Online distribution – Restrictions of online sales: latest decisions

“Luxury goods justify online sales bans” on third party platforms – as stated in the press release no. 30/2018 of the Higher Regional Court of Frankfurt of July 12, 2018. After the long-awaited Coty-ruling of the ECJ (see the article of December 2017, https://www.legalmondo.com/2017/12/eu-court-justice-allows-online-sales-restrictions-coty-case/), the Higher Regional Court of Frankfurt has now applied the ECJ’s guidelines to Coty’s ban of sales via third party platforms and declared it effective – which was actually expected (I). Other high-quality goods – also outside the luxury segment – can justify platforms bans as well – at least this was decided by the Court of Appeal of Hamburg with regard to an eBay ban (II.). The article ends with some practical conclusions (III.).

Luxury products justify platform bans

According to the judgment of the Frankfurt Court of Appeal, Coty can prohibit the distributor from selling its products via third party platforms. Based on Coty’s wording in the selective distribution agreement, however, any distributor is free to establish advertising cooperations with third party platforms, where customers are redirected to the distributor’s own online shop. According to the judgment, the online marketplace ban is already admissible under the EU Vertical Block Exemption Regulation, since it does not constitute a hardcore restriction. The distribution ban could possibly even be exempted from the cartel prohibition, in the field of selective distribution; in this case, it would only be doubtful whether the prohibition of all «sales cooperation with a third party platform, outwardly recognisable from others, regardless of its concrete structure, would be a reasonable mean for the intended aim» (translated text from the original German version), i.e. whether it would be proportionate or whether there would be other means, less interfering with the dealer’s competitiveness. This question was left open by the Court.

Also other high-quality goods may allow platform bans

The case decided by the Hamburg Higher Regional Court (decision of March 22, 2018, file no. 3 U 250/16) concerns a qualitative selective distribution system for food supplements and cosmetics, which runs via the so-called network marketing, as well as via internet. The distribution guidelines contain, among other things, specific indications regarding the distributor’s website, the contact possibilities for customers in accordance with the «principle of personal sales of goods» (since the distribution system aims to sell the product tailored to the customers’ personal needs based on personal advice), as well as the quality of information and the product presentation. The «distribution … via eBay and comparable e-commerce platforms» is expressly prohibited, as it does not meet the quality requirements, at least not «according to the current state» (translated text from the original German version).

The Court of First Instance considered the platform ban to be admissible (District Court of Hamburg, judgment of November 4, 2016, Case No. 315 O 396/15) – which has now been confirmed by the Higher Regional Court of Hamburg. This is because qualitative selective distribution systems are not only admissible for luxury goods and high-technology goods, but also for (other) high-quality goods, «if the goods sold are high-quality and the distribution is combined with parallel customer consulting and support services, with the aim, among other things, of illustrating to the customer an overall sophisticated, high-quality and upscale end product and building up or maintaining a specific product image» (translated text from the original German version).

Within such a selective distribution system for the distribution of food supplements and cosmetics, it could then be admissible “to prohibit the distribution partners, by means of suitable company guidelines, from selling those goods via a specific online sales platform, in order to preserve the product image and the related practice of customer-binding support, as well as to prevent product- and image-damaging business practices of single distribution partners as occurred and consequently pursued in the past” (translated text from the original German version).

The peculiarity here was that they were not «pure prestige products» and, moreover, the Hamburg Higher Regional Court did not limit itself to the – in view of the market shares readily feasible – verification that the platform under Article 2 of the Vertical Block Exemption Regulation was admissible. Rather, the Court vividly and precisely declined the so-called Metro criteria.

Practical conclusions

1. The Internet remains a growth driver for consumer goods, as also the market data from the German Trade Association confirm: «E-commerce remains a growth driver«.
2. At the same time, brand manufacturers in particular want growth to be regulated according to the rules of their distribution system and to their requirements. These include, especially for luxury and technically sophisticated products, as well as other products requiring intensive assistance, strict specifications regarding brand identity and advertising appearance (specifications regarding brick store clauses, marketplace bans) and the services to be offered (e.g. chat and / or hotline with information on availability).
3. Manufacturers should check whether their platform bans comply with ECJ’s requirements or if they wish to impose platform bans – in selective, exclusive, franchise and open distribution.
4. Who wants to take as little risk as possible, should remain cautious with platform bans outside the selective distribution of luxury goods. In its first reaction, also the Federal Cartel Authority (BKartA, short for “Bundeskartellamt”) declared that the Coty-ruling should apply exclusively to original luxury products: “#Brand manufacturers still have no carte blanche on #platform bans. First assessment: «Limited impact on our practice» (BKartA on Twitter, December 6, 2017). Nevertheless, the European Commission has now spoken against this: in its Competition Policy Brief of April 2018 («EU competition rules and marketplace bans: Where do we stand after the Coty judgment?), the European Commission states — rather incidentally – that the argumentation of the ECJ in the Coty case should also apply regardless of the luxury character of the distributed products:

„The arguments provided by the Court are valid irrespective of the product category concerned (i.e. luxury goods in the case at hand) and are equally applicable to non-luxury products. Whether a platform ban has the object of restricting the territory into which, or the customers to whom the distributor can sell the products or whether it limits the distributor’s passive sales can logically not depend on the nature of the product concerned.“

In fact, the ECJ has broadly defined «luxury goods» in its judgment: namely as goods whose quality is «not just the result of their material characteristics» but of intangible values – which is usually the case for branded goods (see the Coty-judgment of the ECJ of December 6, 2017, para. 25 and, with regard to «quality goods», the conclusion of the EU Advocate General of July 26, 2017, para. 92). Furthermore, the ECJ only requests that the goods be bought «also» because of their prestige character, not «alone» or «above all» because of it. In conclusion, a lot of aspects suggest that all brand manufacturers can include platform bans in their distribution agreements – at least in case of market shares up to max. 30%.

5. Those who are not afraid of confrontations with dealers and antitrust authorities can definitely impose platform bans outside the selective distribution of luxury goods as well – or increasingly rely on premium products and luxury – such as at the perfumery chain Douglas (see the Süddeutsche Zeitung of March 8, 2018, p. 15: «Active and unconventional, Tina Müller ends discounts on Douglas and aims at luxury«).
6. To ensure consistent quality of sales, specific quality targets are recommended, especially for online sales. The list of possible quality targets is very long. The specifications that have proven to be best practice concern in particular:

— the positioning as a retailer (platform, product range, communication)

— the design of the website (quality, look & feel, etc.)

— the content and product offer of the website,

— the processing of online purchases,

— the consulting and customer service, as well as

— the advertisement.

7. It is also essential to note that manufacturers are not allowed to totally prohibit distributors from selling online; nor are sales requirements allowed to amount to such a total ban – as the Courts now see in the case of Ascis’ ban of price comparison engines (to this regard, see the following article from April 2018: https://www.legalmondo.com/2018/04/germany-ban-of-price-comparison-engines-and-advertising-on-third-party-platforms/).
8. Further details can be found in German in the following Law Journals:

— Rohrßen, Vertriebsvorgaben im E-Commerce 2018: Praxisüberblick und Folgen des „Coty“-Urteils des EuGH, in: GRUR-Prax 2018, 39-41;

— Rohrßen, Internetvertrieb von Markenartikeln: Zulässigkeit von Plattform-verboten nach dem EuGH-Urteil Coty, in: DB 2018, 300-306;

— Rohrßen, Internetvertrieb: „Nicht Ideal(o)“ – Kombination aus Preissuchma-schinen-Verbot und Logo-Klausel, in: ZVertriebsR 2018, 120-123;

— Rohrßen, Internetvertrieb nach Coty – Von Markenware, Beauty und Luxus: Plattformverbote, Preisvergleichsmaschinen und Geoblocking, in: ZVertriebsR 2018, 277-285.