Selective distribution: The Paris Court of Appeal applies the principles defined by the Court of Justice of the European Union in the Coty preliminary ruling

In a decision opposing Coty France to the online sales platform Showroomprive.com, the Paris Court of Appeal followed in the footsteps of the Court of Justice’s eponymous preliminary ruling and validated the restrictions imposed by the luxury brand. It thus contradicted the previous decisions of the same Court of Appeal of May and June 2016 which had on the contrary invalidated Coty’s selective distribution network.

The Coty group holds a portfolio of luxury fragrance brands which it distributes through a network of selective distributors in the European Economic Area. Coty’s selective distribution agreement notably provides that its products cannot be distributed by pure players and therefore imposes on distributors wishing to market the products online to have a physical point of sale. Showroomprive.com is an online sales platform which, by nature, cannot be authorized by Coty since it does not have any physical point of sale. Incidentally, the platform had asked for Coty’s approval, which it had naturally refused. On two occasions, Coty was informed that Showroomprive.com had marketed some of its luxury fragrances in its private sales without authorization. Coty thus summoned the platform for unfair competition to obtain compensation for its prejudice resulting from the breach of its selective distribution network and the end of the practices. As the Marseille Commercial Court accepted Coty’s claims, Showroomprive.com appealed this judgement and argued that Coty’s selective network was unlawful due to the existence of several hardcore restrictions.

The Court of Appeal first recalled that using a selective network for luxury products such as high quality fragrances is lawful, provided distributors are selected on the basis of objective qualitative criteria, fixed uniformly and applied without discrimination. Then, it analyzed the lawfulness of each clause challenged by the platform.

One of the most eagerly awaited answers from the Court of Appeal concerned the prohibition for distributors to use online marketplaces or platforms. In this respect, the Court pointed out that the French Competition Authority’s position does not contradict that of the courts of the European Union and that these clauses do not constitute hardcore restrictions. It specified that the French Competition Authority has always accepted the prohibition of sales to platforms in the absence of guarantees as to the identity of the sellers.

One of the clauses of the Coty agreement challenged by the platform required consumers to come in person to collect their products for orders placed through communities or works councils. The Court considered that simply arranging sales by mail order, which is a method of selling likely to damage the image of the luxury products, is not a hardcore restriction.

Showroomprive.com also contested the generality of the clause prohibiting the resale to non-approved distributors in that it was not expressly limited to territories where the selective distribution was implemented. The Court noted that, in practice, Coty’s selective network covers all the Member States, so that this clause cannot be sanctioned.

After the concerns raised by this Court’s previous decisions which undermined otherwise widely accepted restrictions, this decision is reassuring for luxury brands sold through approved distributors. However, we look forward to the French Supreme Court’s ruling on the appeals lodged in the previous Coty cases.

Refresher course on the restrictions permitted in exclusive distribution networks

In a press release dated March 7, 2018, the French Competition Authority announced that the investigation opened against the farm tractor manufacturers John Deere and AGCO was closed following the measures taken by them during the investigation to reinforce competition and diversify the offer in favor of farmers.

Thus, this investigation, which had been opened ex officio by the French Competition Authority after the communication of indications by the DGCCRF, has not resulted in the publication of a decision; however, the press release published by the French Competition Authority has a strong educational purpose and serves as a reminder of the restrictions permitted when establishing an exclusive distribution network.

Under European competition law, it is theoretically not possible to restrict the clients to which the distributor resells or the resale territory inside the European Union. However, this principle has a certain number of exceptions, including the possibility to restrict the active sales of a distributor in a territory or to a clientele which the supplier has exclusively reserved for itself or which it has exclusively allocated to another buyer, when this restriction does not limit the sales made by the buyer’s clients. Clauses going beyond these permitted limitations are characterized as hardcore restrictions and withdraw the benefit of the block exemption for the agreement in question. The parties must then prove that their agreement can be exempted individually, but this exercise can be quite tricky in the presence of hardcore restrictions as there is then a risk of being characterized as an anticompetitive agreement.

In this particular case, the manufacturers John Deere and AGCO organize the distribution of their tractors through a network of dealers, most of which benefit from territorial exclusivity. In accordance with the aforementioned rules, the manufacturers should only be able to restrict their distributors’ active sales to territories and/or clients which have been exclusively allocated to other distributors or that the manufacturers have exclusively reserved for themselves. On the other hand, the dealers’ passive sales to these territories and/or clients cannot be limited in any way.

The ambiguous nature of certain clauses of the agreements concluded with the dealers might lead them to think that they were not authorized to respond to solicitations from clients located outside their own exclusive territory, which would be tantamount to limiting these distributors’ passive sales and thus constitutes a hardcore restriction within the meaning of the exemption regulation. Therefore, the manufacturers have had to modify their agreements and terms and conditions of sale to reaffirm their distributors’ commercial freedom in terms of their passive sales.

The Commission gives conditional authorization for Bayer’s takeover of Monsanto

It is the Commission’s third decision in a short period of time on a merger between two major players in the agrochemical sector. Last year, the Commission had accepted, subject to conditions, Dupont’s acquisition by Dow and ChemChina’s takeover of Syngenta.

As part of an in-depth investigation, the Commission considered that the Monsanto/Bayer operation might significantly reduce competition on price and innovation due to overlaps in the parties’ activities in the seed, pesticide and digital agriculture sectors. It might also contribute to reinforcing Monsanto’s dominant position on certain markets where Bayer is an important competitor thereof. 

In response to these concerns, Bayer submitted commitments to divest several aspects of its activity to BASF as well as its R&D organization related to the divested businesses. The European giant notably committed to divest its assets related to glufosinate (herbicide competing with Monsanto’s famous glyphosate). Finally, it committed to grant a license on a copy of its current worldwide offer and its products under development in digital agriculture. Although BASF seems to be a suitable acquirer for the Commission, Bayer will only be able to acquire Monsanto when the Commission has formally authorized the sale of all of the assets to BASF.

With respect to the environmental and food safety concerns raised by a merger of such magnitude, the Commission explained that concentration operations are exclusively analyzed from a competition law point of view. It is therefore to the ecologists’ dismay that the Commission refused to take into account in its analysis issues which it considers reserved for the General Directorate for Health and Food Safety, despite the numerous petitions sent to it.