Alex Haffner, Partner, Fladgate LLP (email@example.com)
Ben Milloy, Associate, Fladgate LLP (firstname.lastname@example.org)
In 2017, the Court of Justice of the European Union’s decision in Coty delivered a boost for brand owners wishing to control, via selective distribution arrangements, the e-commerce platforms through which their products were sold to consumers (see ‘Coty scents competition law victory for brand owners’). In its judgment the ECJ said that it could be compatible with the competition law rules on anti-competitive agreements for a supplier of “luxury” goods to prohibit its authorised distributors from using third party internet platforms (Amazon, eBay etc.) for the sale of contract products, provided such restrictions were necessary to preserve the luxury image of the goods in question.
A year on from Coty, the issue of restricting online sales has come to the fore once more following a decision by French Competition Authority (FCA) in the Stihl case. The decision is noteworthy as it appears to extend the application of Coty beyond luxury goods (such as cosmetics), and into other high-end technical goods.
By way of summary, Stihl is a manufacturer of garden power tools, including chainsaws. In its agreements with distributors, Stihl imposed a requirement that goods must be hand delivered to consumers. Stihl justified this restriction on the basis that it was necessary to ensure the distributors could show the consumers how to use its products, ensuring that they could be used safely.
In its decision, the FCA found that this restriction amounted to a de facto ban on online sales, meaning that, in practice, consumers would have to collect the product from the distributors’ bricks and mortar stores. Insofar as the restriction prevented any online sales whatsoever, Stihl’s requirements were held to be anti-competitive, and Stihl was fined €7 million.
However, in relation to a ban on third party internet platforms specifically, the FCA found in Stihl’s favour, holding that the ban ensured consumer safety in relation to those goods, and allowed Stihl to ensure that its distributors were following a number of safety information obligations. If such a contract did not exist, and Stihl products were sold on general marketplaces, then Stihl would have been unable to control these information requirements.
The decision of the FCA to fine Stihl for the blanket restriction on any online sales shows, somewhat emphatically, that any general (albeit indirect) ban will not be tolerated. This element is not surprising given EU and national competition authorities’ concerns to promote e-commerce. Take, for example, the UK Competition and Market’s Authority’s decision to impose a £1.45 million fine on Ping for imposing an online sales ban on retailers selling its golf clubs.
However, the FCA’s willingness to acknowledge that Stihl could justify a restriction on third party platforms is surprising in that it extends the scope of Coty beyond luxury brands, to other sectors where a brand owner can justify that need for control, or a direct relationship with the consumer.
The Stihl decision is specific to France. Nevertheless, it is increasingly in line with broader developments, and therefore could signal a relaxation of policy in this area generally.