On 6 May 2021, the Belgian Competition Authority imposed a fine of EUR 859,310 on several companies of the French Caudalie group for breaching competition law by imposing minimum prices and restricting active and passive sales in the framework of its selective distribution network.
The Belgian Competition Authority launched an investigation in November 2017 on the imposition by Caudalie of a minimum resale price on its selective distributors by establishing a maximum discount level and for limiting active and passive sales by its selective distributors for online sales to customers established in another Member State. In November 2017 and in February 2018, the Belgian Investigation and Prosecution Service carried out inspections (so-called "dawn raids") in Belgium and at Caudalie's headquarters in France. At the end of its investigation, it submitted on 20 November 2020 to the President of the Belgian Competition Authority a motivated proposal for decision.
On 6 May 2021, after having given Caudalie the opportunity to submit its observations on the motivated proposal and following the hearing, the Belgian Competition College imposed a fine of EUR 859,310 on several companies of the French Caudalie group for breaching competition law by imposing minimum prices and restricting active and passive sales in the framework of its selective distribution network.
The amount of the fine was based on the value of sales concerned by the infringement and the duration of the illegal practices. By way of reminder, undertakings found to have infringed competition law may be fined up to 10% of their turnover.
Caudalie submitted to the Competition College commitments concerning the conditions that it may impose on distributors in order to safeguard the integrity of its distribution network and to protect its brand image. These commitments were made legally binding by the decision and were considered as mitigating circumstances leading to a reduction in the fine. Following the case-law of the Court of Justice of the EU (in particular the Coty case), conditions relating to quality standardisation may indeed be necessary to preserve the luxury image of particular goods and hence serve a legitimate purpose under competition law.
The imposition of such commercial conditions on distributors are considered hardcore restrictions and by object infringements under EU and Belgian competition law. More specifically, Article 101 of the Treaty on the Functioning of the EU and guidance contained in the Vertical Block Exemption Regulation and Vertical Guidelines, as well as Article IV.1 of the Belgian Code of Economic Law, prohibit such anticompetitively structured selective distribution networks.
Resale price maintenance, i.e. any attempt to directly or indirectly impose a fixed or minimum resell price obligation on a distributor, has a detrimental effect on competition. By comparison and as opposed to a clear-cut situation of direct obligations, when a supplier indirectly imposes a resale price, this usually materialises with the supplier offering specific incentives to the distributor in their contractual relationship or by exercising pressure.
Although active and passive sales by a distributor to unauthorised dealers can be restricted in a selective distribution network, distributors operating at the retail level of trade cannot be forbidden to sell both actively and passively to end users, even when these sales occur in an online setting. This is different for exclusive distribution agreements or selective distribution agreements that are combined with exclusivity, where active sales can be restricted. In this context, active selling means actively approaching (potential) customers whilst passive selling entails responding to unsolicited orders.
The European Commission is currently assessing the rules contained in the VBER which is due to expire on 31 May 2022. Following stakeholders' input and notwithstanding the recognition that the current rules still constitute a useful self-assessment tool, it is noted that several adjustments to reflect new developments of online sales strategies and distribution models might be required to make the revised VBER fit for future purpose.
Originally published 11 May 2021
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.