On 22 December 2015, the Higher Regional Court of Frankfurt (the "Court") issued a ruling on appeal concerning the selective distribution system of Deuter, a producer of quality backpacks (see VBB on Competition Law, Volume 2016, No. 1, available at www.vbb.com). The Court assessed two restrictions imposed by Deuter on the resellers belonging to its selective distribution system: (i) the prohibition to sell Deuter products via the sales platform Amazon.de; and (ii) the obligation to obtain Deuter's authorisation before advertising Deuter products on specific price comparison websites. The appeal was brought by a retailer belonging to the selective distribution system (the "Claimant").
The Court found that, since the Claimant is economically dependent on the product range of Deuter, Deuter has superior market power in the sense of Article 20 of the Act against Restraints of Competition ("GWB") vis-à-vis the Claimant. However, according to the Court, Deuter's prohibition to sell via Amazon does not constitute an abuse of its superior market power pursuant to Article 19 GWB because this prohibition does not discriminate against, or unfairly impede, the Claimant.
First, the Court found that Deuter had applied its prohibition to sell its products via Amazon uniformly and did not discriminate against the Claimant. Second, the Court considered that the prohibition to sell via Amazon did not unfairly impede the Claimant as it reflects a necessary and therefore legitimate element of the selective distribution policy chosen by Deuter.
In support of this second finding, the Court emphasised that Deuter had decided to sell its products only to authorised retailers in the framework of a selective distribution system to which Amazon does not belong. If authorised retailers were allowed to sell through Amazon, the average consumer would assume that Amazon is one of Deuter's authorised retailers, even though Deuter does not have a contractual relationship with Amazon and cannot influence its business practices. This is because, when purchasing through Amazon, consumers have the impression that they are purchasing from Amazon even if the product is sold by an authorised retailer.
The Court further found that the prohibition to use Amazon is needed to ensure that customers are provided with necessary advice and to signal high product quality. Advice is necessary in order to allow the customer to choose the most appropriate model, given the range of designs, sizes and technical features of the backpacks. The Court found that the need to provide such advice cannot be ensured on Amazon (even though Amazon offers advice to select the right size of the backpack on its website). While customers could theoretically visit the website of Deuter to source appropriate information, this requires action on the part of the customer to carry out research and the customer may not know that additional information can be found on the Deuter website. Further, according to the Court, the product image established by Deuter signals high quality. Producers of high quality products have an interest in communicating to consumers that their products are of better than average quality, as purchasing decisions based on insufficient information are often taken only on the basis of price. According to the Court, signalling high product quality is not possible on Amazon, because the uniform presentation of all products, irrespective of their type and quality, does not leave room for differentiation based on brand image.
By contrast, unlike its conclusion concerning the first restriction on the use of Amazon, the Court found that the second restriction concerning the contract clause requiring authorised retailers to obtain Deuter's authorisation to advertise Deuter products on price comparison websites is in violation of Article 19 GWB.
According to the Court, the contract clause comes close to a total prohibition on the use of price comparison websites because Deuter has been very restrictive in granting permission to use price comparison websites and because it is not clear under which conditions permission will be granted. The Court held that the prohibition of the use of price comparison websites strongly restricts the online advertising opportunities of the Claimant, whose competitive position is thereby negatively impacted. The Court considered this to be unfair because price comparison websites do not make any sales but merely allow customers to find retailers that offer a specific product and lead them to the websites of those retailers. According to the Court, this general prohibition cannot be justified by the need to ensure sufficient customer service and to secure the appropriate portrayal of the brand's image, because Deuter could achieve these goals by laying down requirements concerning the website of the retailer.
The Court rejected Deuter's argument that the accumulation of similar product images and prices on price comparison websites suggests the mass availability of the product, which damages the high quality image of the product. The Court found that this would only be a valid argument if the brand had a certain luxury image carrying a notion of exclusivity. In the case of Deuter, the Court found that the brand image stands for high product quality and not luxury, and it is not evident that the image of the product is impacted simply because the potential buyer can see that different models of the product are offered by numerous retailers.
The Court further found that the limitation of competition through the prohibition of the use of price comparison websites could not be justified by the Vertical Agreements Block Exemption Regulation as Deuter had failed to demonstrate that its market share on the German market of quality backpacks sold to retailers does not exceed 30%. An exemption could also not be based on Section 2(1) GWB as the agreement does not allow consumers to have a fair share of the resulting benefit of the agreement. Finally, the fact that some operators of price comparison websites infringe intellectual property rights could not justify a general prohibition of the use of price comparison websites.
Although currently on further appeal, the judgment is a significant contribution to the, thus far, conflicting judicial and administrative case law concerning online sales and advertising in Germany. Concerning restrictions on the use of online platforms by authorised retailers, the judgment adopts a more liberal, and brand-friendly stance than the Bundeskartellamt applied in the Asics and Adidas cases (see VBB on Competition Law, Volume 2015, No. 9 and Volume 2014, No. 7, available at www.vbb.com). In contrast, the hostile approach of the Court towards restrictions on the use of price comparison websites is more consistent with the findings of the Bundeskartellamt in the Asics decision.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
