Parallel sales and the principle of trade mark exhaustion.
Can unauthorised distributors make parallel sales? When can the principle of trademark exhaustion be invoked? The Amazon, Sisley and L'Oréal cases.
Like
has already been explained (cf. La
selective distribution. A brief overview: risks and benefits), the
selective distribution has the function of protecting the marketing of
products which, depending on their characteristics, require a
resale more selected and cared for than consumer products.
In
such cases, the producer is inclined not so much to focus on the breadth and
capillarity of its sales network, as much as to favour a limitation of
commercial channelspreferring to entrust their products to a small
number of specialised dealers, chosen according to certain criteria
objective dictated by the nature of the products: professional competence (for
as far as would-be distributors are concerned),[1] quality
of the service offered, i.e. prestige and care of the premises in which the
retailers will have to carry out their activities.[2]
This system, regulated by the EU Regulation 330/2010 on Vertical Agreements,[3] complies with Art. 101 § 3 of the Treaty (and therefore does not fall under general prohibition laid down in § 1 of that Article), essentially if:
- "the choice of dealers is made according to objective criteria of a qualitative nature, concerning the professional qualification of the dealer, his staff and his facilities'.,
- which "these requirements are required indiscriminately for all potential resellers".,
- and that "are assessed in a non-discriminatory manner".[4]
With
reference to the type of products for which it may be
justified the use of a selective system, even though the Regulation
330/2010 makes no mention of this, as it merely gives a definition
of this system, it is considered that it is only reserved for products of
luxury, high quality and technologically developed.[5]
One
of the essential elements linked to selective distribution, it is certainly
related to the fact that, in such a system, the producer can impose the obligation of
not sell to parties (other than end users) not belonging to
to the network (formerly Article 4 (b) (iii)).[6]
According to
advantage is related to the limits that can be imposed on members of the system
selective, regarding the possibility of selling products online. On
point, European case law has stated that, while a
manufacturer of a non-selective system, it cannot prevent its distributors
to sell online,[7]
in a selective system, the producer is authorised to impose on its
distributor a clause allowing products to be sold through internet, a
provided that such sales activity online is
realised through an 'electronic shop window' of the authorised shop and that
thus preserving the aura of luxury and exclusivity of these
products.[8]
Moreover, case law[9] considered legitimate a contractual clause that prohibits authorised distributors of a selective distribution system to make recognisable use of third-party platforms for the Internet sale of contractual products, provided that this is aimed at safeguarding the image of those products and that it is established indiscriminately and applied in a non-discriminatory manner.
1. Parallel distribution by unauthorised distributors.
In any case, it is highly common in practice that, even if the manufacturer creates a selective system, parallel distributions develop within the market itself. This may be due to the fact that very often manufacturers only distribute 'selectively' in the most important markets, while reserving a 'classic' system (i.e. through an exclusive, non-selective importer) for the other areas, thus allowing (and facilitating) the 'classic' distributors to sell products also to parallel distributors within a selective market.[10]
Read also Parallel Sales in the EU. When and to what extent can a manufacturer control them? e Selective and exclusive distribution: the mixed system selective.
What
therefore happens if the manufacturing company takes over the unauthorised sale of
their products on a platform e-commerceby a
distributor/intermediary outside the selective distribution network?
È
clear, in fact, that in such a situation the relationship between producer and third party is
of a non-contractual nature and one must therefore understand what (and if any) instruments
legal provisions enabling the manufacturer to defend itself against such extraneous sales
to the selective system.
In order to answer this question, it is necessary to take a brief step back.
2. The principle of Community exhaustion.
As is well known, the European legal system guarantees the (fundamental) freedom of movement of goods; the child of this freedom is the principle of Community exhaustionintroduced with European Directive 2008/95/EC in Article 7 and transposed into Italian law by thearticle 5 c.p.i.[11]
According to
this principle, once the holder of one or more property rights
industry enters directly or with its own consent[12]
(e.g. by the licensee) to market a good in the territory of the Union
the European Union, the latter loses its exclusive rights.
The exclusive
is therefore limited to the first act of marketingwhile none
exclusivity may subsequently be claimed by the holder of the design,
on the circulation of the product bearing the mark.
The
principle of exhaustion, however, has an important exception: the second
paragraph of Article 5 c.p.i. contains, in fact, a safeguard rule that, with
reference to the trade mark, allows the proprietor, even when he has placed the
product on the market and, therefore, 'exhausted' the right, of prevent the
patent suffers a decrease in attractiveness and value.
At
in order to circumvent the fact that the trade mark proprietor may arbitrarily restrict the
free movement on the Community market, the derogation from the principle
of trade mark exhaustion is limited to the occurrence of conditions that
make it necessary to safeguard the rights that are the specific subject of the
property: the second paragraph of Art. 5 of the IPC provides that they must
exist
"reasons
legitimate for the holder himself to object to the further
marketing of products, particularly when the state of these is
modified or altered after being placed on the market".
La
community case law[13]
confirmed that the existence of a selective distribution network can be
included among the 'legitimate reasons' preventing exhaustion, provided that
the marketed product is a luxury or prestige item that
justifies the decision to adopt a selective distribution system.
It will be up to
at national judgetherefore, called upon to judge whether
there are 'legitimate reasons' for the trade mark proprietor to oppose it
further marketing of its products and, therefore, check whether the
selective distribution contracts comply with the law antitrust
European.[14] This
is (to simplify, but far from trivialising) to ascertain:
- the lawfulness of the
products, assessing their nature (i.e. whether they are luxury goods or,
high quality or technologically developed products); - that the third party respects the standard which
the manufacturer requires from its authorised distributors.
In
If not, then if the marketing methods used of the
third do not respect the standard required and are damaging to the trade mark
of the producer, this activity will be exempt from the principle of exhaustion.
In order to give some practical examples and thus try to make this issue as clear as possible for the reader, three recent (and very interesting) judgments of the Court of Milan are given below.
The case of Landoll s.r.l. v MECS s.r.l.
In the
2018 the Court was called upon to decide the following question: Landoll,
company leader in research, development and commercialisation
of professional cosmetics and owner of several brands, provided
selective distribution of their products, based on standard qualitative
selected, aimed at protecting the image of luxury and prestige. The applicant
detected the unauthorised offer for sale of its products on a
platform e-commerceattributable to the defendant. The applicant has therefore
sought an injunction against the respondent to continue its activity
of sale.
The
Court recognised that the infringement of the
appellant on its registered trade marks, it was inferred from the
"assessment of the existence of a
effective harm to their image of luxury and prestige that follows
from examination of the how products are presented to the public [...] is
on an e-commerce platform, which on its websitemanifested in the
their presentation to be plainly assimilated to any generic product of the
even lower quality sectors."[15]
Ha
therefore prevented the respondent from further advertising,
marketing, offer for sale of the plaintiff's products.
Case Sisley Italia s.r.l. v. Amazon Europe Core s.a.r.l.
In
this dispute,[16] Sisley
Italia s.r.l., a company also leader in the cosmetics sector and
organised through a selective distribution system, brought an action for
the Court of Milan prevented Amazon from marketing in the territory
Italian products bearing the Sisley trademarks, considering that the manner in which they are placed
commercially used by the defendant violated the standard required
by Sisley to its authorised distributors. The device states that on the
Amazon portal
"Sisley products
are displayed and offered mixed with other items, such as products for the
household and cleaning products, which are however low-profile and of little value
economic. Also in the 'Luxory Beauty' section [...] the Sisley brand is
approached to low-end brands of very high quality, reputation and price
inferior or far less prestigious."
La
judgment continues:
"Where you
consider that, in its contracts, Sisley explicitly requires that the
their products are sold in luxury perfumeries or in departments
specialising in perfumery and cosmetics in department stores, with staff
qualified, in a given urban context, undoubtedly appears
inadequate, compared to the required standards, the sale of products
in question next to microwave containers, cleaning products for the
floors and for pets,'
The Court of Milan therefore recognised that the marketing and promotion of such products on the same internet page as products of other brands - even of lower market segments - was "detrimental to the prestige and image of the Sisley brand. "
But what happens if products are imported from a non-EU country? The L'Oréal Case.
Like
condition because the exhaustion formerly article 5 c.p.i.
takes place is that the first marketing was carried out by the
holder (or with his consent) and that such entry is made
within the single market.
Different
the situation where the first entry into the single market is made by
Unauthorised third parties: the jurisprudence of the Court of Justice since 1982
decided that if the marketing of the protected good is carried out by the
holder outside the Community, the latter may assert his right
to oppose importation into the Union by a distributor
non-EU.[17]
Applying
these principles the Court of Milan[18]
prohibited IDS International Drugstore Italia s.p.a. from offering for sale
and marketing, in any manner or form, including the use of internet
and of social mediaof products L'Oréal. These products
had indeed been purchased by IDS from a non-EU distributor,
who had bought them directly from the manufacturer.
Place
that the first marketing within the EU had not been
carried out by the owner (or with his consent), he continued to
hold, pursuant to arts. 5 and 20 c.p.i., the right to oppose importation
parallel from non-EU countries without his consent.
Different
issue would be where the trade mark proprietor consents to the marketing
on the market in a given EEA Member State, in which case he exhausts
its intellectual property rights and, therefore, can no longer prohibit the importation
in a different Member State.
[1] Consider the
decision Grundig approved in 1985 by the Commission, in which
presence was required "of qualified personnel and an external service
with the technical expertise to assist and advise customers',
as well as 'the technical organisation necessary for the storage and
timely supply of buyers'; 'present and display products
Grundig in a representative manner in special rooms, separate from other
departments, and whose appearance reflects Grundig's market image'.
[2] On this point cf.
PAPPALARDO, The Competition Law of the European Union, p. 409, UTET,
2018.
[3] defining distribution
selective as: "a distribution system in which the supplier
undertakes to sell the goods or services covered by the contract, either directly or
indirectly, only to distributors selected on the basis of criteria
specified and in which these distributors undertake not to sell such
goods or services to unauthorised resellers in the territory that the supplier has
reserved for such a system."
[4] Metro Judgment I,
25.10.1977 and Case C-31/80, L'Oréal v PVBA. This orientation was confirmed
also from the Commission's Guidelines at No. 175, which state that "In
gender, it is considered that selective distribution based on purely
quality does not fall under Article 101(1) because
does not lead to anti-competitive effects, provided three
conditions. Firstly, the nature of the product in question must make
selective distribution system in the sense that such a system
must be a legitimate requirement in view of the
characteristics of the product in question, to preserve its quality and
ensure their proper use. Secondly, the choice of dealers
must take place according to objective criteria of a qualitative nature established
indiscriminately and made available to all potential resellers and
applied in a non-discriminatory manner. Thirdly, the criteria established do not
must go beyond what is necessary."
[5] In any case, an answer can be found in the Commission's Guidelines, where in No. 176, it is stated that: "if the characteristics of the product do not require selective distribution [...], such a distribution system does not generally lead to efficiencies that outweigh a significant reduction in intra-brand competition. If appreciable anti-competitive effects occur, the benefit of the Block Exemption is likely to be withdrawn". See also, n. 25, case Coty Germany, judgment of 6.12.2017, which provides:
[6] In this regard, one
recalls what the Court of Justice stated in the case Metro-Saba
IJudgment of 25.10.1977, at para. 27 ".Any sales system
based on the selection of distribution points inevitably implies -
otherwise it would make no sense - the obligation for wholesalers who are part of the
network, to supply only authorised dealers'.
[7] Case Pierre Fabre, judgment of 13.10.2011.
[8] Case Coty Germany, judgment of 6.12.2017.
[9] Cf.
previous note.
[10] In that case, the
manufacturer may not impose a ban on passive sales, in the
resellers in areas where the system does not exist
selective, but only prohibit it, pursuant to Art. 4(b)(i), from selling
active.
[11] Art. 5,
paragraph 1, c.p.i. (Exhaustion), "The exclusive faculties conferred by this
code to the holder of an industrial property right are exhausted one
once products protected by an industrial property right are
put on the market by the holder or with his consent in the territory
State or in the territory of a Member State of the European Community or of the
European Economic Area.'
[12] The practice
decision-making and European case law have made it clear that one has the consent
when the marketing was carried out by a controlled undertaking
by the intellectual property right holder or an enterprise, as a rule
a licensee, authorised to do so by the holder. Exhaustion occurs
when the protected product has been placed on the market by the holder of the
right "with his consent or by a person bound to him by ties of dependence
legal or economic' (sent. Keurkoop, cit., no. 25). On this point Cf. Pappalardo, The right
European Union competition, p. 875, 2018, UTET.
[13] Case Copad SA, judgment of 23 April 2009, "Where the marketing of luxury goods by the licensee in breach of a clause in the licensing contract is nevertheless to be regarded as having taken place with the consent of the proprietor of the trade mark, the latter may rely on that clause to oppose a resale of those goods on the basis of Article 7(2) of Directive 89/104, as amended by the Agreement on the European Economic Area, only if it is established, having regard to the circumstances of the case, that such resale damages the reputation of the trade mark. "
[14] On this point, cf. Fratti, Selective distribution of luxury cosmetics: the Court of Milan clarifies the prerequisites for the exclusion of the principle of trade mark exhaustion.
[15]
Court of Milan, Order of 18.12.2018. See previous footnote.
[16] Court of Milan, order of 3.7.2018
[17] Cf. Pappalardo,
op. cit., p. 878.
[18]
Court of Milan, Order of 19.11.2018, see footnote 12.
Parallel Sales in the EU. When and to what extent can a manufacturer control them?
When we speak of parallel sales, we are referring to imports alongside those made by an 'official', i.e. territorially competent, importer[1]Parallel traders enter the market reserved for exclusive distributors, without having direct access to the supplier, which only supplies authorised dealers.
Parallel trade, over the years, has taken very diverse forms and has often allowed the emergence of 'alternative' trade networks, which have flanked the official ones set up by the manufacturer; sometimes they are fed by the exclusive distributors themselves, who, having purchased the goods from the manufacturer, find it cheaper to resell them to parallel traders, with whom they have established trade relations; other times, parallel traders procure the goods from retailers in another country, where market prices are lower.[2]
1. Is an exclusive sales system that blocks parallel distribution lawful?
EU legislation has been confronted with this phenomenon from the very beginning and has had to try to find a balancing between, on the one hand, the free trade in goods and, on the other hand, the commercial interests of individual producers to divide up the different European markets through the appointment of exclusive dealers. The Commission's approach has always been to allow manufacturers to create networks by appointing exclusive dealers, so that they could more easily manage the different European markets. The 'compromise' that was reached was to create a clear dividing line between the forms of exclusive 'open' distributionwhich are considered permissible in principle, and so-called 'closed' exclusivities, which are almost always considered unauthorised[3].
The first forms are characterised by the fact that the dealer obtains the right to be the only party to be supplied by the manufacturer in a given territory. In any case, the position which is granted to the latter is not a 'monopoly', since parallel importers, in the manner and within the limits which will be described below, may purchase goods from third parties (wholesalers or dealers in other areas), and then possibly also resell them in the dealer's exclusive territory.
In contrast, theexclusive 'closed' is characterised by the fact that the dealer is granted perfect territorial protection by imposing on all distributors in the network a prohibition not to resell to persons outside their area, and a further obligation to impose this prohibition on their purchasers as well, and so on.
This approach was taken in the (now distant) decision Grundig[4]which the Commission has never deviated from, where it was deemed contrary to the principles of the European single market, the absolute protection of dealers and the creation of closed exclusive distributions, through, for example[5]:
- export ban imposed by suppliers on distributors;
- supplying traders known for their resale activities outside the established areas;
- price differentiation according to destination;
- reduction or outright abolition of discounts to wholesalers who had made unwanted exports[6];
- Reducing the quantities usually sold to wholesalers, with the aim of discouraging parallel exports.
The Court therefore held not only that distribution contracts with absolute territorial protection fall under the prohibition of theArticle 101(1) TFEUbut even that such agreements are prohibited solely on the basis of their restrictive object, without any market investigation being necessary to ascertain the effects such bans actually have on the market.
2. Regulation 330/2010: active and passive sales.
The Court's approach was also confirmed by the Regulation 330/2010on vertical sales. The Regulation, on the one hand, empowers market sharing through the granting of open exclusivity[7]On the other hand, Article 4(b) provides for the validity of contractual clauses imposing on importers the ban on active sales [8] (and not passive[9]) in the exclusive territory or to exclusive customers reserved for other distributors. Importantly, the exception is not limited to the prohibition of active sales in the exclusive territory, but also covers the ban on sales to exclusive customersthat is to say, that which the supplier reserves to itself, or has reserved for another purchaser.
The supplier, therefore, may not merely prohibit the distributor from making sales outside a zone or to a group of customers, since the prohibition, in order to be lawful, must relate to active sales in a zone or to customers exclusively reserved to a different distributor, or to the supplier itself.
The grantor may therefore prevent its exclusive dealers from taking initiatives aimed at conquering parts of the market in zones other than those assigned to them; in any event, the prohibition of out-of-zone sales may not be imposed for passive sales, i.e. the response to unsolicited orders from individual customers outside the exclusive zone.
3. Internet sales and the impact on parallel sales.
The phenomenon of parallel distribution certainly developed with the advent of Internet. The web being a platform that, by definition, can be visited "worldwide"has significantly increased the potential of individual links in the distribution chain to be visible (and thus sell) in territories exclusively reserved for other players (on this topic see Can a manufacturer prevent its distributors from selling online? Active sales, passive sales and geoblocking.).
Although there are substantial differences between sales online and sales offlineit can certainly be said that the principles set out in the preceding paragraph apply equally to both types of market. The powers and limits of the manufacturer to prohibit and direct the sales of its dealers are the same for traditional and electronic commerce: it will therefore be essential to understand, even in this context, the distinction between active and passive sales.
According to the Orientations of the Commission, the mere existence of an Internet site must in principle be regarded as a form of passive selling. Indeed, it reads:
"If a customer visits the Internet site of a distributor and contacts him, and if that contact results in a sale, including actual delivery, this is considered a passive sale. The same applies if a customer decides to be informed (automatically) by the distributor and this results in a sale. " [10]
Otherwise, it must be considered an active sale:
"Online advertising specifically targeted at certain customers [...]. Banners showing a territorial link on third party websites [...] and, in general, efforts to be found specifically in a particular territory or by a particular customer group constitutes active selling in that territory or to that customer group [including] the payment of a fee to a search engine or online advertising provider to present advertisements specifically to users located in a particular territory. "
The appreciable expansion of sales via the Internet has had the effect of opening up considerable space for intra-brand competition and parallel distribution, and this has certainly also been favoured by European case law, which tends to favour the use of this tool also by the supplier's dealers and intermediaries.
Indeed, following the rulings Pierre Fabre of 13.10.2011[11]an absolute prohibition on distributors from using the internet for the distribution of purchased goods is to be considered fundamentally impermissible. A limit to this dispositive power was imposed by the judgment of 6 December 2017 Coty Germany GmbH[12]where the Court clarified that in a system of selective distribution 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 this activity is carried out in such a way as to preserve the luxurious connotation of the products.
The most recent decision Guess of December 2018[13]in which the Commission fined the parent company EUR 40 million for imposing a ban on retailers selling contractual products via internet or any other electronic or computer system, without the prior written consent of Guess same.
Also linked to the Internet is the question - which would require much more in-depth study on its own - of whether a manufacturer can directly sell on a platform online products at lower prices than those recommended to their dealers. Indeed, the question arises whether such conduct can be considered contrary to the performance of the contract in good faith formerly Article 1375 of the Civil Code. Italian jurisprudence does not yet appear to have ruled on this matter; for the time being, we limit ourselves to recommending that this case be clearly and precisely provided for in the concession contract, since otherwise such conduct could give rise to very complex and burdensome disputes for both parties.[14]
4. Can parallel distribution be avoided by creating a selective distribution system?
One way to avoid the creation of parallel distribution could be the creation of a selective distribution network, since, in this type of distribution, the manufacturer can demand that its goods can only be purchased from certain intermediaries, who comply with the form and quality requirements imposed by the manufacturer (cf. Selective distribution. A brief overview: risks and benefits). It follows that, in a selective distribution system without loopholes, products do not come into the possession of intermediaries or commercial resellers who are not admitted to the network. (cf. The mixed system: when the manufacturer chooses to adopt both exclusive and selective distribution).
However, even this system has advantages, disadvantages and limitations; firstly, it can only be implemented for products high quality and technologically developed.[15]
In addition, Article 4 d) of the Regulation, however, provides for restrictions on the manufacturer's power of direction, which may not prevent the "cross-supplies between distributors within a selective distribution system, including distributors operating at different trading levels." This freedom for each member of the selective network to obtain supplies from other members without hindrance is the necessary counterpart to the exclusion of parallel distribution networks. The Orientations provide in paragraph 58 that:
"an agreement or concerted practice may not have as its direct or indirect object to prevent or restrict active or passive sales of the contract products between the selected distributors, who must remain free to purchase those products from other designated distributors in the network, operating at the same or a different level of trade. Selective distribution may therefore not be combined with vertical restraints aimed at forcing distributors to purchase the contract products exclusively from a particular source."
Last but not least, it is noted that, albeit in a selective distribution, "the producer may impose a no-see obligation on parties (other than end users) outside the network" formerly Article 4(b)(iii), very often in practice many manufacturers distribute 'selectively' only in the most important markets, while reserving a 'classical' system (i.e. through an exclusive importer) for the other zones. In such a case, the manufacturer may not impose a ban on passive sales, vis-à-vis resellers belonging to areas where the selective system does not exist, but only prohibit active sales under Article 4(b)(i).
However, this is without prejudice to the right of the producer, who has legitimately adopted a selective distribution system in order to protect the branded productsto take action against parallel distributors, whose resale methods are such as to damage the image of luxury and prestige - which the manufacturer seeks to defend precisely through the adoption of a selective distribution system - or in any case that there is a confusing effect as to the existence of a commercial link between the trademark owner and the unauthorised reseller. In this regard, we highlight two recent orders of the Court of Milan (cf. Online sales by unauthorised distributors. The Amazon, L'Oréal and Sisley cases). [16]
__________________________________
[1] See definition from Simone Online Dictionaries https://www.simone.it/newdiz/newdiz.php?action=view&id=736&dizionario=11
[2] On this point see Pappalardo, The Competition Law of the European Union, p. 403, 2018, UTET.
[3] On this point see Bortolotti, I contratti di distribuzione, p. 690, 2016, Wolters Kluwer.
[4] Decision Grundig-Costen, 23.9.1964.
[5] On this point see Pappalardo, The Competition Law of the European Union, p. 383, 2018, UTET.
[6] The Commission expressed its opinion in the case Distillers (1978), where the Commission emphasised the fact that rebates can be used to regulate export flows indirectly ".by providing that DCL's UK resellers who export spirits to other EEC countries are charged a different price to that charged when the spirits are resold for consumption on the domestic market, and by also reserving the price discounts only to sales of spirits for resale and consumption in the UK, restrict the freedom of those customers to resell the products in question in another EEC country (...).
The inapplicability of discounts to sales of spirits for export and the application of different prices to the same customers for spirits intended for export and those intended for consumption in the United Kingdom, constitute a clear attempt to prevent parallel imports from the UK into other EEC countries and therefore amount to an express export ban (n. 2, p. 25).
[7] Importantly, however, Regulation 330/2010, contrary to its predecessor 2790/1990, does not mention the "open" exclusivity clause, but it is "automatically" exempted on the basis of the principle of the lawfulness of all clauses not expressly prohibited, laid down in Article 2 of the Regulation.
[8] Le Commission Guidelines (LGC or Orientations) in paragraph 51, active sales are defined as: 'active contact with individual customers for instance by mail, including by sending unsolicited e-mails, or by visits to customers; or active contact with a specific group of customers, or customers located in a specific territory through advertisements in the media or via the Internet or other promotions specifically aimed at that group of customers or 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."
[9] Le LGCPoint 51 defines 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 actions 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 such customers if it is attractive for the buyer to make such investments even if they do not reach customers within the (exclusive) territory or the (exclusive) customer group of other distributors
[10] LGC No. 52
[11] C-439/09, Pierre Fabre of 13.10.2011.
[12] C-230/16, Coty Germany of 6.12.2017.
[13] https://www.bbmpartners.com/news/La-decisione-Guess-della-Commissione-Europea-Una-prima-analisi
[14] Please refer to Dr. Thume's "Paralleler Online-Vertrieb des Herstellers im Spannungsfeld seiner Dispositionsfreiheit und Treuepflicht', Betriebs-Berater, 15.2018, p. 770.
[15] This means that the application of such a system to product types that are not "adequate'", entails the risk of a (albeit hypothetical) withdrawal of the exemption by the Commission, i.e. by the Supervisory Authority, for agreements with effects exclusively on the internal market. On this topic see Pappalardo, Il diritto della concorrenza dell'Unione Europea, 2018, p. 405, UTET.
[16] Orders of 19 November 2018 and 18 December 2018 of the Court of Milan. https://sistemaproprietaintellettuale.it/notizie/angolo-del-professionista/13754-distribuzione-selettiva-di-cosmetici-di-lusso-il-tribunale-di-milano-chiarisce-i-presupposti-per-l-esclusione-del-principio-dell-esaurimento-del-marchio.html
Selective distribution. A brief overview: risks and benefits.
Certain products, depending on their intrinsic characteristics (e.g. the luxury sector, i.e. technically very complex products), often require a more select and careful resale system than consumer products.
In such cases, the manufacturer is inclined, not so much to focus on the vastness and capillarity of its sales network, as to favour a restriction of commercial channelsThey prefer to entrust their products to a small number of specialised dealers, chosen according to certain objective criteria dictated by the nature of the products: professional competence (as far as would-be distributors are concerned),[1] quality of the service offered, i.e. prestige and care of the premises in which the dealers are to carry out their activities.[2]
1. Definition and brief overview.
Selective distribution refers precisely to a distribution system in which products pass exclusively from the hands of the manufacturer to those of authorised dealers, i.e. to those intermediaries who comply with the form and quality requirements of the manufacturer. The EU Regulation 330/2010 on Vertical Agreements For this purpose, it defines selective distribution as:
"a distribution system in which the supplier undertakes to sell the contract goods or services, directly or indirectly, only to distributors selected on the basis of specified criteria and in which these distributors undertake not to sell such goods or services to unauthorised resellers in the territory reserved by the supplier for that system."
According to the Court, a selective distribution is in conformity with Art. 101 § 3 of the Treaty (and does not fall under general prohibition laid down in § 1 of that Article), essentially if there are three fundamental principles:
- "the choice of dealers is made according to objective criteria of a qualitative nature, concerning the professional qualification of the dealer, his staff and his facilities'.,
- which "these requirements are demanded indiscriminately for all potential resellers".,
- and that "are assessed in a non-discriminatory manner".[3]
In certain cases, the manufacturer may add a further barrier in the selection of those who can join its selective network, as it may consider imposing an additional quantitative restrictionthus opting not to automatically admit to the network all retailers presenting the standards required, but also by limiting the number of recognised entities, often calibrated to take into account the economic potential of the different markets where the contractual products are sold.[4]
The European Court of Justice has granted the exemption for quantitative selective distribution systems, recognising that the restriction has the character of indispensability required by Article 101 § 3 of the Treaty, by virtue of a predominantly economic principle: it has held that such a distribution system is lawful whenever admission to the selective system of all qualified resellers has a negative impact on the profitability of the sales network, since "would reduce the sales possibilities of each of these to a few units per year."[5] We recall here briefly the Case Vichy,[6] in which the manufacturer had reserved the products only for pharmacies for certain cosmetic products.
This was due to the fact that in some countries access to the profession of pharmacist was subject to a closed number. Still the Guidelines on Vertical Restraints (n. 175)[7], make it part of the quantitative restriction, the imposition on the supplier to make a minimum turnoverset by the provider, thus indirectly limiting access to the network to all those who fail to reach the set turnover threshold.
With reference to the type of products for which the use of a selective system may be justified, Regulation 330/2010 makes no mention of this, as it merely gives a definition of such a system. In any case, an answer can be found in the Commission's Guidelines, where at no. 176, it is stated that:
"if the characteristics of the product do not require selective distribution [...], such a distribution system does not generally lead to efficiencies that outweigh a significant reduction in intra-brand competition. If appreciable anti-competitive effects occur, it is likely that the benefit of theblock exemption is revoked".
It can, therefore, be said that selective distribution is reserved only for high quality and technologically developed products; this means that the application of this system to product types that are not "adequate'"The risk of (albeit hypothetical) withdrawal of the exemption by the Commission, or the Authority, for agreements with effects exclusively on the internal market.[8]
Let us now briefly analyse what are the peculiarities of a selective distribution system.
2. Selective distribution and prohibition of selling to outsiders.
The first element is certainly related to the fact that in a distribution system, the producer may impose an obligation not to sell to parties (other than end users) outside the network (Art. 4 (b) (iii)).[9]
This advantage, however, is counterbalanced by the prohibition imposed on the provider by Art. 4(c) to restrict the freedom to make "sales active and passive to end users by members of a selective distribution system operating in the retail trade.'
This prohibition differs from what is normally provided for, formerly Article 4 (b) (i), for distribution systems not selective, which allows the supplier to prohibit its dealers from selling only into territories or groups exclusively reserved for other intermediaries.
Having said that, it should be noted that very often in practice many manufacturers distribute 'selectively' only in the most important markets, while reserving a 'classical' system (i.e. through an exclusive importer) for the other zones. In such a case, the producer may not impose a ban on passive sales, vis-à-vis resellers belonging to areas where the selective system does not exist, but only prohibit him, pursuant to Article 4 (b) (i), from active sales (on this point see The mixed system: when the manufacturer chooses to adopt both exclusive and selective distribution).
3. Selling on the Internet and selective distribution.
The consequence that in the selective system, a retailer belonging to the network cannot be prevented from promoting products and advertising, outside its area, to end users, certainly has a disruptive effect, especially when combined with sales online (on this topic see also 'Can a manufacturer prevent its distributors from selling online?"): it is clear that, given the transversal nature of internetallowing a retailer to sell outside its territory has a very important impact (just think of the complexity of managing a pricing policy). If this is coupled with the fact that with the new Regulation 302/2018 on the so-called. Geoblockingthe EU has prevented unjustified geographical blockades based on the nationality, place of residence or place of establishment of customers within the internal market. [10]
This has prompted many manufacturers to prohibit the use of internet. On the legitimacy of the manufacturer to prevent its resellers/retailers from selling onlinea rather articulate and very complex European jurisprudential current has developed, the analysis of which would require a very in-depth study. In order to enable the reader to have a broader overview of this topic, the most important rulings of recent years are briefly summarised here.
The first in the 'series' was the Court's 2011 ruling in the case Pierre Fabre, where it was held that an absolute ban on Internet sales, where not objectively justified, constitutes a restriction by object that excludes the application of Block Exemption Regulation 330/2010.[11]
This was followed by the 2017 judgment in the case Coty Germanywhich (also) established the compatibility with Article 101 of a contractual clause
"prohibiting authorised distributors of a selective distribution system for luxury products aimed, primarily, at safeguarding the luxury image of those products from recognisably using third-party platforms to sell the contracted products via the Internet, where such a clause is aimed at safeguard the luxury image of these productsis established indiscriminately and applied in a non-discriminatory manner, and is proportionate to the objective pursued, circumstances which it is for the referring court to verify."[12]
The most recent decision Guess of December 2018, in which the Commission fined the parent company EUR 40 million for imposing a ban on retailers selling contractual products via internet or any other electronic or computer system, without the prior written consent of Guess same.[13]
4. Cross-selling within the network of selective distribution.
Article 4(d) of the Regulation prohibits "the restriction of cross-supplies between distributors within a selective distribution system, including distributors operating at different trading levels".
This provision gives members of the distribution network the freedom to sell to other members of the network; this is to allow, at least within a 'closed' system, maximum freedom of movement.
_______________________________
[1] Consider the decision Grundig approved in 1985 by the Commission, which required the presence of "qualified personnel and an external service with the necessary technical expertise to assist and advise customers', as well as 'the technical organisation necessary for the storage and timely supply of purchasers'; 'presenting and displaying Grundig products in a representative manner in special rooms, separate from other departments, and whose appearance reflects Grundig's market image'.
[2] On this point, see PAPPALARDO, The Competition Law of the European Union, p. 409, UTET, 2018.
[3] Judgment Metro I25.10.1977 and Case C-31/80, L'Oréal/ PVBA. This orientation was also confirmed by the Commission's Guidelines No. 175, which state that "Selective distribution based on purely qualitative criteria is generally considered to fall outside the scope of Article 101(1) because it does not give rise to anti-competitive effects, provided that three conditions are fulfilled. First, the nature of the product in question must make a selective distribution system necessary in the sense that such a system must be a legitimate requirement, having regard to the characteristics of the product in question, to preserve its quality and ensure its proper use. Secondly, the choice of dealers must be made according to objective criteria of a qualitative nature established indiscriminately and made available to all potential dealers and applied in a non-discriminatory manner. Thirdly, the established criteria must not go beyond what is necessary"
[4] On this point cf. case Omega, Commission Decision of 28.10.1970 and BMW case of 23.12.1977.
[5] Case Omega, Commission Decision of 28.10.1970
[6] Vichy case, Commission decision of 27.2.1992
[7] "Quantitative selective distribution adds further selection criteria that limit the potential number of dealers more directly, e.g. by imposing a minimum or maximum level of purchases, fixing the number of dealers, etc."
[8] On this point see Bortolotti, Distribution Contracts, 2016, p. 720, Wolters Kluwer; Pappalardo, The Competition Law of the European Union, 2018, p. 405, Wolters Kluwer.
[9] In this regard, reference is made to what the Court of Justice stated in the case Metro-Saba IJudgment of 25.10.1977, at para. 27 ".Any sales system based on the selection of distribution points inevitably implies - otherwise it would make no sense - the obligation for wholesalers who are part of the network to supply only authorised retailers.
[10] With the new regulation 302/2018 on the CD. geoblockingregulation on measures to prevent unjustified geographical blocking 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 geographical blockades or other forms of discrimination based directly or indirectly on the nationality, place of residence or place of establishment of customers: the regulation does in fact remove the blockade, but does not oblige customers to sell outside their own country or to have the same prices for the whole of Europe.
[11] Case Pierre Fabre, judgment of 13.10.2011
[12] Case Coty Germany, judgment of 6.12.2017.
[13] https://www.bbmpartners.com/news/La-decisione-Guess-della-Commissione-Europea-Una-prima-analisi
Commercial agent and antitrust law: when the agency contract is considered a vertical agreement.
The purpose of this article is to try to understand whether the agency contract can be considered a vertical agreement within the meaning of European Regulation 330/2010 on vertical agreements and, as such, be subject to the prohibition under Article 101(1) TFEU and antitrust law.
As has already been analysed (cf. exclusivity clauses and vertical economic agreements), the Regulation No 330/2010 provides that vertical agreements between undertakings may not have as their object or effect the prevention, restriction or distortion of competition within the common market and that such agreements, if any, are void pursuant to Article 101(1) TFEU.
In this blog, the applicability of the regulation to the exclusive distributors and to the retailers using e-commerce to distribute contractual products. The purpose of this article is to analyse (albeit briefly) an equally complex and interesting topic, namely whether the agency contracts can be considered vertical agreements within the meaning of the Regulation and, as such, be subject to the prohibition under Article 101(1) TFEU; this question is of particular relevance, given that agency agreements normally contain a number of restrictive covenants such as limitations on the determination of price, territory and clientele.
These restrictions are expressly among those defined fundamentals by Article 4 of the Regulation and the presence of which means that the agreement as a whole loses the benefit of the block exemption provided for by the Regulation[1]. The vertical restrictions that would have the greatest impact on an agency contract would certainly be those relating to the prohibition of:
- determination by the purchaser of the resale price;
- determination by the purchaser of the territory or customers to whom the buyer may sell the contract goods or services;
- restriction of sales (active or passive) to end users;
Hence the importance of understanding when an agency contract is to be considered (under the antitrust) as true and when fakeIf the brokerage contract were to be considered (within the meaning of the antitrust) an agency contract fakethe same would fall under the prohibition of Art. 101, with the result that the principal would not be able to impose limits on the agent with regard to the determination of the price (or at least reserve to him the right to grant discounts on his commission), territory, customers and inhibit him from passive sales to customers outside their area. [11]
The first assessment as to whether agreements concerning commercial representation are subject to the prohibition formerly art 101, § 1, goes back to the "Communication Christmas"of 1962[2]The Commission had excluded, in principle, the sales representative from this prohibition, provided that he did not assume '...'.in the performance of his duties (...) no other contractual risk, except the usual guarantee of the star del credere."[3] The Commission considered that the trade representation agreements,
"have neither the object nor the effect of preventing, restricting or distorting competition", since the representative performs in the market ".merely an auxiliary function [acting] in accordance with the instructions and in the interest of the undertaking on whose behalf it carries on business'.
Over the years, jurisprudential orientations have emerged[4] on the basis of which one can basically state[5] that the principle laid down in Art. 101(1) does not apply to commercial agency contracts where:
- the agent does not assume the risks commercial and financial typical of a distributor/dealer;
- the agent is integrated within the structure distribution of the principal;
- the agency contract is not part of a broader framework of contracts falling under Art. 101.
Similarly, in the Guidelines on Vertical Restraints,[6] the characterising element, in order to be able to understand whether or not an agency agreement is subject to the prohibition, is characterised by the risks assumed by the party qualified (correctly or not) as agent:[7] if the risks are substantially borne by the principal, we are in the presence of a true agency agreement, otherwise an agreement liable to incur the prohibition formerly Art. 101, § 1.
The same Orientations Point 16 states that:
"an agreement will generally be considered [...] agency [...] if ownership of the contract goods [...] does not pass to the agent or if the agent does not himself provide the contract services."
In Orientations several examples of risks outside the typical activity of the agent (in the strict sense) are then enumerated, which occur when the agent:
- acquires ownership of the contract goods[8];
- contributes to the costs related to the supply/purchase of goods covered by the contract;
- maintains, at its own cost or risk, stocks of the contract goods;
- assumes liability towards third parties for any damage;
- assumes liability for non-performance of the contract by customers;
- is obliged to invest in sales promotion;
- makes investments in equipment, premises or staff training;
- carries out other activities in the same product market as the one requested by the principal.
The best doctrine[9] (to which we refer for a more in-depth study of the issue briefly reported here) notes that the Commission's considerations in the Orientations regarding the criteria for distinguishing between agents real e fakes are often "misleading"This is partly due to the fact that the general criteria set out in the Orientations have been taken up (mostly) by a series of case law precedents of the European Court of Justice of a very particular character and this has not allowed the Commission to "consider the way in which 'normal' agents operate, of which [the Commission] was not aware [...]; the Commission has identified a number of criteria that are difficult to apply to the reality of 'normal' cross-border agency relationships'. [10]
Hence a situation of grave uncertaintydistinctive criteria indicated in the Orientations may mislead the reader (e.g. judges and national competition authorities) who relies on them, leading them to qualify as fakes agents, intermediaries who de facto (at least from a civil law point of view) perform a typical agency activity.
_______________________________________
[1] The regulation defines categories of agreements for which, even if there is a restriction of competition within the meaning of Article 101(1), they may be presumed to be exempt from its application.
[2] OJ, No. 139, 24.12.1962, p. 2912 ff.
[3] Id. p. 2922.
[4] Case SugarCommission decision of 2.1.1973, case Vlaamse Reisbureaus decision of the Court of Justice of 1.10.1987, case Vag Leasing decision of the Court of Justice of 24.10.1995.
[5] See on this point Bortolotti, Distribution Contracts, p. 674., Wolters Kluwer, 2016
[6] Point 13) of the Orientations: "The determining factor in defining a commercial agency agreement for the application of Art. 101(1) is the financial or commercial risk assumed by the agent in relation to the activities for which it has been appointed as agent by the principal.
[7] See on this point Pappalardo, The Competition Law of the European Union, p. 321 ff. UTET, 2018.
[8] On this point see the case Mercedes Benz decided by the commission in its decision of 10.10.2001, in which the Court of First Instance held that the purchase of demonstration cars and spare parts was not a sufficient element for the agent to be considered a distributor in its own right.
[9] Bortolotti, Distribution Contracts, p. 675 ff., Wolters Kluwer, 2016
[10] Id. p. 675
[11] The Guidelines, point 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'..
Can a manufacturer prevent its distributors from selling online?
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:
- redirecting consumers to the site internet of the manufacturer or other distributors with territorial exclusivity;
- interrupting transactions online of consumers following the ascertainment of their geographical area of residence through their credit card data;
- limit the proportion of total sales made via internet;
- 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.
_____________________________________
[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.
The obligation of exclusivity and the covenant not to compete in the dealer agreement.
The granting of the exclusive right to the concessionaire is an incidental and non-essential element of the contract, cannot be derived implicitly from the predetermination of an 'area' to the concessionaire himselfas there is no necessary connection between the area and exclusive.
The grantor may not prevent exclusive area dealers from making passive sales outside the territory entrusted to them.
1. Sales concession and exclusivity
In a sales dealership relationship, 'exclusivity' is to be understood as the obligation on the part of the grantor to supply only the dealer with certain products in the area entrusted to him.
Although this obligation is one of the most frequently used agreements, it does not constitute an essential part of the agreement and, therefore, is not necessary for the relationship between the concessionaire and the grantor to be considered valid.[1]
Therefore, if the parties have not expressly agreed to it in the contract, it cannot be inferred either that it exists merely because a sales dealership contract has been concluded, or, even less so, because the dealer has been entrusted with an area (it is not at all unusual, in fact, for a dealer to act in a certain area entrusted to him, but without exclusivity).[2] On this point, we read in Jurisprudence that:
"the granting of the exclusive right to the concessionaire, being an incidental and non-essential element of the contract, cannot be derived implicitly from the predetermination of an 'area' to the concessionaire himselfas there is no necessary connection between the area and exclusive. "
However, it is not precluded that the parties may nonetheless prove that such an obligation exists even in the absence of a written contract and prove by witnesses that, for example, such an obligation arises from an oral agreement, or that it is inferred from the actual development of the relationship (cf. on the subject of agency: Burden of proof in agency contracts). On this point, a 2007 ruling by the Court of Appeal of Cagliari held that:
"In a sales dealership, the attribution of the exclusive right to the dealer is an incidental and non-essential element of the contract, but its existence, if the contract is not in writing, may be proven by witnesses and by any other suitable means (in the present case, the existence of the exclusivity clause was inferred, inter alia, from the fact that the parent company refused direct dealings with third parties by referring them to the dealer, from the advertising in the yellow pages and from the lack of other dealers in the area)."
In case the parties have not indicated thescope of application exclusivity, it must reasonably be understood to extend to the entire area entrusted to the dealer; as to the products, however, it must refer to the contractual products.[3]
2. Passive sales outside the territory.
This being said, the question arises as to whether the grantor, who has undertaken to sell certain products exclusively to an exclusive dealer in an area (e.g. Lombardy and Piedmont), may sell the same products to parties outside the territory, knowing that the same parties (potentially) could resell them in the territory of the dealer himself. The Supreme Court, in a more 'dated' orientation, held that:
"the exclusivity agreement entails, with reference to the area covered and for the duration of the contract, a prohibition to perform, not only directly, but also indirectly, services of the same nature as those forming the subject matter of the contract. [...] The prohibition to trade [...] the same products in the reserved area, [...] required the grantor - in accordance with the duty of fairness that constitutes the internal limit of any contractually assigned subjective legal situation - to refrain from any conduct likely to affect the result pursued."
However, this orientation must be updated and 'dropped' into a new regulatory framework, in line with the provisions of the Regulation (EU) No 330/2010 of the European Commission on agreements between companies operating at different levels of the production and distribution chain (vertical agreements).
In particular, Article 4 of the Regulation states that it shall not be unlawful to prevent the purchaser from making active sales in territories or customer groups which the supplier reserves to itself or allocates exclusively to another buyer, provided that the restriction does not also limit sales by the buyer's customers.
To better understand this rule, it is important to make a brief distinction between active sales and passive salesSimplifying, a passive sale can be defined as a 'purchase' in that the initiative is taken by the buyer;[4] active selling, on the other hand, is a consequence of an entrepreneurial strategy and actions of marketing targeted.
In light of the predictions briefly outlined above, a grantor can certainly create an exclusive networkdefining the territories in which their dealers can promote and market their products, but limiting such restrictions to active sales only. The licensor cannot, therefore, prevent exclusive area dealers from accepting and executing passive sales to parties outside the area entrusted to them; what can be excluded and prevented, however, is the area dealer from executing active sales, which are the result of marketing campaigns or commercial strategies carried out outside his territory.
However, the grantor has an obligation to control the network of its concessionaires (unless this obligation is contractually excluded[5]) , being liable for any breaches of exclusivity within its distribution network and, in some cases, even "intervene to counteract the behaviour of other dealers."[6]
Finally, it is emphasised that infringement of the exclusive right:
"constitutes conduct contrary to the duties of fairness and good faith and constitutes a serious breach of contract from which the termination of the contract follows."
3. Sales concession and non-compete obligation
As for thenon-compete obligation by the dealer, it too does not constitute a natural element of the contract and, therefore, in the absence of express provision, the dealer will be free to deal in competing products.[7] As with the exclusivity agreement, the parties may however prove by witnesses the existence of such an obligation.
However, the obligation of the concessionaire to carry out its activity in line with the principle of good faith in the performance of the contract remains unaffected, as it may not carry out any activity that may damage the market, brand and trade of the grantor.
Regarding the duration of the dealer's non-competition agreement, it is not subject to the limits (five years) imposed by Article 2596 of the Civil Code, insofar as it is not applicable to the discipline under examination.[8]
_____________________________
[1] Appello Cagliari, 11/04/2007; Cass. Civ. 2004 no. 13079; on this point see Baldi - Venezia, Il contratto di agenzia, la concessione di vendita, il franchising, 2014, p. 135, GIUFFRÈ.
[2] Cass. Civ. 2004 No. 13079; Cass. Civ. 1994, No. 6819; Bortolotti, Distribution Contracts, 2016, p. 552, WOLTERS KLUWER.
[3] BORTOLOTTI, p. 553, op. cit.
[4] http://www.impresapratica.com/internet-marketing/vendita-attiva-o-passiva/
[5] Trib. Bologna 4.5.2012.
[6] Cass. Civ. 2003 no. 18743.
[7] BORTOLOTTI, p. 557, op. cit.
[8] Cass. Civ. 2000, no. 1238.
Exclusivity clauses and vertical economic agreements in the European context: e-commerce and territorial exclusivity
Territorial exclusivity clauses, constituting a pactual limitation on free competition, are subject, in addition to Italian law, to the strict European rules on the subject.
In particular, theArticle 101(3) of the Treaty on the Functioning of the EU (TFEU) sets a general ban concerning all agreements and concerted practices of undertakings "chand may affect trade between Member States and which have as their object or effect the prevention, restriction or distortion of competition within the common market".
Among prohibited agreements, this provision mentions in particular those aimed at
- directly or indirectly fix the prices of purchase or sale or other terms of transaction;
- limit or controlling productionoutlets, technical development or investment;
- share markets or sources of supply;
- apply, in trade relations with other contractors, dissimilar conditions for equivalent performance;
- make the conclusion of contracts conditional on the acceptance by the other contracting parties of additional benefitswhich, by their nature or according to commercial usage, have no connection with the subject matter of the contracts.
From this framework, European legislation derives specific exceptions which, as far as we are concerned, are set out in the Regulation No 330/2010 (in force since 1 June 2011 replacing the previous Reg. No 2790/1999) concerning 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.
The regulation, in essence, draws the boundaries within which a distribution agreement between undertakings may be exempted from the general prohibition of restrictive business practices and must be interpreted and supplemented in the light of the Commission's Guidelines (LGC), published on 20 April 2010, which among other things expand on the subject of restrictions on e-commerce.
The Regulation No 330/2010 (in force since 1 June 2011 replacing the previous Reg. No 2790/1999) relating to 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, essentially draws the boundaries within which a distribution agreement between undertakings may be exempted from the general prohibition of commercial agreements. It must be interpreted and supplemented in the light of the Commission's Guidelines (LGCs), published on 20 April 2010, which, inter alia, expand on the subject of restrictions on e-commerce.
Regarding specifically the Restrictions to share the market by territory group of customers by guaranteeing the exclusive use of certain distributors, they are only allowed when they restrict
i) so-called 'active sales' (defined below) in the exclusive territory or exclusive customers reserved to the supplier or allocated by the supplier to another buyer, but without imposing any limitation on sales by the buyer's customers;
(ii) sales to end users by wholesalers;
(iii) sales by members of a selective distribution system to unauthorised distributors in the territory that the supplier has reserved for that system; and
(iv) the buyer's ability to sell components, supplied for the purposes of incorporation, to customers who would use those components to manufacture goods similar to those produced by the supplier (Article 4 of the Regulation).
In the case before us, the first of the four cited exceptions, which introduces the distinction between so-called 'active' sales e 'passive'allowing territorial restrictions to be negotiated only with regard to the first of the two categories.
According to the Commission Guidelines, the active' sales designate practices of direct solicitation aimed at a specific territory or group of customers through mailings or the use of targeted advertising and promotions; they are defined as 'passive'on the other hand, sales in response to unsolicited orders from individual customers or the use of general advertising and promotions which constitute a reasonable way to reach customers also outside one's own territory (even in territories entrusted to the exclusivity of other distributors), provided that the customers in one's own territory remain the main and sufficient objective to justify the investment (para. 51 LGC).
As for the online salesthe Guidelines specify that they are generally to be regarded as 'passive', with the consequence that, in principle, no distributor may be prevented from using the Internet to sell its products.
In particular, it is made express prohibition to negotiate agreements whereby the distributor agrees to:
(a) redirect consumers to the website of the manufacturer or other distributors with territorial exclusivity;
(b) interrupt consumers' online transactions as a result of ascertaining their geographical area of residence through their credit card data;
(c) limit the proportion of total sales made via the Internet.
(d) pay a higher price for products intended for resale online than for traditional outlets (para. 52 LGC).
Here are some examples of such as contents can validly form the subject matter of vertical agreements:
- the restriction of practices categorised as 'active sales', including, in particular, the electronic commerce,
- the online advertising specifically targeted at certain customers,
- i banner showing a territorial link to third-party Internet sites online,
- the payment of a fee to a search engine or to an online advertising provider to present advertisements specifically directed at users located in a particular territory
- more generally, any effort made to be found specifically in a given territory or by a particular group of customers (para. 53 LGC);
- the publication on the distributor's website of a series of link to the Internet sites of other distributors and/or the supplier;
- the fixation of an absolute minimum quantity (in value or volume) of products to be sold off-line to ensure the efficient operation of its traditional point of sale. This absolute amount of required off-line sales may be the same for all buyers or may be set individually for each buyer on the basis of objective criteria, such as the size of the buyer in the network or its geographic location;
- the setting a fixed fee (i.e. not a variable fee that increases according to the turnover achieved off-line as this would indirectly represent double charging) to support the buyer's off-line or on-line sales efforts;
- the possibility for the supplier to demand compliance with quality standards in connection with the use of Internet sites for the resale of its goods (as it may do in connection with a point of sale or catalogue sale or advertising and promotional activity in general). As regards selective distribution, the supplier may for instance:
- require its distributors to have several 'non-virtual' points of sale or showrooms as a condition for becoming a member of its distribution system (this must not, however, lead to an indirect restriction of online sales),
- agree with their distributors terms and conditions of use of third-party distribution platformse.g. by preventing access to a distributor's site through another site bearing the name or logo of the third party platform (para. 54 LGC).
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.
On the other hand, limitations aimed at regulating the possibility of the distributor using e-commerce to carry out promotional activities or direct solicitation within an area exclusively entrusted to other purchasers or reserved to the supplier are permissible.
There is also the possibility for the supplier to impose, in any case, on its distributors certain quality standards for the presentation of the products, or specific sales methods consistent with its own distribution system, provided that these conditions do not directly affect the quantity of goods tradable via the Internet or the prices practicable on that platform.
The non-compete obligation in the agency contract: during and after termination of the relationship.
In the European context, it is certainly surprising that the 86/653/EEC makes no mention whatsoever of the agent's obligation not to compete with the principal during the course of the contractual relationship.
This approach has led most of the Member Countries not to mention, regulatively and expressly, this institution in their legal systems. Therefore, in the European context absolutely not to be taken for granted that the agent, in the absence of a special agreement between the parties, is obliged not to work for competitors of the principal during the contractual relationship.
In contrast, under Italian law during the course of the relationship, the prohibition of competition is "natural effect of the contract"This, even though there is no specific rule providing for it, such as, for example, Art. 2015 of the Civil Code for employees, is indirectly inferred from para. 1 of Art. 1746 of the Civil Code, according to which the agent must protect the interests of the principal and act loyally and good faith.
As for the period following the termination of the contract, i.e. the so-called prohibition of 'post-contractual' competition, it was partly regulated by the directive, which dictated the minimum protections to be respected by all signatory countries. They are:
- to be stipulated for registered;
- concerning the sector geographical area or group of persons and the geographical sector entrusted to the commercial agent, as well as the goods for which the commercial agent had representation under the contract, and thecommercial agent had representation under the terms of the contract.
- which is of a duration not exceeding two years from the contractual relationship
The directive has therefore provided that the post-contractual non-compete agreement is permissible only by specific agreement of the parties and in any event within certain legal limits. Indeed, an obligation of that nature, which certainly has the utility of ensuring that the principal can maintain the clientele that was managed by the agent prior to the termination of the relationship, nevertheless has the side effect of actually making it impossible for the agent to carry on its business and for that reason has been expressly limited by the European directive, so as to guarantee the interests of both parties.
The prohibition of 'post-contractual' competition was introduced in our country of Article 1751encore c.c., by Decree 303 of 1991. Specifically, the first paragraph of Article 1751encore provides that:
"An agreement restricting competition by the agent after termination of the contract shall be in writing. It must concern the same area, customers and kind of goods or services for which the agency contract was concluded and its duration may not exceed two years after the termination of the contract."
The second paragraph of Article 1751encore c.c., was inserted by Law No. 422 of 2000, and states that:
"acceptance of the non-competition agreement entails, upon termination of the relationship, the payment to the commercial agent of an indemnity of a non-commission nature. The indemnity shall be commensurate with the duration, not exceeding two years after the termination of the contract, the nature of the agency contract and the severance payment."
It is important to emphasise that the latter article applies only to certain categories of agents of commerce, which were considered more deserving of protection. Article 23.2 of the aforementioned Law No 422 of 2000, which introduced precisely the second paragraph of Article 1751encore c.c., expressly provided that the article applies:
"exclusively to agents practising in the form of sole proprietorships, partnerships or single-member corporations, as well as, where provided for by national economic agreements in the sector, to corporations consisting exclusively or predominantly of commercial agents. The provisions of paragraph 1 shall take effect on 1 June 2001."
Therefore, the post-contractual non-compete agreement has, in the first place, onerous charactersecondly, it must relate to the same area, clientele and type of goods or services for which the agency contract was concluded (Trib. Florence 20 November 2012) and, in addition, must assume the written form ad substantiam (Trib. Milan 12 September 2011).
As for the quantificationan indemnity of a non-commissionable nature is provided for the agententrusted to negotiation between the partiestaking into account the National Economic Agreements of the category.
In the absence of individual agreementand only when AECs are not applicable, Art. 1751encore third paragraph, provides that the indemnity shall be determined by the court in equity, with reference:
- the average of the fees collected by the agent during the term of the contract and their impact on the total turnover over the same period;
- the causes of termination of the agency contract;
- to the size of the area assigned to the agent;
- the existence or non-existence of exclusivity for a single principal.
ABSTRACT
- under Italian law during the course of the relationship, the non-competition clause is a 'natural effect of the contract'
- the prohibition of 'post-contractual' competition was introduced in our country in Art. 1751encore c.c.. It must relate to the same area, clientele and type of goods or services for which the agency contract was concluded, its duration may not exceed two years following the termination of the contract and it must be concluded in writing
- acceptance of the covenant not to compete entails, upon termination of the relationship, the payment to the commercial agent of an indemnity of a non-commission nature
- an indemnity of a non-commissionable nature is envisaged for the agent, entrusted to negotiation between the parties, taking into account the National Economic Agreements for the category
- in the absence of an individual agreement, and only when the ERM is not applicable, Art. 1751encore third paragraph, provides that the indemnity shall be determined by the court on an equitable basis