products LAMICTAL, IMIGRAN and SEREVENT in the Greek market, following the partial referral of the case back to the Hellenic Competition Commission (HCC) by the Athens Administrative Court of Appeals and the Council of State' (11 July 2018).

10 Case C-230/16 Coty Germany GmbH v Parfümerie Akzente GmbH

11 Case C-230/16 Coty Germany GmbH v Parfümerie Akzente GmbH, paragraph 25

12 Higher Regional Court in Frankfurt Press Release, 'Luxusprodukte rechtfertigen Vertriebsverbot auf Amazon.de' (Nr. 30/2018, 12 July 2018).

13 Case B3-137/12 Adidas abandons ban on sales via online marketplaces

14 Case B2-98/11 Unlawful restrictions of online sales of ASICS running shoe

15 Reuters,'Luxury brands lifted by EU court backing for online sales ban' (6 December 2017)

16 Case 50230 Online sales ban in the golf equipment sector

17 Case 50343 Online resale price maintenance in the light fittings sector

18 Case CE/9857-14 Online resale price maintenance in the bathroom fittings sector

19 Case CE/9856-14 Online resale price maintenance in the commercial refrigeration sector

20 Bundeskartellamt Press Release, 'Vertikale Preisbindung - OLG Düsseldorf erhöht Geldbuße gegen Rossmann' (1 March 2018).

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