Background

Economic theory of vertical restraints

Economic theory and competition law

Should distributors have more protection?

Vertical restraints put to the test of economic analysis

Structure of distribution law - Book plan

General bibliography

Introduction

Localizing the anticompetitive effects

Effect on trade between Member States

Scope ratione loci

Concept of an undertaking

Intra-group agreements

Scope ratione personae

Applicability of competition law to vertical agreements

Definition of the relevant market

Anticompetitive object or effect

Appreciability threshold

Concept of agreement and concerted practice

Prohibition of vertical restraints

Block exemptions

Individual exemptions and rule of reason

Exemption of vertical restraints

Control of vertical restraints

Prohibition

Exoneration

Restrictive agreements

Principle

Applications

Abuse of dominant position

Exclusive purchase/Exclusive supply

Resale outside network

International agreement

Exclusive distribution agreements

Manufacturer's guarantee

Protection of the brand

Protecting the network against third parties

Relations between the parties

Selective distribution

Hardcore restrictions

Individual exemptions

Rule of reason

Prohibition of restrictive agreements and individual exemptions

Distribution of new motor vehicles : Regulation No 330/2010

After-sales : Regulation No 461/2010

Block exemption

Motor vehicle distribution agreements

Merger control

Franchising

Commercial agency and competition

EU harmonization

International agency

Commercial agents

This book provides a wide-ranging review of the European rules relating to distribution: exclusive purchase and exclusive supply, exclusive and selective distribution, motor vehicle distribution, franchises, commercial agents.

European Distribution Law

The online distribution regime resulting from the Guidelines on Vertical Restraints is open to criticism insofar as there appears to be little justification for it in relation to the economic analysis of vertical restraints . It is surprising that the Commission puts forward no justification to explain how, in an economic sense, prohibiting online sales is anticompetitive by its object, when throughout the Guidelines it advocates the carrying out of detailed economic assessments. The Commission appears to have been too hasty in adopting a shortcut, avoiding having to analyze how the prohibition of online trade would necessarily produce anticompetitive effects which would legitimize an implied classification of infringement by object. The fact that the internet is a tool for market integration is not sufficient to characterize the prohibition of online sales as a hardcore restriction.

This lack of justification, which already existed under the previous Vertical Restraints Regulation (No 2790/1999) and its guidelines have led one national court to refer a request to the Court of Justice for a preliminary ruling on the nature of internet sales and the possibility of benefitting from an individual exemption on the basis of Article 101(3) TFEU .

The Commission has recognized the necessity of imposing limits to prevent the risks of parasitic behavior or free-riding to the detriment of traditional distributors. The development of the internet must also be reconciled with the various modes of physical distribution. But has that balance really been struck? 

The law as it currently stands poses two main difficulties which raise concerns about a possible destabilization of distribution networks.

The first difficulty relates to prohibiting the supplier from practising dual pricing policies, with different prices charged for internet sales to sales made in brick and mortar stores. However, to do so is entirely legitimate and even mirrors the classic trading norms, as long as the price differentiation can be justified by a difference in the services rendered by the two distribution channels. This type of differentiation does not amount to discrimination but constitutes the reward for a service rendered by the distributor. The Commission has accepted that a dual pricing system can be granted individual exemption if the price difference can be justified due to the “substantially” higher costs for online sales borne by the distributor. This apparent relaxing of the rule is of no practical purpose, however, and does not resolve the problems resulting from the Commission's categorical prohibition on dual pricing. The point is not to offset the higher online distribution costs but to compensate for the specific services rendered in brick and mortar outlets compared to online distribution.

The second problem is in refusing to allow the supplier the opportunity to require a proportion of sales to be in stores. It is not the role of the Commission to regulate the way in which a supplier defines the image of its product and organizes distribution. The distributor makes choices at its own risk and if those choices are wrong, is penalized by the market.

The safeguards devised by the Commission in its guidelines are not adequate. It certainly accepts that the head of the network can require the opening of one or more brick and mortar stores or showrooms. However, the showroom requirement is of no benefit. New entrants selling online should in effect be subject to at least the same level of requirements as brick and mortar distributors who, for their part, must operate a point of sale generating more costs that a mere showroom.

The requirement of one or more physical stores is a more useful safeguard. The Commission also acknowledges that the head of the network may require a minimum of offline sales in absolute value (in volume or value). This absolute amount of required offline sales - the same for all buyers - is not an efficient safeguard as, due to the diversity of network members, by definition the average level would automatically be low. It therefore appears necessary to make use of the option provided in the guidelines to fix the absolute quantity of offline sales for each member of the network according to objective criteria, such as its size in the network or geographic location. The limits of such a safeguard, however, lie in the practical difficulties of fixing such a criterion. Precautions of this kind are likely to limit the potential entry of pure players to the network or the adoption by a member of the network of a pure play model but they cannot totally remove the risk of pure players accessing the network.

A pure player ensuring 95% of its turnover online can in effect easily set up or take over the number of stores required to enter a network, satisfying the minimum volume of sales in brick and mortar outlets, except if the entry criteria have been framed specifically to prevent its access to the network. 

But, the entry of a distributor with a pure play model into a network of stores essentially carrying out physical sales can be very de-stabilizing for distributors where the pure player does not have to bear the same costs and can afford to charge knock-down prices that are not open to the brick and mortar distributors, especially insofar as there is no dual pricing facility.

It is therefore necessary that the possibility of dual pricing be accepted, limited naturally to services rendered, and for the supplier to be permitted to require that a certain proportion of sales be carried out offline. The Commission should not make this an area for regulation; the market should be free and competition must be able to develop: when competition is lively on the market, a network head with under 30% of the market share must be free to choose.

ACCARDO, Vertical Antitrust Enforcement: Transatlantic Perspectives on Restrictions of Online Distribution under EU and US Competition Laws, European Competition Journal 2013, 225.

Paris Court of Appeal, 29 Oct. 2009, LawLex200900003261JBJ: "Whereas neither the Commission Guidelines nor the opinion of that Authority given in Article 15 paragraph 3 of Regulation No 1/2003 are binding on national courts, and given the silence on the matter of Regulation No 2790/1999 on the ban on selling on the internet and the serious nature of the grounds raised by the PFDC company, the question is whether a total and absolute prohibition on selling contract products on the internet, imposed on selected distributors within the framework of a selective distribution network, constitutes an infringement of Article 81(1) of the EC Treaty which is not exempted under Regulation No 2790/1999 on the application of Article 81(3) of the Treaty to categories of vertical agreements and concerted practices, but which could however possibly benefit from an individual exemption under Article 81 (3) [now 101(3) TFEU] of the EC Treaty. Proceedings shall be stayed until the Court of Justice has given its answer on this issue". 

74. Critical assessment of online distribution regime