On 22 March 2018, the Higher Regional Court of Hamburg (the "Court") upheld a ruling of the Regional Court of Hamburg ordering an authorized dealer in a selective distribution system to cease and desist from selling non-luxury products via third-party platforms and found that such ban imposed in the context of a selective distribution system did not violate EU competition law.
The case concerned a company supplying a range of food supplements, cosmetics and fitness drinks, which are considered high-end and are sold at higher prices than comparable supplements. The company marketed its products via a selective distribution system in order to ensure that customers were provided with tailor-made advice in order to identify their particular individual needs, taking into account factors such as age, gender, athletic focus, weight, lifestyle, diseases and allergies, before recommending a product. For a small monthly fee, the company also allowed authorized sales partners to use its internet retail shops to make online sales. The distribution system required websites of authorized partners to provide detailed product information, to display the full range of products and to include the partner's contact details to motivate customers to receive personalized advice.
In 2008, the company discovered that its products were sold on eBay and similar trading platforms anonymously and with false or misleading product information. These sales (even if not authorized by the company) led to legal actions against it under the German Foods, Consumer Goods and Foodstuffs Act, with courts holding the company liable for such unfair practices. The company thus complemented its qualitative selective distribution criteria with a ban of all sales of its products via eBay and similar platforms "for the time being". When, in 2014, the defendant, a distribution partner of the company, offered the company's goods via eBay, despite having agreed to the distribution criteria and without the company's consent, the company first admonished the defendant and then brought an action to cease and desist.
In the present judgment, the Court held that the company's action to ban sales via eBay and similar platforms was compliant with EU competition law, specifically Article 101 TFEU. In reaching this conclusion, the Court first held that a non-discriminatory selective distribution system for the distribution of the food supplements and cosmetics at issue may comply with competition law even if the goods sold are not luxury goods, as the products are of high quality and as the system involves advice and services being provided to the customer for sophisticated and high-end products, which among other purposes, aims to establish or maintain a particular product image.
In its reasoning, the Court referred to the ECJ's recent judgment in C-230/16 - Coty (see VBB on Competition Law Volume 2017, No.12, available at vbb.com), holding that a qualitative selective distribution system does not violate Article 101 TFEU where the system is intended to ensure the luxury image of these products. The ECJ in that case further held that a ban on sales via third party online platforms in such a system likewise does not violate Article 101, and in any event is exempted by the Vertical Agreements Block Exemption Regulation ("VABER").
The Court in the present case did not see any clear grounds to distinguish between high-value and luxury goods, on one hand, and other goods, which, without being luxury goods, are also of high quality. There would, in the Court's view, be no legal basis for such a distinction, which would disregard the fact that a selective distribution system for high quality products may also be necessary in order to establish and maintain the quality or specifications of the product, as well as to ensure the appropriate presentation of the products and the availability of advice for consumers.
The Court concluded that the product characteristics at issue justified the selective distribution system, including its criteria for online sales, which currently would exclude sales via eBay where only specific products can be displayed, as opposed to the entire product portfolio. The Court also noted that online sales were not prohibited altogether, but only via certain third-party platforms, and only temporarily. According to the Court, such restrictions, aiming to preserve the product image and (in this case) to prevent product and image-damaging business practices of sales partners identified in the past, are allowed not only for luxury products but also for high quality products. Hence, the judgment applies the Coty reasoning beyond luxury products also to high quality goods.
This result is in line with the Commission's assessment in its Competition policy brief of April 2018, where it took the view that the findings of the ECJ in Coty are equally applicable to non-luxury products and that marketplace bans do not represent a hardcore restriction under the VABER.
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