When is it possible to block the online sales of distributors or members of one's own sales network? Active sales, passive sales, geoblocking... Let's have some clarity!

L'e-commerce is undoubtedly a tool with extraordinary potential: it makes it possible to address a very wide range of users, to target offers with great precision at well-defined customer categories, and for the end consumer, let's not forget, it is undoubtedly convenient!

In view of its potential, this tool must be used with great awareness by any entity wishing to operate in the e-commerce sector; a strategy must be carefully worked out marketingIt is necessary to take into account the logistical complexities involved and to comply with increasingly complex and binding regulatory requirements (think only of the privacycertainly made more complex following the entry into force of the GDPR).

Furthermore, given the transversality of the webthe use of e-commerce contributes significantly to making the increasingly transparent prices and this not infrequently clashes with the manufacturer's distribution strategies, often aimed at protecting the brand and creating a pricing policy that is as controlled as possible.

1. The European Commission's analysis of the impacts of e-commerce.

The European Commission recently carried out an investigation into the trade impacts that thee-commerce has on the market and consumers, concluded with the drafting of the "final report on the e-commerce sector enquiry."[1] Here are some insights into the conclusions reached by the Commission:

[Through e-commerce, price transparency has] increased [and] consumers are [...] able to immediately obtain and compare product and price information online and quickly switch from one channel (online/offline) to another."[2]

[...]

The ability to compare product prices between different online retailers leads to increased price competition for both online and offline sales[3] and alternative online distribution models, such as online marketplaces, have enabled retailers to reach customers more easily [...] with limited investment and effort."[4] 

This analysis paints a very effective picture of the reality of sales online, leading increasingly to one:

  • greater transparency on prices;
  • easier to reach a very large customer base, even beyond the territorial limits possibly imposed by the distributor.
2. Can the manufacturer block the online sales of its distributors? Regulation 330/2010.

Aware of these risks, the manufacturer, in order to defend its strategy, often decides to impose limits on its distributors' use of this medium, prohibiting them from selling online (sometimes also requiring distributors to apply the same restriction to their buyers), or preventing them from selling online outside the territory assigned to them (on this subject see also The mixed system: when the manufacturer chooses to adopt both exclusive and selective distribution).

At this point, the question arises: can the manufacturer prevent its distributor from selling online?

To answer this question, one must start with theArticle 101(3) of the Treaty on the Functioning of the EU (TFEU). This rule ban agreements and concerted practices of enterprises "which have as their object or effect the prevention, restriction or distortion of competition within the common market"This prohibition includes agreements that prevent the distributor from selling to customers domiciled outside the territory.[5]

In any case, European legislation derives specific exceptions which are fixed in the Regulation No 330/2010  concerning the so-called '.vertical agreements', i.e. agreements for the distribution and supply of goods or services concluded between undertakings each operating at a different level of the production or distribution chain. This regulation must be interpreted and supplemented in the light of the Commission Guidelines (LGC), published on 20 April 2010, which, among other things, expand on the topic of restrictions on e-commerce.

The European legislation referred to above prohibits theArticle 4 of the Regulation agreements that prevent the distributor from selling to customers domiciled outside the territory. In any event, in order to prevent a manufacturer from dividing its network of distributors into different territories, it allows restrictions only on the so-called '.active sales"[6] in the exclusive territory or to the exclusive customer base of the supplier, while not allowing the so-called '.passive sales. "[7]

As for the online salesthe Guidelines (point 52) specify that they are generally to be regarded as "passive", with the consequence that, in principle, no distributor may be prevented from using internet to sell their products. In particular, it is made express prohibition to negotiate agreements whereby the distributor agrees to:

  1. redirecting consumers to the site internet of the manufacturer or other distributors with territorial exclusivity;
  2. interrupting transactions online of consumers following the ascertainment of their geographical area of residence through their credit card data;
  3. limit the proportion of total sales made via internet;
  4. pay a higher price for products intended for resale online compared to those for traditional outlets (para. 52 LGC).

It is therefore not possible to prevent a distributor or retailer from setting up its own site for sales onlinelet alone use digital platforms (e.g. Amazon, E-bay, Alibaba, etc.) for marketing.[8] The manufacturer can find its products online, supplied by the distributor or by the shop itself supplied by the distributor, without being able to prevent this process, let alone control it (on this topic see also article "Exclusivity clauses and vertical economic agreements in the European context: e-commerce and territorial exclusivity"by colleague Vittorio Zattra).

The distributor, by the way, will not be obliged to accept all orders from customers outside its territory: in order to avoid the risk that foreign customers might assume that the offer is directed at them, for the sole reason that they have visibility of the offer on their device, it is advisable to indicate directly on the site that the offer does not concern sales involving the delivery of goods abroad. This clause is also in line with the new regulation 302/2018 on the CD. geoblockingon measures to prevent unjustified geographical blockades and other forms of discrimination based on the nationality, place of residence or place of establishment of customers within the internal market.

This regulation (mentioned here only briefly), aims to prevent unjustified geographic blockades or other forms of discrimination based directly or indirectly on the nationality, place of residence or establishment of customers: the regulation in fact removes the blockade, but does not oblige customers to sell outside their own country or to have the same prices for the whole of Europe.[9]

3. Court of Justice rulings on online sales.
3.1. The Pierre Fabre Case.

However, the Court of Justice in the case Pierre Fabre C-439/09 decided that the absolute ban on the use of internet imposed by a manufacturer on a distributor, constitutes a restriction that is not in line with the provisions of Regulation 330/2010, provided that the manufacturer demonstrates that this prohibition does not is objectively justified.

One (other) question arises: when is such a restriction justifiable and to what extent?

3.2. The Coty Germany GmbH case.

The Court in its recent judgment of 6 December 2017,  C-230/16 Coty Germany GmbH clarified that in a system of selective distribution[10] of luxury products, a manufacturer (in this case Coty) is authorised to impose a clause on its distributor allowing it to sell the products via internet, but on condition that such sales activity online is realised through an 'electronic shop window' of the authorised shop and that it is thus preserved the luxurious connotation of the products.

In that case, the Court decided that a clause preventing the dealer not so much from using internet to sell/promote the goods purchased from the manufacturer, but to market them through digital platforms such as Amazon and the like. This is because the quality of the products:

"results not only from their material characteristics, but also from the style and image of prestige that gives them an aura of luxury, because such an aura constitutes an essential element of these products in order for them to be distinguished by consumers from other similar products."

In conclusion, it can be said that the manufacturer/supplier, once it has authorised a distributor to handle its goods, may not prevent the latter from using e-commerce to sell them also beyond the pre-established boundaries, invading the exclusive territory reserved for other distributors, provided that the end customer's request can be considered as spontaneous and not specifically solicited by the distributor.

There is also the possibility for the supplier to impose, in any case, on its distributors certain quality standards for the presentation of products, or specific sales methods consistent with its distribution system, provided that these conditions do not directly affect the quantity of goods marketable via internet or on the prices practicable on that platform.

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[1] Report from the Commission to the Council and the European Parliament, Final Report on the E-Commerce Sector Inquiry, 10.5.2017.

[2] Id. No. 11

[3] Id. No. 12

[4] Id. No. 14

[5] On this point See Bortolotti, Distribution Contracts, Wolters Kluwers, 2016, p. 746 ff.

[6]  The LGCs, paragraph 51, define active sales as: "active contact with individual customers, e.g. by mail, including by sending unsolicited e-mails, or by visits to customers; or active contact with a specific group of customers, or with customers located in a specific territory through advertisements in the media or via the Internet or other promotions specifically addressed to that group of customers or to customers in that territory.

Advertising or promotions that are only attractive to the buyer if they (also) reach a specific group of customers or customers in a specific territory are considered active sales to that group of customers or customers in that territory. "

[7] The LGCs, paragraph 51, define passive sales as: "the response to unsolicited orders from individual customers, including the delivery of goods or the provision of services to such customers. Passive sales are advertising or promotions of a general nature that reach customers within the (exclusive) territories or customer groups of other distributors, but which are a reasonable way to reach customers outside those territories or customer groups, for instance to reach customers within one's own territory.

General advertising or promotions are considered a reasonable way to reach these customers if it is attractive for the buyer to make such investments even if they do not reach customers within the (exclusive) territory or (exclusive) customer group of other distributors'..

[8] On this point see Stefano Dindo, E-Wine, Legal-economic aspects of wine communication and distribution online, G. Giappichelli Editore, p. 47, 2018.

[9] On this point see Stefano Dindo, E-Wine, Legal-economic aspects of wine communication and distribution online, G. Giappichelli Editore, p. 41, 2018.

[10] There is no definition of selective distribution, however the Metro judgement, Court of Justice, 25.9.1977, already indicates the criteria for its identification: a) the products must be products whose quality or technological content require a selective distribution system, which safeguards their quality and correct use; b) the choice of distributors is made according to objective criteria of a qualitative nature; c) the defined criteria must not go beyond what is necessary.