Why selective distribution

The first statement seemed flatly to contradict case law going back decades. Coty therefore sought to restrict Pierre Fabre to its facts at [31]. The problem is that Coty itself is not entirely clear on the distinguishing factors. However, SDS are not restricted to luxury goods, but can also be used for other branded products. The better interpretation of Coty is that Pierre Fabre prohibits de facto prohibitions of internet sales as going beyond that which is necessary, while in Coty the clause in question allowed authorized distributors direct online sales via their own website or via third-party websites that were not recognizable as such, and only prohibited sales via third-party platforms such as Amazon or eBay; this latter restriction was considered not to amount to a hardcore restriction.

Less than a week after Coty was handed down, a German court decided, however, in a case whose facts are located between the goalposts of Pierre Fabre on the one hand and Coty on the other, that prohibiting distributors from supporting the functionality of price comparison websites and preventing them from advertising on third-party websites amounted to a hardcore restriction under the vBER Asics Where neither the Metro I criteria, nor the conditions for the block exemption are met, a selective distribution system may still qualify for exemption under Article 3 TFEU.

David Bailey and Laura Elizabeth John eds. Phillip E. This article is being reviewed by the Editors of the Dictionary. Distribution system whereby a supplier enters into vertical agreements with a limited number of selected dealers in the same geographic area.

Selective distribution agreements, on the one hand, restrict the number of authorised distributors. On the other hand, they prohibit sales to non-authorised distributors, which leaves authorised dealers only other appointed dealers and final customers as possible buyers. Selective distribution is almost always used to distribute branded final products. Selective distribution is a distribution approach where selective and few outlets are chose through which the product is made available to the customers.

Unlike intensive distribution, not all available outlets are targeted and neither is it like exclusive distribution where there is only one outlet. A few outlets with calculated potential are identified and then they are given the rights to stock and sell the offerings of a company. A good example for products for which selective distribution is used is cars. This need not be the case for high end luxury cars, for which, more often than not, exclusive distribution is used.

For the low-end range and mid-level range cars, selective distribution is used. You would have observed that multiple, but not all, dealers in a certain locality deal in certain cars. Another example for this could be clothing. If you observe the availability of brands like Louis Philippe or Van Huesen, you will see that these brands are available in the exclusive show rooms of these brands and also in a few high end stores in malls.

All of these brands are present in the outlets which are owned and operated by the company. However, they are also available in other outlets which are famous for their turnover and the number of customers they serve. This is done to show that the brand is using selective distribution. It also adds to the premium feel of the brand. The dealers in such a type of distribution network may or may not store other brands.

They are not always obligated legally to confine themselves to just one brand. Selective distribution can also limit the competition faced to a certain extent. This can happen if there is a legal agreement of some sort between the producer and the retailer. If the retailer agrees not to stock multiple competing brands or to limit the number of competing brands, this can reduce the competition within the store which is good for the brand. Also if the store is one of the big ones in the locality and more popular and more frequently visited, then this kind of an agreement will create an advantage in the entire locality.

Selective distribution systems may qualify for block exemption treatment under the vertical agreements block exemption set out in article 3 of the TFEU. Under this new policy of the European Commission in relation to the single block exemption applying to all vertical agreements including selective distribution arrangements , vertical restraints are presumed legal in the absence of market power.

Below this threshold, no market power is presumed and agreements may benefit from the block exemption. The following types of restrictions have been permitted by the European Commission under article 3 of the TFEU, taking account of the products in question and the structure of the market concerned and will generally be exempted by the vertical agreements block exemption, provided its other conditions are satisfied :.

Indeed, the ECJ recently issued a ruling on the legality of a clause that had the de facto effect of precluding members of a selective distribution network from engaging in internet sales. The general terms and conditions of its selective distribution network required sales to be made in a physical space in the presence of a qualified pharmacist, which had the de facto effect of preventing all internet sales of the PFDC products.

The ECJ considered that a de facto prohibition of any internet sales constituted a restriction per se and so, was incompatible with article 1 of the TFEU if the clause could not be objectively justified. The ECJ then excluded the two most commonly used arguments to justify such a clause, considering that neither the necessity to provide customers with personal advice to ensure their safeguard nor the necessity to protect the prestigious brand image, constituted a legitimate purpose justifying such a clause.

It is clear that the prohibition of internet sales constitutes an anti-competitive restriction. In reality, each case will turn on its facts so we could eventually see such a clause being justified, even individually exempted, but unfortunately the ECJ did not provide any concrete advice for such an analysis in practice to be made. This case highlights the hurdles which luxury brands face when using selective distribution networks to generate and control brand exclusivity.

Annabelle Gauberti, founding partner of London and Paris law firm Crefovi , specialised in advising the creative industries and president of the international association of lawyers for creative industries ialci. For more information about LexisNexis products and solutions, please connect with us through our corporate site.

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