Overview
A few days after the Coty judgment,[1] the German Federal Court of Justice[2] (Bundesgerichtshof or BGH) upheld the decision of the Higher Regional Court of Düsseldorf in the Asics case,[3] confirming that Asics, the sport shoes manufacturer, may not prevent its selective distributors from cooperating with price comparison engines to promote the Asics branded products.
1. Background
From 2012 to 2015, the German subsidiary of Asics set up a selective distribution system which imposed a number of limitations on the online sales activities by authorized dealers in Germany. In particular, Asics prohibited its authorized distributors from (i) selling through online marketplaces such as Amazon and eBay, (ii) using price comparison engines, and (iii) using Asics trademark on the distributor’s online search advertisements.
The Federal Cartel Office’s Decision
Back in 2015, the Federal Cartel Office (FCO) considered that the above restrictions would lead to a situation where online sales would be concentrated in the hands of the brand suppliers. With reference to the use of price comparison engines, the FCO concluded that Asics committed a hardcore restriction of competition. As to the two remaining contractual limitations, the FCO did not provide any guidance and left open the question whether such restrictions infringed German and EU competition law.
Since the FCO treated this case as a ‘pilot case’ to launch a broader debate on the restrictive effects of online sales bans imposed on authorized distributors, it did not impose a fine on Asics. While in 2015 Asics agreed to amend its distribution system to remove the three above restrictions, it decided to appeal the FCO’s ruling with reference to price comparison engines before the Higher Regional Court of Düsseldorf.
The Position of the Higher Regional Court of Düsseldorf
In April 2017, in line with the FCO’s decision, the Düsseldorf Court ruled that a ban on the use of price comparison engines by authorized distributors constituted a hardcore restriction. In its reasoning, the Court drew a parallel with the Pierre Fabre judgment, where a ‘blanket ban’ on online sales in the context of a selective distribution system has been considered as a hardcore restriction unless objectively justified. In the case at hand, in order to justify such a restriction, Asics put forward the argument that the ban on price comparison engines was necessary to (i) protect the company’s brand name and (ii) offer adequate pre-sale services. However, those justifications were not sufficient to sway the Court’s opinion that this limitation amounted to a hardcore restriction of competition.
2. The Judgment of the German Federal Court of Justice
The BGH ruled that (i) Asics cannot prohibit its authorized dealers from using price comparison engines and (ii) such a violation is so blatant that no guidance from the Court of Justice of the EU (CJEU) was needed. According to the BGH, authorized distributors should remain free to advertise their branded goods through price comparison engines as such tools allow them to easily reach a much greater number of potential customers.
Specifically, the BGH considered that an absolute ban on the use of price comparison websites which is not linked to specific quality requirements amounts to a hardcore restriction under the Vertical Block Exemption Regulation (VBER).
The Parallel with the Pierre Fabre Case
It is interesting to note that while the FCO and both judicial bodies reached the same conclusion, they interpreted the same precedent differently: (i) both the Higher Regional Court of Düsseldorf and the FCO relied on a broad interpretation of the Pierre Fabre case (where the CJEU considered that an obligation imposed on Pierre Fabre’s distributors to sell cosmetic and personal care products exclusively in a physical space was illegal, as it constituted a de facto ban on online sales) to conclude that Asics’ ban on price comparison engines was equivalent to an absolute ban on online sales; (ii) on the other hand, the BGH held that the ban in Pierre Fabre and the one in Asics differed in scope because Asics’ restriction was more limited as it did not impose a blanket ban – i.e. it did not prohibit its authorized distributors from setting up and selling through their own online stores – but rather from using online price comparison engines. Therefore the two prohibitions, both falling under the hardcore restriction label, differ in terms of degree: one is an absolute ban, while the other only applies to price comparison websites. Interestingly, the BGH seems to suggest in its judgement that suppliers may impose bans on certain price comparison websites for qualitative criteria, e.g. because of the low quality of their service. However, such a ban would have to be calibrated to allow for the use of other price comparison websites that meet the quality criteria imposed by the brand suppliers.
The Parallel with the Coty Case
A few days before the BGH adopted its decision, the CJEU issued its judgment in the Coty case. This gave the BGH the opportunity to draw the following distinction between Asics and Coty: in the Coty case, the prohibition only affected the promotion and resale of luxury products by selective retailers via online marketplaces[4]. In practice, customers could still find offers proposed by the selective distributors through online search engines. By contrast, in Asics, the prohibition on the use of price comparison tools had a more serious impact as to the visibility and findability of the dealers, whose offers (especially of those smaller retailers) could not be found in an easy way. In short, Asics’ absolute prohibition to use price comparison tools was perceived as equivalent to a blanket restriction to use the Internet as a sales channel, which, according to the BGH, seriously restrict the ability of small selective retailers to compete effectively against the brand.
Furthermore, the BGH distinguished Coty from its assessment in Asics by holding that: (i) Coty’s authorized distributors were still allowed under certain conditions to advertise their products on marketplaces and online search engines; (ii) Asics’ products are not luxury goods; and (iii) Asics also prohibited its distributors from using the Asics brand name on third party websites, which was not the case in Coty. Therefore, unlike Coty, Asics did put in place a combination of online restrictions, which taken as a whole, seriously hindered the ability of the members of its distribution network to operate in the online space.
3. Price Comparison Engine as a Tool for Online Advertisement
According to the European Commission (EC), “[p]rice comparison tools are not a distinct online sales channel, but offer retailers the ability to present and advertise their online offerings to a wider audience, increase the findability of the online offering and generate traffic to the retailer's own website. Customers can filter out those offers which they consider suitable based on the information provided on the price comparison tool. They can then access the websites of the relevant retailers and compare their offerings, if desired.”[5]
The EC has taken a very positive stance on price comparison engines: (i) “price comparison tools allow customers to obtain an overview of a number of online retailers which are selling certain products and their respective offer;” (ii) “within a selective distribution system, they make it easier for customers to find those authorized sellers which sell the product via the internet;” (iii) they directly increase transparency for customers and, at last but not least (iv) they represent an important mechanism to facilitate price competition in the online space.[6]
This said, the EC also recognizes that brand owners are allowed under the VBER to require from their dealers that they abide by specific quality standards, provided that they are equivalent to those imposed on brick and mortar stores. Therefore, brand owners should closely link any restriction on the use price comparison tools with objective quality criteria, provided that they are proportionate, applied uniformly and are consistent with the principle of equivalence.
Finally, the BGH judgment appears to echo the EC as it confirmed the importance of price comparison engines for: (i) consumers to make purchasing decisions based on comparable offers and transparent prices and (ii) small and medium-sized dealers to reach a potentially large pool of customers to compete in the highly concentrated running shoes market in Germany.
4. Conclusion – Quality Standards Above All
The Asics saga highlights an important distinction drawn by the EC in its final report on the e-commerce sector inquiry between marketplaces and price comparison tools. In particular, the EC stated that (i) those two online platforms differ in a number of ways and (ii) an absolute ban to use price comparison engines – which is not bound by quality requirements – may potentially restrict the “use of the Internet as a sales channel and amount to a hardcore restriction.”[7] This is because, while third-party marketplaces represent a distinct way to sell online, price comparison websites represent a ‘window’ which redirects consumers directly to the dealer’s website. As a result, by restricting the use of price comparison engines, a brand owner may potentially restrict (i) the consumers’ ability to find offers for the products on the Internet, as well as (ii) passive sales.
In conclusion, it appears that both the EC and the German courts are broadly in alignment on the issue of price comparison engines, including on the differentiated treatment to be reserved to such restrictions versus marketplace bans. Further, the BGH judgment signals that Coty can be distinguished and be held inapplicable on at least two grounds: (a) the contractual limitation is different in content and scope and (b) the limitation has to be assessed in light of the overall context, including other restrictions that may further aggravate the inability of selective retailers to resell on the Internet.
[1] Case C-230/16.
[2] The German Federal Court of Justice issued its decision on December 12 and published it on January 19.
[3] This decision rejected an appeal submitted by Asics against the decision of the German Federal Cartel Office (FCO) dated 2015.
[4] In the Coty case, the Court ruled, inter alia, that the prohibition imposed on authorized distributors, members of a selective distribution network for luxury goods, to sell on third-party platforms in a discernible manner, does not amount to a hardcore restriction of competition.
[5] Commission staff working document accompanying the document Report from the Commission to the Council and the European Parliament - Final report on the E-commerce Sector Inquiry (SWD 2017/154 final), para 545.
[6] Ibid, para 546 -548.
[7] Ibid, para 552.
