Vertical Restraints:

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Vertical Restraints

• Restrictions on e-Distributors Revisited

Kurt Haegeman, Partner
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The Current Rules on Vertical restraints

• Guidelines on Vertical Restraints (para. 51)
• Every distributor must be free to use the
  Internet to advertise or to sell products"
• Internet sales are considered as a form of
  passive sales "since it is a reasonable way to
  reach every customer . Language used on the
  website normally plays no role.
• Internet sales only exceptionally considered as
  active sales unsolicited emails, website/banners
  targeted specifically at customers in another
  distributor's exclusive territory/customer
  group.
• Supplier may require quality standards.
• Outright ban on internet sales only possible if
  objective justification.
• Supplier cannot reserve internet sales /
  advertising to itself.
• Enforcement action limited at EU level (YSL,
  BW), mainly at national level (France, NL)

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Are Internet Sales Really Inherently Passive?

• - Inherent inconsistency in the Commission's
  policy
• Recognises the positive benefits of exclusivity
  provided only active sales restricted
• Approach to internet sales means that for many
  products protection from active sales may be of
  little value.
• What steps can a supplier take to protect
  exclusivity ?
• Unsolicited e-mails - active
• Websites ..specifically targeted at reaching
  customers in another dealers exclusively
  allocated territory/customer group? - active
• Banners/links in foreign sites - active
• Domain names national level e.g. .de / high
  level e.g. .com
• Search engine listings meta tags, listings on
  e.g. Google.com?
• Language of website passive
• Language in meta tags?

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Selective Distribution

• Supplier may require quality standards for
  internet sales and bricks mortar sales
• Dealers must satisfy the criteria for selection
• Dealers can be required to conduct their business
  from an approved physical store satisfying
  certain standards (YSL/BW)
• Suppliers can establish separate criteria for
  Internet
• Comparable to those for sales from a traditional
  retail outlet (BW)
• Ban on internet sales not covered by VBE
• YSL Press Release
• In particular it believes that a ban on
  Internet sales, even in a selective distribution
  system, is a restraint on sales to consumers
  which could not be covered by the 1999 Regulation

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Selective Distribution (Cont.)

• "Translating" bricks and mortar criteria to
  etailers not always easy
• Demonstration
• Advice to customers
• Availability of expert staff
• After-sales service
• Older case law seems supportive of possible ban
• Grundig II mail order sales can be banned as
  qualitative criterion
• Leclerc v Commission "It is in the interest of
  consumers seeking to purchase luxury cosmetics
  that such products are appropriately presented in
  retail outlets"
• Commission position no total ban, but can
  require a dealer to have a bricks mortar store

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Typical Internet Criteria

• The website Internet Service Provider standards
  speed and reliability dedicated site OR
  dedicated pages AND other products
• Name and signage no abuse of the brand no
  detracting content or links
• Products and display quality of images and
  artwork/virtual tour minimum range and stocks
  full descriptions, identifying non-current season
  stock
• Customer service Payment protection/encryption/se
  curity certification E-mail/telephone helpline
  service standards (local language, response
  times) clear prices/promotions swift order
  processing no quibble guarantee after sales
  support proven track record

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Pricing Discounts - Dual Pricing

• Can suppliers have different prices/discounts -
  bricks mortar/internet?
• Rationale of suppliers
• Support bricks mortar retailers with higher
  overheads, who invest in service levels
• Encourage continued investment in face-to-face
  service - important to the brand image

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Pricing Discounts - Dual Pricing (Cont.)

• Unilateral pricing policy supplier charges
  Internet dealer price A and high-street
  retailer price B, irrespective of how the
  retailer then sells
• No restrictive agreement provided that
• Not part of an agreement/concerted practice with
  other suppliers
• No indirect minimum resale price maintenance
  agreement
• No indirect export ban agreement
• Possible, but extremely risky

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Pricing Discounts - Dual pricing (Cont.)

• Agreement between supplier and dealer
• prices/discounts depending on whether sale made
  in-store or via the Internet or
• requiring a specific percentage of sales to be
  made in-store
• ? very likely hardcore
• Acceptable fees linked to dealer investment in
  services , e.g.
• "Demonstration fee" where dealer demonstrates
  customer had product demonstrated in store and
  then purchased
• "Installation fee" for complex technical products
  which dealer installs at customer's premises
• In-store promotions support
• Service fee for after-sales service

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Vertical Restraints Online Sales - The Future

• Mrs. Kroes Online Commerce Roundtable, Vertical
  Restraints Review
• Mrs. Kuneva Cross Border E-Commerce Report
• NMa Guidance Document for Etailers (including
  dual pricing) - April 2009

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• Questions?
• kurt.haegeman_at_bakernet.com