Last reviewed 1 February 2012
European Court of Justice Case-439/09: Pierre Fabre Dermo-Cosmétique SAS v Président de l’Autorité de la Concurrence and Ministre de l’Economie, de l’Industrie et de l’Emploi: Absolute ban on internet sales in the context of selective distribution agreements. Neil Baylis reports.
Pierre Fabre Dermo-Cosmétique (“Pierre Fabre”) manufactures a number of cosmetic and beauty products sold through a selective distribution network in France. The contracts relating to four of Pierre Fabre’s brands required that sales be made in a physical space with a qualified pharmacist present (the “Distribution Agreement”).
In 2006, the French competition authority found that the Distribution Agreements were anti-competitive and infringed French and European competition laws. On Pierre Fabre’s appeal to the Cour d’appel de Paris, the case was referred to the Court of Justice of the European Union (ECJ).
Article 101(1) of the Treaty on the Functioning of the European Union (TFEU) prohibits agreements which restrict competition. Such restrictions can be classed as being anticompetitive by their “object”, when the restriction is so serious as to make it clear that it was the intention of the parties to restrict competition (eg price fixing), or by their effect, where there is a need to demonstrate that the agreement did actually have an anticompetitive impact on the market.
Agreements which fall under Article 101(1) may nevertheless benefit from an exemption under Article 101(3) where the benefits to consumers outweigh the anti-competitive effects of the agreement. For commonly entered into agreements, the Commission has developed “block exemptions” which create a safe harbour for those types of agreement. For example, the Vertical Agreements Block Exemption (VABE) applies to vertical agreements between suppliers and buyers where each has a market share below 30%. VABE requires that the agreement does not include “hardcore” restrictions (such as restricting members operating at a retail level within a selective distribution agreement from making active or passive sales outside its allotted territory).
The ECJ concluded that requiring products to be sold in the presence of a chemist amounted to a prohibition on any form of internet selling. Such a ban was a restriction on competition as it reduced the ability of the retailer to sell Pierre Fabre’s products. This clause was deemed by the ECJ to restrict competition by “object”.
The ECJ went on to consider if VABE applied. A restriction on active and passive sales would be considered a “hardcore” restriction. However, Pierre Fabre argued that the ban on internet sales was the equivalent of a ban on operating out of an unauthorised establishment, which would be permissible. The ECJ did not agree and considered the Internet to be a method of marketing.
The ECJ deemed the internet restrictions to be a method of enhancing the image of Pierre Fabre’s goods. Whilst this is permissible, the measures had to be proportionate, and requiring a pharmacist to be present was not. Finally, the ECJ considered whether an individual exemption under Article 101(3) could apply. It concluded that there was insufficient information available to determine if the four criteria had been met and left this point for the national court to determine.
The ECJ’s views in this case suggest internet sales restrictions are generally unlikely to be permitted.