1 March 2018
Article

A borderless online market? Boundaries for your (exclusive) distributor

The online marketplace is growing bigger and bigger. Your distributor cannot do without. But the distributor in another territory cannot either. What restrictions are acceptable in your agreements when it comes to this borderless online market?

The EU cartel ban[1] prohibits agreements between companies or other coordinated factual practices that limit competition. With so-called block exemptions the EU set out restraints that are allowed in certain types of agreements, such as vertical agreements (i.a. distribution agreements).[2] Vertical agreements cannot enjoy the block exemption if they contain hardcore restrictions, noted in the regulation as well. Guidance on the application of the regulation is set out in the guidelines on vertical restraints. This includes guidance in respect of active and passive sales restrictions. [3] 

Allocation of sales territories and online sales

A supplier may restrict its distributor to actively sell in another distributor’s territory.[4] The restriction of passive sales into another distributor’s allocated territory is not allowed. In that respect questions arise as how to deal with online sales; as this market place is not bound to the territorial borders. According to the guidelines each distributor has in principle the right to use the internet for sales. The question concerns therefore when online sales are active or passive. The guidelines provide for the following information:

  • Online active sales

Online active sales regard the direct approach of customers on own initiative, by sending, for example, unsolicited e-mails, or approaching customers in a certain territory by means of specific advertising focused on the customers in that territory through the internet or online media, such as banners on third party websites, or the display of certain advertisements to search engine/website users from certain territories.

  • Online passive sales

Passive sales regard the response to spontaneous requests of individual clients, including the supply of goods, the general advertising that reached the customers in the territory allocated to another buyer. When the distributor has a website for the sale of products, this is seen in general as a passive form of sales. This also counts for the option to choose between different languages on the websites. The use of a website can have effects that reach outside the allocated territory, but it is seen as an effect of the technology.

  • Hardcore restrictions of passive online sales

As noted, the restriction of passive online sales is not allowed. This hard core restriction concerns for example the following:

  • The stipulation that the exclusive distributor needs to prevent customers from another territory visiting its website or that the distributor has to forward such customers to the website of another (exclusive) distributor; this does not prevent that it is agreed that on the website links to the websites of other distributors are placed;
  • The stipulation that the exclusive distributor needs to break off online transactions as soon as it follows from credit card details that the address does not fall within the allocated territory.
  • The stipulation that the amount of online sales within the total sales needs to be limited (not limiting the possibility to agree on warranties concerning the online activities).
  • The stipulation that the products sold online have a higher price than those sold offline.

Although one cannot restrict these passive sales online, this does not prevent the parties to agree on quality aspects of the internet websites involved. However, these have to be equivalent to those for offline sales and cannot directly or indirectly restrict online sales.

Third party online market places

Distributors may want to use third party online marketplaces, such as Amazon and eBay, for their online sales. This can lead to difficulties as how one can understand active and passive sales on these market places and thus whether and to what extent the supplier may restrict the use in general or of certain ‘extensions’ of these marketplaces.[5]

  • Non-selective distribution agreements

Since a supplier may not restrict online passive sales and in view of the distributor’s right, in general, to use internet for sales, I believe that the use of a third party market place as seller on the market place, may not be restricted in non-selective distribution agreements and that the distributor may even conduct active sales as seller on the third party market place, to the extent possible. For example, the placement of advertisements directed to website users from the allocated territory.

Some of these third party online market places, such as Amazon, also offer the possibility to become a vendor to the third party market place, instead of being a seller on that marketplace. In that case the online marketplace would become a distributor next to the exclusive distributor in the allocated territory. Therefore and in view of the above I believe restricting the distributor to become a vendor to such a marketplace is allowed and may be reserved by the supplier also. 

  • Selective distribution agreements

The foregoing is of special interest in respect of selective distribution. Selective distribution agreements often contain stipulations that prohibit the trade of goods through online market places, such as eBay or Amazon. On 6 December 2017 the CJEU handed down its decision in the case between Coty Germany and Parfümery Akzente, in which was decided that in such an agreement one may prohibit entering an online market place in order to protect the luxury image of the trademarks and goods involved.[6] According to the court the prohibition of a specific type of sales under the circumstances in this case does not restrict the group of customers within the meaning of art. 4 sub b of the block exemption for vertical agreements, nor does it form a restriction of passive sales within the meaning of art. 4 sub c of that block exemption.

Conclusion

As a supplier you cannot prevent all online sales by your distributors, however, to a certain extent there are possibilities to restrict the active sales, also on third party market places in case of selective distribution.

 
[1] Laid down in article 101 (1) of the Treaty on the Functioning of the European Union.
[2] EG Regulation 330/2010
[3] Guidelines 2010/C 130/01
[4] Art. 4 (b)(i) EG Regulation 330/2010
[5] E.g. Amazon has a .co.uk-domain and a.fr-domain etc. These extension allow orders from various territories.
[6] CJEU, 6 December 2017, C-230/16 Coty Germany GmbH v. Parfümerie Akzente GmbH

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