The European Court of Justice recently found that a clause in a selective distribution agreement banning internet selling is, by its very nature, anti-competitive under competition law unless the ban is objectively justified.

A French cosmetics company instructed its distributors to sell its products in a physical space with a pharmacist present, thereby excluding internet selling. Article 101(1) of the Treaty on the Functioning of the European Union (“TFEU”) prohibits agreements that restrict competition. The Court was asked whether a ban on internet selling for selective distributors was an inherent restriction of competition.

The Court decided that the clause could reduce competition by restricting sales outside the distributor’s territory. The Court therefore held that the ban would be inherently anti-competitive unless it could be objectively justified. It was for the national court to decide if it was justified but the Court noted that certain arguments put forward by the parties (e.g., the need for customers to obtain advice on cosmetics) would not constitute objective justification. If there was no objective justification, the agreement would have to fall within the general or individual exemption under Article 101(3) TFEU in order to be permitted under competition law.
 
The ECJ thus considered whether the agreement could avail of the general Vertical Block Exemption Regulation (the “Exemption”). This Exemption contains a list of clauses, the inclusion of which will mean that an agreement cannot benefit from the Exemption. This list includes restricting sales to end users in selective distribution systems. The Court found that preventing consumers from purchasing online constituted such a restriction and that the agreement could therefore not benefit from the general Exemption.

It then fell to see if the agreement could benefit from an individual exemption under Article 101(3) TFEU, i.e.  did it improve the production or distribution of goods or promote technical or economic progress. The Court did not offer guidance on the application of an individual exemption to the agreement in question as it did not have enough information before it. It would be for the national court to determine whether the conditions for exemption are met.

Conclusion

This decision supports the approach taken by the European Commission to restrictions on online selling in selective distribution networks and highlights the importance of ensuring that selective distribution agreements are in line with competition law.

Contributed by Leo Moore and Claire Waterson.