Internet sales under the new block exemption regulation IDI – June 11, 2010

Internet sales under the new block exemption regulation ISSUES Internet sales can be considered as : A factor to destabilize brick and mortar systems : Which encourages pure players’ emergence who are not subject to the restraints and obligations required by sales from the brick and mortar shops. A factor to optimize brick and mortar systems : Which allows supplier to reach more and different customers ; Which allows distributor to extend its customer allocation or its territory and which therefore increases intra-brand competition. IDI – June 11, 2010

Internet sales under the new block exemption regulation OPTIONS To consider all Internet sales limitations as hardcore restrictions. To operate a case by case analysis. To find a balance between Internet sales and brick and mortar systems. IDI – June 11, 2010

Internet sales under the new block exemption regulation EU COMMISSION’S SOLUTION In principle, any supplier or distributor must be allowed to use the internet to sell products (pt. 52). Having a website is considered as a form of passive selling, since it is a reasonable way to allow customers to reach the distributor (pt. 52). Using a website cannot be assimilated to the opening of a new outlet in a specific location (pt. 57). IDI – June 11, 2010

Internet sales under the new block exemption regulation OBJECTIVE LIMITATIONS Hardcore restrictions may exceptionally be objectively necessary for certain agreements or certain products or services and fall outside Article 101 § 1 (pt. 60). For instance : Agreement on selling dangerous substances (pt. 60) ; Agreement requiring substantial investments by the distributor to start up and/or develop the new market (pt. 61) ; Agreement providing genuine testing of a new product in a limited territory or with a limited customer or a staggered introduction of a new product (pt. 62). IDI – June 11, 2010

Internet sales under the new block exemption regulation HARDCORE RESTRICTIONS Agreement imposing criteria for online sales which are not overall equivalent to the criteria imposed for the sales from the brick and mortar shop (pt. 56). Nevertheless, the supplier may require its distributors to have one or more brick and mortar shops or showrooms as a condition for becoming a member of its distribution system (pt. 54). IDI – June 11, 2010

Agreement imposing on distributor : Internet sales under the new block exemption regulation HARDCORE RESTRICTIONS Agreement imposing on distributor : to prevent customers located in another (exclusive) territory from viewing its website ; to put on its website automatic re-routing of customers to the manufacturer's or other (exclusive) distributors' websites ; to terminate consumers' transactions over the internet once their credit card data reveal an address that is not within the distributor's (exclusive) territory. Nevertheless, the distributor’s website may offer links to websites of other distributors and/or the supplier (pt. 52). IDI – June 11, 2010

Internet sales under the new block exemption regulation HARDCORE RESTRICTIONS Agreement imposing on distributor to limit its proportion of overall sales made over the internet (pt. 52). Nevertheless, the supplier may require a certain absolute amount (in value or volume) of off-line sales to ensure an efficient operation of its brick and mortar shop (pt. 52). IDI – June 11, 2010

Internet sales under the new block exemption regulation HARDCORE RESTRICTIONS Agreement imposing on distributor to pay a higher price for products intended to be resold by the distributor online than for products intended to be resold off-line (pt. 52). Nevertheless, the supplier may impose on distributor the payment of a fixed fee to support off-line sales efforts (pt. 52). IDI – June 11, 2010

Internet sales under the new block exemption regulation EFFICIENCY DEFENSE However hardcore restrictions may fulfill the conditions of Article 101 § 3 (pt. 60). The supplier or the distributor have to prove «efficiencies». The Commission has to assess whether the restriction is likely to provide, or not, «efficiencies». For instance : The distributor has to pay a higher price for products intended to be resold online than for products intended to be resold off-line. Such dual pricing may be justified by costs of home installation and distribution in brick and mortar shop (pt. 64). IDI – June 11, 2010

Internet sales under the new block exemption regulation SO WHAT ? The position of the Commission and the French Competition Authority has not convinced the Paris Court of Appeals who has referred the following question to the ECJ : « Does a general and absolute prohibition against selling the products to end-users over the internet, imposed on selected distributors in the framework of a selective distribution network, constitute a per se restraint on competition within the meaning of Article 101(1) of the EC Treaty, thus falling outside the block exemption (…). » (Paris Court of Appeals, October 29, 2009, Pierre Fabre Dermo-Cosmétique) IDI – June 11, 2010