Two recent German cases have confirmed that manufacturers cannot ban online marketplace sales in non-selective distribution networks. The position is less clear in the context of selective distribution systems but outright bans have been condemned.
Recently, the German Federal Cartel Office (“Bundeskartellamt”) confirmed its position regarding the prohibition of distribution through online market places, such as Amazon and Ebay, by making a leading running shoe manufacturer drop its ban on online market places. The manufacturer operates a selective distribution system, which only allows authorized retailers to sell manufacturers products to consumers. The Bundeskartellamt made it clear that, even in a selective distribution system, the manufacturers cannot place a complete ban on distribution via online market places. Our analysis on this case can be found here. However, the Bundeskartellamt reasoning was not tested before the Courts as the case was settled. This leaves suppliers operating selective distribution systems unsure in Germany of the extent that they may limit sales through on line market places.
However, the position is somewhat clearer in relation to non-selective distribution systems. The decision of the Bundeskartellamt above is in line with a recent ruling of the Schleswig Higher Regional Court. The Schleswig Higher Regional Court ruled on 5 June 2014 that Casio, a large manufacturer of digital cameras, cannot ban its retailers from selling via online market places such as Amazon and Ebay.
Casio distributes its products via wholesalers, but also through large distributors such as Karstadt or Saturn. In addition, Casio operated its own online shop. Certain retailers were admitted as “authorized dealers”, but Casio’s distribution system did not qualify as a selective distribution system. Casio nevertheless argued that the ban on online market places was necessary to ensure a high quality sales environment and advice for the sale of its high-value and complex cameras. Sales via online market places would complicate access to and training by specialized sales assistants. Further, Casio argued that the presentation on online market places could neither ensure an appropriate presentation of the product itself nor of its portfolio; further, the risk of sale of counterfeit products and not sufficiently identified second hand products existed. Casio argued that retailers were not adversely affected because they were allowed to run their own online shops.
The court, however, followed the arguments of the claimant: the Centre for Protection against Unfair Competition (“Wettbewerbszentrale”), a German institution for the promotion of commercial interests. The Wettbewerbszentrale had argued that the restriction on online market places restricted distribution channels and barred in particular small retailers from access to e-commerce. In addition, it impaired intra-brand competition (i.e. competition between different dealers of the same brand) which was extremely lively on online market places. The court confirmed that the ban limited the intensive intra-brand competition on online-market places and therefore reduced pressure on prices. It highlighted that consumers trusted transaction security on the established online market places, such as Amazon and Ebay, and that it was therefore particularly important to allow small dealers to use these platforms.
The court also highlighted that Casio’s justifications, which were based on the need to ensure quality and advice by specialized sales assistants, could not be taken into account outside a selective distribution system. The court made it clear once again that the nature of the product only necessitates a selective distribution system if it is necessary to ensure the quality and the correct use of the product. Only if these requirements are met will a manufacturer be entitled to set forth requirements for distribution which must be well justified and uniformly applied between distributors. In this context, the court argued that experience showed that larger retailers such as Media Markt, Saturn, Karstadt or Medimax, which offer a large range of products, could generally not be assumed to offer more specialized advice for cameras than Amazon and Ebay.
In reaching this decision, the court is in compliance with the EU Commission’s Guidelines on Vertical Restraints (sec. 56) which considers any restrictions on online sales which are not overall equivalent to the criteria imposed for the sales from brick and mortar shops as a prohibited hardcore restriction. The Casio case, as well as the ruling of the Berlin Court of Appeal (“Kammergericht”) on Scout satchels in September 2013, put this principle into practice.
Both decisions are not yet final and can be appealed to the German Federal Court (“Bundesgerichtshof” – BGH).