Let's talk antitrust - Online sales restrictions post-Coty

Mark Tricker: Richard, good afternoon and thanks for coming in to talk to us today about online sales restrictions post-Coty. Obviously we have had a few months now to digest the Coty judgement but I think there has been a couple of interesting developments recently, most particularly the competition policy brief the Commission issued a few weeks ago now discussing their interpretation of Coty. There were some interesting points that we might discuss on that. Before we get into that, given its been a few months perhaps you could just remind everybody of a summary of what the Coty judgement says in your view?

Richard Whish: Sure, so Coty is a very interesting judgement. It has to be read in association with Pierre Fabre from a few years ago. The difference between the two cases is that with Pierre Fabre had imposed an outright ban on internet sales on its distributors and that was held to be a restriction by an object and to be blacklisted in terms of Article 4 of the Block Exemption. In Coty, we have something different which his that the distributor in question was allowed to maintain its own website for online sales but it was not allowed to sell through third-party market places. So query, how does that fair under Article 101? First question for the Court: is can you maintain a Metro style select and distribution system and be outside 101 altogether, simply in order to maintain or preserve the aura of luxury of a product and the Court of Justice to my mind answers that very clearly. Yes, that luxury is something that you can protect. Then, what about these particular clauses? And the Court’s view was that the online sales banned by third-party platforms was something justifiable in terms of the Metro doctrine and so it did not violate Article 101. Lastly, were the clauses in question consistent with the Block Exemption in Regulation 330/2010 and the Court of Justice again said yes, they were. So, it’s a pretty clear judgement and highly beneficial to the Coty side of the argument.

Mark Tricker: So, perhaps we can turn to the more recent interpretations that have been given to that judgement in terms of its broader implications. So, the Commission have issued this policy brief as I mentioned. There are a couple of aspects that I think are interesting to explore with you now. The first is in relation to when a selective distribution system is outside Article 101 as you mentioned is the Metro criteria and the Commission says very clearly that they don’t see that the Coty judgement is confined just to luxury goods. Interestingly, the Bundeskartellamt at least in their initial tweet, following the release of the judgement said that they thought it was, and they have also issued of the opinion in the Asics case where they have suggested that they do consider it restricted to luxury goods. What’s your take on that?

Richard Whish: Well, I find this an interesting one because we hear so much discussion in the competition law village about the different between EU and US law which I often think is vastly over-stated. What we hear less about is the idea that the same EU law might be applied differently from one country to another. And frankly, I think it is perfectly possible that is the case and we know that when it came to hotel online booking, the German authority came to a different conclusion there then the British and the French and the Swedes and the Italians and so on. And maybe there is going to be some dissonance between Germany and other countries as to luxury and what is luxury and could you get different outcomes in different jurisdictions. Thank heavens we have the Article 267 procedure, quite frankly, because ultimately, you need the Court of Justice as the arbiter of these kind of things.

Mark Tricker: Another aspect that comes out of the policy brief which I found interesting was the interpretation given to the view that the Court gave on whether or not market place bands were hard-core restrictions. And the Commission says very clearly in its interpretation of this judgement that they consider market place bands to be block exempted under the Vertical Block Exemption and that that must be the case regardless of whether the market place ban is part of a selective distribution system or regards to the nature of the product that’s involved. Do you think that’s the correct view? Do you think that’s a defensible view to take?

Richard Whish: Well, obviously the first question is: does the ban involve a restriction of all passive sales? Of course with Coty, it did not because it was still possible to sell online through the distributor’s own website. So, as long as that is okay then I think the Commission is right, isn’t it? The way I have always interpreted the Block Exemption is that if it is a vertical agreement, if my market share is below 30% and provided that I don’t include an Article 4 restriction in the agreement, everything is permitted because Article 2(1)of the Regulation gives exemption to all vertical agreements subject to Articles 3, 4 and 5.

Mark Tricker: What I find interesting about it I think is that the whole discussion about market place bans appears to have arisen out of whether or not they are an essential part of the selective distribution system and yet we are now getting this aspect of the judgement that potentially has extremely broad implications. I think certainly as advisers we will always tread carefully around advising on restrictions or what might be seen as restrictions in the online world.  This appears to open a little bit of a door to look at potentially partial restrictions of certain types of online sales.

Richard Whish: Well, I think you are right and I mean the point is that the client ultimately just wants to be assured that what it is doing is lawful. One way of getting to the conclusion is to say the entire system is Metro compliant and so it is entirely outside Artricle 101, but never forget that there is another route to safety which is that the agreement is compliant with the Block Exemption meaning, vertical, below 30%, nothing hard-core .

Mark Tricker: So, potential for some future court cases on other similar types of partial restrictions?

Richard Whish: If I am right, there may not be any need for the court case.

Mark Tricker: Well indeed. Richard, thank you very much.