In a newly released case report, the German Federal Cartel Office (the "FCO") explains its stance towards the restrictions on the use of third party internet platforms imposed by adidas. The proceedings concerning adidas ended on 27 June 2014 after adidas had revised its online distribution policy applicable to its selective distribution system and allowed its authorised resellers to sell adidas' products through third party internet platforms, such as eBay and Amazon (see VBB on Competition Law, Volume 2014, No. 7, available at www.vbb.com).
Adidas runs a selective distribution system for adidas-branded sports and leisure articles in Germany. As of April 2012, adidas restricted its authorised resellers from using "open" internet platforms such as eBay, Amazon Marketplace and Rakuten.de. The resellers were allowed to use "closed" internet platforms such as Otto.de and were allowed to sell through their own online shops. Adidas also required that the customers of its authorised resellers should not visit its authorised resellers' online shops through a site carrying a logo of a third party.
The FCO took the view that adidas' policy amounted to a general ban on the use of third party platforms. The FCO considered that such a general ban restricts competition by limiting authorised resellers in their ability to reach more and different customers over the internet.
The FCO further considered that such a general ban could not benefit from the Vertical Agreements Block Exemption Regulation (the "VABER"). Nor could it benefit from an individual exemption under Article 101(3).
When assessing the ban in relation to markets where adidas' market shares were lower than the 30% threshold applied by the VABER, the FCO took the view that the VABER did not apply because the ban was "directed against internet sales as such" and constituted a very serious restriction of competition that could never be exempted by the VABER. It was also not equivalent to the requirements imposed on brick and mortar stores and other forms of internet sales.
When assessing the ban in relation to markets where adidas' market shares exceeded 30%, the FCO considered that the restriction could also not be seen as legitimate on individual assessment under Article 101(3). In particular, the FCO assessed the following three considerations: (i) the need to protect authorised resellers from intense price competition; (ii) the free-rider concern; and (iii) the need to protect the image of a trademark.
Concerning point (i) above, the FCO concluded that the protection against intense price competition resulting from the restrictions did not lead to any efficiencies.
In relation to point (ii) above, the FCO took the view that the ban could not be justified by the free-riding concern (arising when consumers benefit from the pre-sales services offered by some resellers but purchase products from resellers not offering these services). This was due to the fact that the risk of free-riding is not third party platform-specific. It arises also in the case of sales through brick-and-mortar stores as well as in the case of other forms of internet sales. In this context, the FCO noted that the risk of vertical free-riding, i.e., the manufacturer selling direct over the internet ("manufacturer's opportunism"), might also be of importance. The FCO took the view that free-riding should be solved by adidas offering enough incentives so that all resellers offer adequate services.
With respect to point (iii) above, the FCO acknowledged that the need to protect the image of a trademark might be a legitimate consideration. It cannot, however, justify a general ban on the use of third party platforms because it cannot be assumed that all such platforms are likely to tarnish the image of the trademark.
The case report is important because it is the first comprehensive assessment made by a competition authority of restrictions on sales over third party platforms. Interestingly, the publication of the case report coincides with a press release of Asics stating that the settlement negotiations between the FCO and Asics, who is reported to impose similar online sales restrictions to those imposed by adidas, have broken down. As a result, the proceedings before the FCO will be continued.
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