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Restrictions on selective distribution systems

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European Court of justice rules on selective distribution systems

European Court of justice rules on selective distribution systems

The European Court of Justice (ECJ) recently decided on outright bans of Internet sales in selective distribution systems. We reported earlier this year on the case and the non binding opinion handed down by the Advocate General (Internet Sales of Luxury Brands, 15 June 2011). According to the rulings of the Court an outright ban of Internet sales in selective distribution systems infringes with European anti-trust rules and is not covered by individual exemption unless the agreement is objectively justified. The Court indicated that such agreements can neither be justified by a necessity of individual customer advice nor on effective customer protection in regard of the correct use of the particular product. In this respect the Court referred to its decision concerning the sales of non-prescription medicines (ECJ decision dated 11. December 2003, case C-122/03). Furthermore the Court indicated that also the protection of the prestige character of a product is no legitimate restriction of competition.
Background of the case is the dispute between the French the French cosmetics company Pierre Fabre Dermo-Cosmétique SAS (PFDC) and the French Competition Authorities. PFDC operates a selective distribution system via pharmacies including a provision binding its retailers that the products must be sold on the premises of a pharmacy and in the presence of a pharmacist. In the effect, the provision leads to an outright ban of Internet sales of PFDC?s products. In October 2008 the French Competition Authorities decided that the respective provision in the distribution contracts infringes with French and European anti-trust rules, as the blanket prohibitions on Internet sales were not covered by individual exemption. PFDC appealed the decision at the Cour d?appel de Paris, which decided to stay the proceedings and to seek a preliminary ruling from the ECJ.
The rulings of the Court lead to the conclusion that anti-competitive restrictions according to Article 101(1) TFEU (Treaty on the Functioning of the European Union) are not covered by block exemption under the Block Exemption Regulation for vertical agreements. On the other hand individual exemptions are still possible as long as the conditions of Article 101(3) TFEU are met.