Price comparison engines and geo-blocking
Selective distribution systems under scrutiny
In its order dated 12 December 2017 (KVZ 41/17) the cartel senate of the German Federal Court (Bundesgerichtshof, BGH) confirmed that restrictions, applicable to retailers of a selective distribution system, to support price comparison engines can be construed as breaching EU competition law. This is particularly true if a blanket ban of price comparison engines is implemented (eg no quality requirements).
After the CJEU clarified that platform-bans in selective distribution systems are, under certain conditions, admissible (Case C-230/16 Coty Germany GmbH v Parfümerie Akzente GmbH, judgment of 6 December 2017), the present ruling of the BGH further clarifies the requirements for e-commerce sales restrictions in selective distribution systems.
Aside from competition law, the new geo-blocking regulation (which was approved by MEPs on 6 February 2018 and will probably be applicable towards the last quarter of 2018) must be considered when assessing passive sales clauses. The geo-blocking regulation renders automatically void all passive sales clauses which impose obligations on traders to act in violation of the non-discrimination rules contained in the geo-blocking regulation (eg in case of discriminatory GTCs or pricing).
Facts of the BGH case
The German distribution entity of an international footwear and sports equipment group intended to introduce a selective distribution system. The agreements for "internet traders", referred to as "distribution system 1.0", contained several restrictions with respect to distribution over the internet. Traders were prohibited from allowing any third party to use the group's trademarks in any form on the third party's website to direct customers to the group's authorised trader's website. The "distribution system 1.0" also prohibited to support the functionality of price comparison engines. In addition, traders were prohibited from advertising or selling contract goods through a third party's website, unless the name or logo of the third party's platform was not displayed.
The German Federal Cartel Office (Bundeskartellamt) initiated proceedings against the German distribution entity and found that the application of the "distribution system 1.0" to traders domiciled in Germany was unlawful. The appeal against this decision was rejected by the Higher Regional Court Dusseldorf (Oberlandesgericht Düsseldorf) and no appeal was allowed. The German distribution entity then objected to the BGH with respect to the non-admission of the appeal.
Decision of the BGH
The cartel senate of the BGH rejected the objection by the German distribution entity. The BGH held that price comparison engines have a high relevance in e-commerce sales. They enable internet users, which already have chosen a specific product and which intend to buy this product, to specifically search both for retailers selling the product and the conditions applicable to the respective product.
A blanket ban on support for price comparison engines (ie irrespectively of the nature of the price comparison engine, eg quality requirements) means that the retailer's online offering cannot be found via price comparison engines. This amounts to a significant – unjustified – restriction of the retailer's e-commerce sales.
According to the BGH, such clause restricts passive sales to end users and thus is a “hardcore restriction” under the definition of Article 4 lit (c) of the Regulation on Vertical Agreements ((EU) No 330/2010).
In its reasoning, the BGH also made reference to the CJEU’s recent Coty ruling (Case C-230/16 Coty Germany GmbH v Parfümerie Akzente GmbH, judgment of 6 December 2017), finding that the rationale of this decision does not impact its assessment in the case at hand. In contrast to a platform ban (ie a prohibition to sell via third-party platforms like Amazon or eBay), a blanket ban of price comparison engines could have a more significant impact on retailers, as their customers may not have adequate access to such retailers’ online offerings.
Practical considerations and implications of the geo-blocking regulation
Aside from the CJEU’s Coty decision, the present ruling of the BGH further clarifies the requirements of admissible e-commerce sales restrictions in selective distribution systems. It highlights the importance to draft such restrictions and asses blanket bans with great care.
In addition, businesses must now take into account the close-to-final geo-blocking regulation (Regulation on addressing geo-blocking and other forms of discrimination based on customers' nationality, place of residence or place of establishment within the internal market and amending Regulation (EC) No 2006/2004 and Directive 2009/22/EC): Pursuant to Article 6 of the Geo-blocking regulation, passive sales clauses imposing obligations on traders to act in violation of the non-discrimination rules contained in the geo-blocking regulation (eg no blocking of customers from accessing country-specific websites, no discriminatory GTCs (including net sales price), no discriminatory payment conditions) shall be automatically void.
The geo-blocking regulation was approved by the European Parliament on 6 February 2018 and is now subject to formal approval by the Council which should happen shortly. We expect that the geo-blocking regulation will apply towards the last quarter of 2018, whereby Article 6 shall apply from 24 months from the date of entry into force of the regulation, in respect of provisions of agreements concluded before the date of adoption which are compliant with Article 101 TFEU and any equivalent rules of national competition law. This would give businesses a bit more time to re-structure existing agreements.
Against this background businesses are well advised to carefully structure their distribution systems, not only in light of the most recent case law of the CJEU and the BGH, but also with respect to the requirements under the geo-blocking regulation.