The new regulation on vertical sales introduced for the first time a regulation on online sales, introducing in Art. 4 (e) a general prohibition to prevent "the effective use of the internet" by the buyer or its customers to sell the contract goods or service.

The previous regulation (330/2010) did not directly regulate any restrictions on online sales and these issues were only developed through important case law, including two Court of Justice rulings considered milestones in the field.

This article will briefly analyse the main impacts that the new regulations may have on online sales in the different distribution systems, i.e. exclusive, selective and free, with the aim of providing a general overview (avoiding excessive technicalities) and helping operators in the sector to orient themselves in an ever-changing and far from linear context.

1. Online sales in the former Regulation 330/2010.

As mentioned, in the absence of a legislative framework, the Court of Justice has helped to regulate a very important issue through two judgments, which are still relevant today and also help to interpret the novelty introduced by the current regulation.

The first, dated 13 October 2011, related to the Pierre Fabre case.[1] In that circumstance, the cosmetics and personal care products company had adopted a selective distribution system that required the physical and permanent presence of a graduate pharmacist at the point of sale in order to provide adequate advice to consumers. Thus, the company had not directly prohibited online sales, but had made it effectively impracticable by making it subject to an unworkable condition. The Court ruled that this provision entailed (de facto) an absolute ban on the use of the Internet, finding the contractual provision contrary to European competition law and the antitrust regulation, with the effect of rendering the entire agreement void.

The second ruling, known as 'Coty Germany', of 6 December 2017,[2] concerned the admissibility, in a selective distribution contract, of the clause prohibiting distributors from using recognisable third-party platforms (such as, for example, Amazon), i.e. platforms bearing a different name from that of the supplier's products, to sell the contractual products.

The matter had been brought before the Frankfurt Higher Regional Court, which had decided that the clause was to be considered contrary to the prohibition in Article 101(1) and not permissible under Paragraph 3 of that provision, nor under the exemption regulation then in force (330/2010), since it was contrary to Article 4(b) and (c) of that regulation. On appeal, the Oberlandesgericht Frankfurt decided to refer a question to the Court of Justice for a preliminary ruling on the legality of that clause.

The ECJ ruled that the prohibition of members of a selective luxury goods network from recognisably using third-party companies for sales via the Internet:

  1. does not infringe Article 101(1) TFEU 'if that clause is intended to safeguard the luxury image of those products, is established indiscriminately and applied in a non-discriminatory manner, and is proportionate in relation to the objective pursued, which it is for the referring court to verify';
  2. does not constitute a restriction of customers within the meaning of Article 4(b) of that regulation, nor a restriction of passive sales to end users within the meaning of Article 4(c) of that regulation.

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2. The effective use of the Internet and the novelties introduced by Regulation 720/2022

As pointed out, the regulation introduces in Art. 4 (e) a broad prohibition that precludes providers from significantly restricting Internet access. In view of the breadth of this prohibition, the Guidelines are intended to clarify its meaning and offer concrete guidance to providers. In particular, they point out that restrictions on the optimal use of the Internet are not only attributable to explicit prohibitions, but also emerge through indirect restrictions, giving examples of such indirect restrictions. Some of these examples are recalled:[3]

  • Prevent the distributor and its customers from accessing its website or online shop from a different territory by redirecting them to the manufacturer's or another vendor's online shop.
  • The distributor's obligation to cancel online transactions if the consumer's address is not in the buyer's territory.
  • The obligation to sell contractual products only in a physical space or in the presence of specialised personnel, and to obtain prior authorisation from the supplier for online sales.
  • It is forbidden for the purchaser to use trademarks of the supplier on its website or to operate online shops, regardless of their location.
  • The ban on using entire online advertising channels, such as search engines or price comparison services.

On the contrary, contractual clauses requiring the distributor to:

  • Adopt specific standards to ensure the quality or aesthetics of the online shop, particularly in the context of selective distribution.
  • Impose requirements for the presentation of products in the online shop, such as a minimum number of items displayed or the use of brand names.
  • Maintain the obligation for the retailer to operate physical shops or showrooms as a prerequisite for participating in the selective distribution network, selling offline a minimum quantity, in terms of value or volume, that is not proportional to total sales.
  • Charge wholesale price differences for products sold online versus those sold offline. The latter condition is considered acceptable only if it does not effectively limit the use of the Internet for sales and if the price variation corresponds in a justifiable manner to the investments and costs incurred in selling through each channel.

Finally, restrictions imposed on online advertising are considered permissible as long as they do not prohibit the purchaser from taking full advantage of a specific advertising channel.[4] Such restrictions are legitimate when, for example, they require that advertising campaigns adhere to certain quality standards or when they provide for an obligation to avoid the use of low-quality online advertising services.

More generally, the new Regulation has brought interesting changes that are particularly relevant to the circumstance at hand and that may also have important impacts on the management of online sales, namely:

  • The possibility of transferring active sales restrictions in exclusively allocated territories to the distributor's direct customers;[5]
  • The possibility of structuring more closed selective distribution systems[6] than allowed under the previous regulation, which implicitly allowed exclusive distributors to also make active sales within the selective territory and in fact led to this model being effective only if it was introduced throughout Europe (read also: selective and exclusive distribution the mixed system works?);
  • The introduction of the possibility to enforce restrictions on internet use also for exclusive distributors, including the possibility to adopt dual pricing for online and offline sales and to impose a minimum offline sales as a requirement for the continuation of the agreement;[7]
  • The option, within a selective distribution system, to prohibit both active and passive sales by retailers to direct end users in an exclusive territory.[8]

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3. The distribution models of Regulation 720/2022.

Although the regulation introduces several new features compared to the previous model, the basic approach remains the same as previously developed. The regulation allows companies to enter into vertical agreements following essentially three models:

  • exclusive distribution contracts, in which the manufacturer grants the distributor an area of exclusivity;
  • selective distribution contracts, in which the manufacturer chooses its distributors and network members, based on pre-established quality standards;
  • free distribution contracts, where neither exclusivity nor selective distribution is recognised.

The various models are outlined below, outlining the main characteristics they must adhere to, as outlined in the new regulation and based on the interpretation of the Guidelines.

Importantly, the new regulation specifies that distribution contracts are only antitrust compliant if neither party has a market share of more than 30% in the relevant sector. Otherwise, the contract will have to be assessed on a case-by-case basis, without benefiting from a presumption of legality. This issue has already been discussed above, so the point is recalled: Market share above 30% and impacts on distribution contracts.

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3.1. Exclusive distribution contracts.

According to Article 4 (a) and (b) of the Regulation, the exclusive distribution agreement may not contain specific clauses that would render the entire agreement void. In particular, clauses that entail:

  • resale price maintenance, either directly or indirectly;
  • the ban on passive sales by the distributor[9] in a territory exclusively assigned to another distributor (e.g. prohibiting the exclusive distributor in Italy from making passive sales in France, where there is an exclusive French distributor);
  • obstacle to the effective use of the Internet by the distributor or its customers.

Instead, the manufacturer may impose the following restrictions:

  • prohibit the distributor and its customers from making active sales, i.e. engaging in sales promotion, in territories exclusively assigned to others;
  • prohibit the distributor and its customers from making both active and passive sales in areas designated for selective distribution;
  • limit the distributor's place of establishment by defining where it may operate or establish its outlets;
  • restricting sales, both active and passive, to end users by distributors operating at the wholesale level.

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3.2. Selective distribution contracts.

Selective distribution refers to a distribution system in which products are marketed exclusively through retailers who meet specific standards of professional competence, service quality and shop prestige set by the manufacturer. This method is mainly used for the marketing of technically complex products, which require a specific technical qualification on the part of the retailer, and luxury products, for which it is essential that sales take place in settings appropriate to their prestige. In order to ensure that the retailer meets the required characteristics, the manufacturer selects retailers (according to more or less strict criteria) and requires them not to sell the products outside the authorised network (as this would compromise the purpose of the selection).[10]

In this context, according to Art. 4 (c) of the Regulation, the manufacturer may not prohibit its selective distributor:

  • cross-supplies between members of the selective distribution system operating at the same or different trading levels;
  • the restriction of effective use of the Internet.

Conversely, the manufacturer may impose specific prohibitions on the selective distributor such as:

  • prohibit distribution members from both active and passive sales to unauthorised distributors located within the selective territory;
  • prohibit members of selective distribution from making active sales in exclusive territories;
  • restricting active and passive sales to end consumers by members of the selective distribution system operating in the wholesale sector.
  • restricting sales, both active and passive, to final consumers by members of the selective distribution system active in the retail trade, when these take place in territories subject to exclusive distribution;
  • impose limitations on the location of the establishments of the members of the selective distribution system.

Selective distribution is distinguished from exclusive distribution mainly by the manufacturer's option to choose the dealers in its network, an option that introduces a restriction on competition, which is justifiable as initially outlined in the Metro judgment.[11] (and confirmed by the Guidelines published by the European Commission[12]) only when the nature of the goods requires such measures to protect their quality and ensure their proper use. Precisely for this reason, case law admits the application of this type of distribution only to technically high-tech products,[13] of high quality,[14] luxury or those that at least convey an aura of it[15] and requires that the selection of dealers be carried out according to objective quality criteria, applied uniformly and without discrimination. Furthermore, any criteria set by the manufacturer for the selection of dealers must be proportionate and necessary to maintain the quality and image of the products, without imposing restrictions or requirements that are not indispensable for the attainment of these ends.[16]

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3.3. Free distribution contracts.

The regulation in Art. 4. (d) also provides for the possibility to impose restrictions on distribution agreements which do not fall within the categories of exclusivity or selectivity. These restrictions aim to prevent such contracts from undermining the selective or exclusive distribution systems established by the manufacturer in various territories, e.g. a selective system in Italy and an exclusive one in France. Below is a list of the main restrictions:

  • restrictions on active sales by the distributor and its direct customers in an exclusive territory.
  • restrictions on sales, both active and passive, by the distributor and its customers to unauthorised distributors within a selective distribution system at any level of trade.
  • the restriction concerning the location of purchasers' establishments.

Obviously, these restrictions are intended to protect markets subject to exclusive or selective distribution. In contrast, free markets remain open to any sales activity, both active and passive, by distributors outside these networks.

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4. Internet limitations in different distribution systems.

In order to give a practical approach and thus understand what limitations may be placed on online sales, an assessment of the potential impacts under the following assumptions will be made below:

  • the adoption of an exclusive distribution system in Italy coupled with a free distribution system in France;
  • the adoption of a selective distribution system in Italy coupled with a free distribution system in France;
  • the application of an exclusive distribution system in both Italy and France;
  • the introduction of a selective distribution system in Italy and exclusive in France.

Obviously, this represents a preliminary analysis to help understand which strategy to adopt and which to focus on for further investigation.

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4.1. Exclusive distribution in Italy and free in France.

In this context, the Italian exclusive distributor and its customers could not be prohibited from making active sales to France, as the French territory is not subject to exclusivity. On the contrary, it is possible to require the French distributor not to make active sales in Italy and to limit sales to non-passive sales.

A relevant restriction that could be implemented would be to prohibit distributors from active and passive retail sales, including direct sales to end users in France, in order to keep the levels of commercial distribution separate.

Certainly, it might be relevant to use dual pricing, considering the introduction of differentiated discounts for online sales, provided this can be justified on the basis of objective parameters.

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4.2. Selective distribution in Italy and free in France.

This model would have the same implications as the previous one. Since the target territory for sales is not covered by any form of containment.

The only relevant restriction that could be implemented would be to prohibit wholesale distributors from engaging in active and passive retail sales, including direct sales to end users in France, in order to keep commercial distribution levels separate.

Again, dual pricing could have a positive impact, as could making access to the selective distribution system conditional on the operation of physical shops or showrooms. More generally, the operation of a selective distribution system would still entail an increase in operating costs for distributors and network members. This circumstance, in itself, would contribute (perhaps only partially) to bringing prices into line with those of the French market, or at any rate would be an element to be evaluated in the development of the distribution strategy.

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4.3. Exclusive distribution in Italy and France.

Here we return to the classical model of exclusive distribution, where the manufacturer may only prohibit active sales, but not passive sales. A very relevant and innovative element compared to the previous regulation is the possibility to extend restrictions on active sales into territories exclusively allocated to other distributors to the distributor's direct customers.

For the rest, all the evaluations already carried out for the model described in section 5.1, to which reference is made, would apply. These include:

  • the prohibition of wholesale distributors from engaging in active and passive retail sales;
  • the use of dual pricing.

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4.4. Selective distribution in Italy and exclusive distribution in France.

Article 4(c)(iii) undoubtedly brings significant advantages in the control of the network and, as a direct effect, of online sales: it allows the manufacturer to prohibit the members of a selective distribution network from making both active and passive sales to retailers in territories subject to territorial exclusivity. Consequently, the prohibition, which in exclusive distribution only applies to wholesale distributors, may be extended to retailers in the context of selective distribution. This means that retailers which are part of the Italian selective distribution system could be prohibited from selling into the French territory if that territory was subject to an exclusivity agreement.

A very significant practical aspect is related to the fact that, even if it is possible to prevent members of the selective distribution network from selling to France, if they display prices on their online sites, these prices will still be visible in France (and cannot be blocked, according to the Geoblocking Regulation 2018/302).

Consideration could therefore be given to the option of prohibiting network members from displaying price lists and prices on their sites, making them available only upon request for a quote via a form or chatbox, a method often used online by retailers of high-end and luxury goods.

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5. Conclusions.

In this short report, an attempt has been made to illustrate the main regulatory and jurisprudential aspects concerning the novelties introduced by the new vertical sales regulation, with a particular focus on the implications for online sales. However, this is a general overview of the system, which cannot exhaust all the facets and specificities of a very complex and evolving subject.

Therefore, it is always appropriate to assess on a case-by-case basis the conditions and modalities for applying marketing restrictions to products, taking into account the characteristics of the market and the needs of the business.

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[1] Pierre Fabre Dermo-Cosmétique SAS v Président de l'Autorité de la concurrence, Case-439/09,

[2] Coty Germany GmbH v Parfümerie Akzente GmbH, Case C-230/16.

[3] See Paragraphs 206 et seq. of the Guidelines.

[4] See Para. 206(g) of the Guidelines.

[5] Art. 4(b)(i).

[6] Art. 4(c)(i)(1).

[7] Paragraph 209 of the Judas Guidelines.

[8] Art. 4(c)(i)(4).

[9] Art. 1 of Regulation 2022/720 (l) and (m): for "active sales" means the active and targeted contacting of customers through visits, letters, e-mails, telephone calls or other means of direct communication or through targeted advertising and promotion, offline or online, e.g. through print or digital media, including online media; price comparison tools or advertising associated with search engines, targeting customers in certain territories or customer groups; operating a website with a top-level domain that corresponds to certain territories; offering on a website language options commonly used in certain territories, when these languages are different from those commonly used in the territory where the buyer is established; for passive' sales means sales made in response to spontaneous requests from individual customers, including the delivery of goods or the provision of services to the customer, without the sale having been initiated by actively soliciting particular customers, groups of customers or territories, including sales resulting from participation in public tenders or response to private tenders.

[10] Art. 1 of Regulation 2022/720 (g).

[11] Metro SB-Großmärkte GmbH & Co. KG v Commission of the European Communities, Case C-26/76.

[12] See paragraph 149 of the Guidelines and more generally paragraph 4.6.2.3.Guidelines for individual assessment of selective distribution agreements'.

[13] See Case C-26/76 - Metro/Commission and Case C-107/82 - AEG/Commission.

[14] See Case C-230/16 - Coty Germany.

[15] See Case C-230/16 - Coty Germanypoints 25 to 29.

[16] Metro SB-Großmärkte GmbH & Co. KG v Commission of the European Communities, Case C-26/76.