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Global Media and Communications Watch The International Legal Blog for the Tech, Media and Telecoms Industry
Posted in Digital Single Market (EU), e-commerce Photo of Falk SchoeningPhoto of Christian Ritz, LL.M. (USYD)

DSM Watch: Can manufacturers prevent resale of goods via third-party online platforms using selective distribution agreements? Uncertainty remains in Germany following recent decision of the Higher Regional Court of Frankfurt

In its Communication on a Digital Single Market Strategy for Europe (DSM) of 6 May 2015, the European Commission committed to assess the role of online platforms. In this context, the Commission launched a sector inquiry into e-commerce (6 May 2015) in order to gather data on the functioning of e-commerce markets and to identify possible competition concerns. In addition, on 24 September 2015 the Commission launched a public consultation seeking views to better understand the social and economic role of platforms, market trends, and the dynamics of platform-development.

Since 2009 a controversial legal debate has been underway in Germany on the question of the correct application of competition law to online platforms. In particular, whether clauses in a selective distribution agreement preventing retailers from distributing branded goods via third-party online platforms comply with European and German competition law.

This recently became a hot topic again, as the Higher Regional Court of Frankfurt a. M. on 22 December 2015 has handed down a judgment taking a position partially contradicting the current practice of the German Federal Cartel Office (“FCO”).

Since the release of the European Court of Justice’s (“ECJ”) landmark decision in the case Pierre Fabre (C-439/09), jurisprudence in Germany has been inconsistent. In its most recent decisions the FCO applies a rather strict approach on such distribution restrictions and regards them as vertical restraints on competition in the sense of Article 4 lit. c) of Regulation 330/2010 (see for example: decision of 26 August 2015, B2-98/11 – ASICS; decision of 27 June 2014, B3-137/12 – Adidas; decision of 15 October 2013, B7-1/13-35 – Sennheiser). According to the FCO, the profile that small and medium-sized retailers have on the leading online marketplace platforms is an important part of their online presence.

Whereas the Higher Regional Court of Munich (decision of 2 July 2009 – U (K) 4842/08) and the Higher Regional Court of Karlsruhe (decision of 25 November 2009 – 6-U 47/08 Kart) allowed manufacturers the full right to restrict online distribution via resellers; other courts ruled that such clauses constitute unjustified vertical restraints of competition. The Higher Regional Court of Berlin, in its decision from 19 September 2013 (2-U 8/09 Kart) held that such a clause is incompatible with competition law due to the discriminatory application of such agreements by manufacturers. The Regional Court of Frankfurt a. M. argued that such clauses constitute unjustified vertical restraints of competition (decision of 18 June 2014 – 2/3 O 158/13).

The most recent decision of the Higher Regional Court of Frankfurt a. M. (11 U 84/14 (Kart)) on this issue adds additional uncertainty. Although the decision dealt with a clause prohibiting distribution via a specific online marketplace platform, it seems to apply a more liberal approach to such clauses than the FCO and in this respect allowed the manufacturer to prohibit a retailer to distribute its products via a specific online marketplace platform in a selective distribution agreement.

In its reasoning the Higher Regional Court rather followed the line of argument applied by the European Commission in para. 54 of its Vertical Guidelines. The Court argued that manufacturers of branded goods have a prevailing interest to convey the high quality of the goods to consumers through control of the image of a product, which is not necessarily guaranteed for distribution via third-party online platforms. According to the Court, this is particularly true in a scenario where the product is being attributed to the platform operator, with whom the manufacturer has neither a contractual relationship nor can exercise any influence on. In this scenario, the interest of the manufacturer to maintain the high quality reputation of the goods prevailed over the interest of SMEs to be recognised in online trade.

The future development of this legal debate in Germany thus remains open. However, it may now lead to a final clarification by the European Court of Justice as the decision has been appealed to the German Federal Supreme Court and thus could finally reach the ECJ through a request for preliminary ruling. Until such legally binding decision of the ECJ the risk of an inconsistent interpretation of the Vertical Guidelines at national level remains.

Our DSM Watch team will continue to monitor EU and national developments relevant for online platforms.