German Federal Cartel Office publishes paper on competition restraints in online sales
In October 2018, the German Federal Cartel Office (“FCO”) published its fourth paper in the series “Competition and Consumer Protection in the Digital Economy”. The paper assesses the legal status of online sales restrictions subsequent to the judgment of the ECJ in Coty (see VBB on Competition Law, Volume 2017, No. 12) and the judgment of the German Federal Court of Justice in Asics (see VBB on Competition Law, Volume 2018, No. 1). Overall, the FCO appears to favour a considerably narrower reading of the Coty judgment than the European Commission (as reflected in the Commission’s Competition policy brief of April 2018), and leaves open the possibility that market place bans might be considered as hardcore restrictions under the Vertical Agreements Block Exemption Regulation (“VABER”) taking into account specific market circumstances in Germany. The paper also expresses concerns over the development of “hybrid platforms”, and the risk that this might lead to the exclusion of independent dealers, a concentration of the market and a restriction of consumer choice.
The FCO starts by welcoming the recent enforcement activity of the European Commission in vertical price fixing cases involving internet sales.
Moving on to the two major platform cases, it considers that the judgment of the German Federal Court of Justice in Asics (which considered the prohibition of the use of price comparison sites in a selective distribution system to be a hardcore restriction that could not be block exempted under the VABER) can be distinguished from, and does not contradict, the judgment of the ECJ in Coty. In this regard, the FCO refers to the fact that Asics running shoes, in contrast to the Coty products, were not considered as luxury goods. Furthermore, it notes that Asics retailers were prohibited from using both price comparison sites and third party platforms with the consequence that, in contrast to the finding in Coty, consumers did not in practice have adequate access to the authorized dealers’ own online offer.
The FCO observes that the Coty judgment did not provide a definition of luxury goods. It takes the restrictive view that the ECJ’s legal assessment of the application of Article 101(1) TFEU cannot simply be assumed to apply to other (high-quality) branded goods.
The FCO advocates that brand image can be protected in a manner consistent with Article 101(1) TFEU by requiring distributors to have their own online shop on third party market places, instead of by prohibiting the use of third party market places altogether.
The FCO also revisits the ECJ’s finding that market place bans are not hardcore passive sales restrictions pursuant to Article 4(c) of the VABER. It expresses the view that, in Coty, the ECJ had mainly based its finding on the results of the European Commission’s E-commerce Sector Inquiry which indicated that, on average in the EU, distributors’ own online shops – rather than platforms – are, in practice, by far the main online distribution channel used by distributors.
The FCO points out that the situation in Germany is different and that the use of market places and price comparison sites is clearly more significant in Germany than on average in the EU. It goes on to suggest that it is unclear at what point general platform restrictions and other restrictions on online sales activities reduce the online visibility of dealers to such a degree as to constitute hardcore passive sales restrictions. The FCO also suggests it is unclear whether an overall assessment of the different restrictions is needed in order (presumably) to conclude on whether passive sales are restricted (the FCO seems to be pointing to the fact that, unlike in Asics, the only restriction imposed by Coty was a market place ban).
In emphasising what it sees as the important open questions after Coty, the FCO appears to be advocating that market place bans may in certain circumstances be hardcore restrictions under the VABER, and that different conclusions may be justified by different market circumstances. This approach is difficult to square with the purpose of block exemptions, which is to provide a predictable and uniform safe harbour applicable across the EU, without the need to carry out the type of market analysis appropriate in the context of an individual assessment under Article 101 TFEU.
It is interesting to note that, in applying the criteria set out by the ECJ in Coty, earlier this year the Higher Regional Court of Frankfurt (see VBB on Competition Law, Volume 2018, No. 8) already highlighted that the ECJ did not appear to have taken into consideration that, particularly in Germany, distribution via platforms plays a far more important role than in other EU Member States. It nonetheless found that the market place ban did not constitute a hardcore passive sales restriction and was exempted by the VABER.
Looking to the future, the FCO considers the question how to deal with hybrid platforms, i.e., platforms that act as an authorized dealer for manufacturers, on one hand, and as an intermediary for online dealers, on the other hand. The FCO highlights the strong market position of platforms based on increased network effects which can result in dealers being dependent on these platforms. It points to the risk that, with platforms cooperating with manufacturers, dealers might become subject to discrimination and squeezed out of the market. The FCO notes that its aim is to prevent e-commerce being concentrated in the hands of a few players, i.e., the manufacturers, some large dealers and even fewer leading platforms. In this respect, it is noteworthy that the European Commission is currently gathering information from market participants in relation to the dual nature of the Amazon sales platform.