Restrictions by object and effect in the digital economy Giorgio Monti

Outline Context On-line shopping Sector Inquiry Object/effect distinction On-line shopping Coty Germany v Akzente Case law Block exemption Back in the national court

E-commerce Sector Inquiry COM (2017) 229 final The percentage of people aged between 16 and 74 that have ordered goods or services over the internet has grown year-on-year from 30 % in 2007 to 55 % in 2016. [3] Manufacturers use selective distribution as a reaction to the growth of e-commerce as it allows them to better control their distribution networks, in particular in terms of the quality of distribution but also price. [15]

Selective Distribution

Coty: selective distribution with prohibition of online sales through 3rd party platforms AKZENTE

Economic approach Inter-brand v. intra-brand competition Theories of harm Eliminates some retail outlets E.g. some retailers exit the market because they cannot survive without selling the goods on marketplaces Eliminates ‘marketplaces’ as a distribution site Problematic if marketplaces yield lower prices Direct consumer harm Prices are higher NB: a single contract cannot yield these effects

Is the agreement between Coty and Akzente Clearly restrictive of competition? We need more evidence to decide?

Selective distribution Law 1: Art 101(1) in Coty ‘such agreements necessarily affect competition.’ [23] How? Positively? Negatively?  not prohibited if[24]: The choice of resellers is based on obective criteria of a qualitaive nature Product characteristics necessitate such a network (e.g. to preserve quality or use of the product) Criteria laid down do not go beyond what is necessary Follows Metro 1 (1977) Burden on supplier to justify choice of selectve distribution Product looks like an essential facility

Coty – product characteristics ‘luxury goods may require the implementation of a selective distribution system in order to preserve the quality of those goods.’ [28] Nike shoes? (NL) Deuter bags? (Germany)

Types of product matter? Luxury products (Coty); body hygene goods [32]. The need to preserve the prestigiouls image of cosmetic and hygene goods was not a legitimate requirement for the purposes of justufying a comprehensive prohibition of the internet sale of those goods. [34]

Legality = product characteristics + contract terms? Example Luxury watch: supplier can limit sales on third party platforms High quality watch: supplier cannot limit sales on on-line platforms Ordinary watch: supplier cannot even use a system of selective distribution

Proportionality Adequate to safeguard image No more than necessary Helps suppler control the online presence to ensure that it meets the quality requirements it sets for sellers Lack of contract nexus with third party platforms makes monitoring of uality requirements more difficult Suppliers may sell online through [52-53]: Own websites Third party platform where the identity of the latform is not visible. Not through: Third party pltforms that are recognisable by consumers

Can you legitimately block sales through third-party platforms? Coty guides national court: Is the restriction appropriate to preserve luxury? Guarantees website is associated with its brand Coty can check compliance with conditions on authorized websites Coty cannot require compliance by third party platforms, absent contract Is the restriction proportionate? Not an absolute prohibition on on-line sales Inability to control 3rd party platforms relevant

Selective Distribution Law 2 Regulation 330/2010 Elements to secure block exemption: Parties have a vertical relationship (Art 2) Seller and buyer both have market share below 30% (Art 3) Absence of ‘hardcore restrictions’(Art 4) Not applicable to certain terms (Art 5) COM may withdraw benefit of BER ex post if effects are anti-competitive (Art 6); NCA may withdraw benefit of BER from its jurisdiction (Art 29 Reg 1/2003)

Article 4’s Black list & selective distribution Art 4(b)(iii): restricting the territory in which or the customers to whom distributor may sell… except sales by selected distributor to non-authorized dealers Art 4(c): restricting active or passive sales to end users by members of a selective distribution system (but may restrict sales from unauthorized premises)

Article 4 and e-commerce Total ban on internet sales Restricts at the very least passive sales to those wishing to buy on-line (Art 4c, Pierre Fabre) Ban on 3rd party websites Does not restrict customers or territories (Art 4b) as goods may be found on-line Does not restrict passive sales to end users Requirement of a brick and mortar store? (i.e. exclusion of pure on-line distributors?)

Relationship between Metro case law and Block Exemption Block Exemption is more generous: Applies irrespective of goods Market power threshold; assume that absent market power anticompetitive effects are remote (cf US antitrust: Leegin v PSKS, 2007) Metro case law might apply: Above the 30% threshold For e-commerce the approach is the same under both

Coty back in the national court Application of Coty’s guidance raises doubts Is the restriction proportionate given that other third party platforms sell Coty goods? Why exclude amazon if it can comply with the quality requirements? In Germany (E-Commerce inquiry) third party platforms are more used than in other MS: keeping channel open is important Court applies Block Exemption instead! Market shares below 30% No restrictions of customers and no restriction of passive sales (Art 4)

Conclusions US antitrust would not even consider a case like Coty: No market power Lively inter-brand competition for perfumes Amazon is a large player downstream EU antitrust: Coty pushes courts to look at the economics… … but retains a form-based approach Block Exemption Regulation as a parallel pathway