On 13 October, in response to a reference from the French courts, the ECJ ruled that a restriction on online sales in a selective distribution agreement for cosmetics and personal care products restricts competition unless objectively justified (which it indicated was unlikely to be the case) and falls outside the Vertical Agreements Block Exemption (VABE).
Pierre Fabre is a manufacturer of cosmetics and personal care products. Its selective distribution included an obligation that sales must be made exclusively in a physical space with a qualified pharmacist present. The French Competition Authority investigated, and ordered Pierre Fabre to remove the restrictions. On appeal, the Cour d'Appel de Paris referred a question to the ECJ:
"Does a general and absolute ban on selling....goods....via the internet, imposed...in the context of a selective distribution network, in fact constitute a "hardcore" restriction of competition by object...which is not covered by the [VABE] but which is potentially eligible for an individual exemption under Article [101(3)]..?"
The ECJ concluded that in the context of a selective distribution network, a prohibition on online sales of cosmetics and personal care products is a restriction by object (and therefore prohibited under Article 101(1) without the need to examine its effects) if the prohibition can not be objectively justified. It will be for the French courts to assess whether that is the case, but the ECJ noted that it had previously not accepted that face to face advice was needed for sales of non-prescription medicines or contact lenses. It also stated that the aim of maintaining a prestigious image is not a legitimate aim.
The ECJ then ruled that the VABE does not apply to a selective distribution system if distributors are de facto prohibited from using the internet as a method of marketing - such a restriction amounts to a restriction of passive sales which prevents the block exemption from applying. Although the judgment related to the 1999 VABE, the principle will apply equally to the 2009 VABE which maintains the provisions of its predecessor on passive sales.
Finally, the ECJ ruled that Article 101(3) could apply if the conditions were met.
A complete ban on selective distributors making online sales will therefore only fall outside Article 101(1) if it is objectively justified. That will be the case where there are regulatory requirements prohibiting online sales (for example in the case of medicines). The Advocate General indicated in his opinion that it may also be the case where the legitimate aim is not a regulatory requirement but is of a "public law nature" aimed at protecting a public good. Unfortunately, he gave no examples. If the restriction is not objectively justified, it is possible that it will be individually exempt under Article 101(3). It is disappointing that the ECJ gave no guidance as to how the Article 101(3) conditions might apply in this situation.
The ECJ's judgment therefore supports the European Commission's emphasis (for example, in its Guidelines on Vertical Restraints) on permitting online sales, as a key tool for breaking down national barriers and optimising a single internal market.
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