European Competition Law provides a wide-ranging review of the European rules relating to competition: restrictive agreements, abuse of a dominant position, impact of intellectual property rights, procedure, merger control, State aid.

European Competition Law

Selective distribution, like exclusive distribution, limits the number of authorized distributors and their potential for selling. The system imposes a ban on resale outside of the network. Restrictions on sales relate to all sales to unauthorized distributors, with the only potential buyers being authorized resellers and final consumers. Unlike exclusive distribution, limiting the number of resel …

Block exemption

Selective distribution, like exclusive distribution, limits the number of authorized distributors and their potential for selling. The system imposes a ban on resale outside of the network. Restrictions on sales relate to all sales to unauthorized distributors, with the only potential buyers being authorized resellers and final consumers. Unlike exclusive distribution, limiting the number of resellers in selective distribution leads to the application of selection criteria relating to the nature of the product and not to an allocation of territories.

Within selective distribution qualitative and quantitative selective distribution must be distinguished.

Qualitative selective distribution consists in authorizing distributors solely on the basis of selection criteria that are objectively necessary to the distribution of the product in question, such as the training of sales staff, the services provided at the point of sale, or the assortment of products sold . As a general rule, purely qualitative selective distribution is not caught by Article 101(1) TFEU because, provided that three conditions are met (the type of distribution is justified by the quality of the products, distributors are selected on the basis of objective criteria and the proportionality criterion is respected), it does not produce any adverse effect on competition.

However, the quantitative selection of candidates for entry to a selective distribution network  is more restrictive insofar as other restrictions are added, such as the imposition of a minimum or maximum level of sales or a direct limitation on the number of authorized resellers . A certain amount of quantitative selection in a selective distribution network is, however, allowed. It can in effect be justifiable to limit the number of resellers in order to adapt the network to the conditions relative to the meeting of the supply and the demand. Likewise, the supplier's legitimate concern to control the density and geographic distribution of its network can lead to prohibiting authorized distributors from operating from a non-authorized place of establishment.

The Court of Justice in Auto 24/Jaguar  specified the nature of the criteria required for a quantitative selection system to benefit from block exemption. The Court ruled that the specified criteria within the meaning of Regulation No 1400/2002 must only be “criteria the precise content of which may be verified”, without it being “necessary for such a system to be based on criteria that are objectively justified and applied in a uniform and non-differentiated manner in respect of all applicants for authorization”. The decision, in line with competition law and economic efficiency, should put an end to the divergences in case law and safeguard selective distribution systems in all sectors of the economy. In effect, Regulation No 2022/720 - like Regulation No 1400/2002 - refers to a selection system “on the basis of specified criteria” with a prohibition on reselling outside the network. Like the regulation, the judgment of the Court does not make any distinction as to whether the selective distribution system is qualitative or quantitative. In the guidelines on vertical restraints, which for their part distinguish the two types of selection, the Commission does not require the quantitative criteria to be objective, uniform and non-discriminatory, which are conditions that it reserves for qualitative selection. The Commission further adds that “the block exemption regulation exempts selective distribution regardless of the nature of the product concerned and regardless of the nature of the selection criteria”, subject to a possible withdrawal of the exemption where the characteristics of the product do not require selective distribution or more generally in case of appreciable anticompetitive effects . Below a 30% market share, qualitative or quantitative selective distribution is automatically exempted regardless of the product in question or the selection criteria applied without it being necessary to justify the economic objectivity of the quantitative criteria . This is only required in the event of appreciable anticompetitive effects that warrant the withdrawal of the exemption, and this is extremely rare. In any event, the solution adopted by the Court of Justice should be welcomed as it will enable networks to organize themselves on the basis of quantitative criteria defined by the suppliers heading the networks and avoid endless discussions about the objective and uniform justification of such criteria, a justification which is impossible to bring in practice given the diversity of the factors to be implemented in building a network.

The type of selection is of little significance below the 30% threshold, and the agreement benefits from the presumption of legality set out in the block exemption regulation on condition that it contains no black or red clauses. The presumption of legality only comes into play if authorized distributors can actively sell to each other and to final consumers. A restriction on active or passive sales to end users, professionals or consumers is prohibited by the regulation (Regulation No 2022/720, Article 4) . Thus, the prohibition on online selling constitutes a restriction of passive sales prohibited under Article 4 and is not covered by the the exception allowing suppliers to bans sales out of an unauthorized place of establishment . However, even though it restricts a specific kind of internet sale, the prohibition imposed on the members of a selective distribution system  to use, in a discernible manner, third-party platforms or marketplaces for the online sale of luxury goods does not constitute a restriction of customers within the meaning of Article 4(b) of Regulation No 2022/720, or a restriction of authorized distributors’ passive sales to end users within the meaning of Article 4(c) of that regulation, provided that the supplier does not prohibit the use of the internet as a means of marketing the contract goods and that customers are usually able to find the online offer of authorized distributors by using search engines . This approach is enshrined in the Vertical Restraints Guidelines, which state that if a restriction or prohibition of sales on online marketplaces limits the use of a specific online sales channel, other online sales channels remain available to the buyer, who may, in particular, open its own online store and use search engine optimization techniques or advertise online, including on third party platforms, to increase the visibility of its store (pt 336). In all events, this restriction must not lead to preventing the effective use of the internet by the buyer to sell the contractual goods or services in specific territories or to a specific clientele, within the meaning of Article 4(e) of the regulation.

Cross-supplies between network distributors must also be allowed. Distributors must remain free to buy the contract goods from other authorized resellers in the network, whether they are operating at the same or at a different level of trade. Consequently, no restrictions can be imposed on the designated wholesalers relative to their sales to the designated retailers. Clauses restricting the possibility for cross-supplies between authorized distributors are considered to be hardcore restrictions likely to appreciably affect competition (Regulation No 2022/720, Article 4(d)).

Where neither the supplier nor the distributor has a 30% market share, the Regulation on Vertical Restraints allows the combining of exclusive and selective distribution and the imposition of the distributor's location, subject to the freedom to carry out active and passive sales, when these agreements do not produce cumulative effects leading to restriction of competition. When the market share of either of the parties exceeds 30%, the combination of selective and exclusive distribution is contrary to Article 101(1), even if active sales are allowed between territories. Such a combination may only be justified on the basis of Article 101(3) if it is indispensable to protect substantial and relationship-specific investments .

According to the Commission, if a withdrawal of the exemption would be likely in respect of the cumulative effects of selective distribution networks , with some selecting solely qualitatively and others exclusively quantitatively, withdrawal would only apply to quantitative restrictions that directly limit the number of authorized distributors . In effect, more indirect types of quantitative selection that, for example, combine qualitative criteria and minimum purchase obligations are less likely to harm competition in the case of cumulative effects. The level of purchases required should not, however, represent a significant part of the reseller's turnover nor should it exceed what is necessary for the supplier to offset investments and achieve economies of scale.

Case T-88/92 Leclerc v Commission [1996] ECR II-1961, LawLex200500003933JBJ.

However, quantitative selection of candidates for entry into a selective distribution network is not illegal in itself as it is not in the list of black or red clauses set out in Articles 4 and 5 of Commission Regulation (EU) No 330/2010 of 20 April 2010.

Commission Regulation (EU) No 330/2010, recital 15.

See Commission Notice No 2010/C 130/01, pt 179.

See Commission Notice No 2010/C 130/01, at pt 175.

Case C-158/11 Auto 24, LawLex201200000961JBJ.

Guidelines on Vertical Restraints, pt 143.

Motor vehicle distribution has been subject to the general law system since 1 June 2013.

See also Case C-306/96 Javico v Yves Saint Laurent Parfums [1998] ECR I-1983, LawLex200400003612JBJ. Regulation No 2018/302 of 28 February 2018  2018 on geo-blocking, OJEU L 60 I of 2 March 2018, 1, applicable from 3 December 2018, which expressly provides in Article 6(2) that agreements which restrict passive sales in breach of the prohibitions laid down in Articles 3 to 5 of the same regulation are  automatically void.

Case C-439/09 Pierre Fabre Dermo-Cosmétique SAS [2011] ECR p. I-9419, LawLex201200000028JBJ.

Case C-230/16 Coty Germany GmbH, Judgment of 6 December 2017, LawLex201800000317JBJ.

See Commission Notice No 2010/C 130/01, pt 185.

European Competition Law

121. Block exemption

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121. Block exemption

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Les décisions de justice citées dans ce paragraphe :

Les notions juridiques connexes

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