Digital Dilemma: The French Competition Authority Imposes Fines for Online Sales Bans

Recently, the French Competition Authority condemned, in two decisions, suppliers active in the luxury sector (Rolex and Mariage Frères) for having prevented distributors from selling their products online. Those decisions reaffirm the idea, as enshrined in Regulation (EU) 2022/720, that the ban on online sales is a restriction by object and that other restrictions to online sales remain possible under certain conditions.

As a brief reminder, there is a long-standing prohibition of restriction on online sale established by the European Court of Justice (ECJ) in Pierre Fabre more than two decades ago (C-439/09, October 13, 2011). In a nutshell, the ECJ ruled in 2011 that a contractual clause preventing distributors of a selective distribution network to sell online restricts passive sales to online customers.

A bit later, in the Coty case in 2017, the ECJ refined this prohibition: the supplier of a selective distribution network, while prevented from placing an outright ban on online sales, can, however, impose criteria regarding how such sales are made, and thus restrict sales of luxury goods on third-party online platforms to preserve the luxury image and prestige of its goods (C-230/16, December 6, 2017).

However, both decisions concerned selective distribution networks, without it being clear whether such principles were applicable to other forms of distribution networks.

Recently, the Regulation (EU) 2022/720 on vertical agreements enshrined the prohibition on suppliers preventing their distributors and their customers from effectively using the internet to sell their goods or services. However, it also provides that under certain conditions, the supplier may impose some kind of restrictions on online sales to its distributors, such as banning sales on marketplaces.

Last December 2023, the French Competition Authority (FCA) imposed a fine of EUR4 million on the tea producer Mariage Frères, which had prohibited online sales of its products and conditioned the online sale of their goods to the obtention of an ad hoc authorisation, requiring the conclusion of another distribution agreement. Yet, in practice, the FCA found that no other distribution agreement authorising online sales has ever been concluded by Mariage Frères.

Just a few days after this decision, the FCA also fined the luxury watch company Rolex (with the highest fine of the year, EUR91 million) for having restricted the online sales of its retailers.

The FCA rejected Rolex’s arguments that the ban on online sale was beneficial to consumers because it (i) guaranteed their satisfaction in a safer shopping environment, (ii) combatted counterfeiting and (iii) preserved the brand’s image, recalling that a general and absolute ban of online sale is a restriction by object.

It considered that if these objectives were legitimate, the measure was not proportionate to the aims pursued, as less restrictive alternatives were conceivable. For instance, service obligations can be imposed on online retailers, notably by requiring compliance with a certain design rules or restrictions for their websites, or by providing online advice or the possibility for a customer to directly contact the seller.

The FCA has pointed out that Rolex’s competitors found alternative measures to preserve their brands’ image and consumer safety without restricting the online sales of their distributors. The FCA also underlined that Rolex itself developed a programme for the online purchase of pre-owned watches, for which it manages to guarantee their authenticity. According to the FCA, there are technological solutions enabling the recognition and traceability of authentic products that would be less restrictive means to protect brands from counterfeit. To this end, blockchain appears to be a technology that could respond to the issue while guaranteeing the authenticity and traceability of luxury products sold online.

The FCA considered that the general and absolute ban on online sales imposed by Rolex on its retailers constitutes a restriction by object and cannot benefit from an individual exemption since the restrictions do not appear essential, as shown by the alternatives developed by their competitors who sell online through their distributors.

It is worth noting that in this case the FCA had been seized following a complaint from the company Pellegrin & Fils after it was ousted from the Rolex distribution network in 2013. This company has already specified that this decision by the FCA would allow it to request compensation for the damage suffered.

While both decisions of the FCA are not particularly surprising in light of the case law and relevant EU Regulations, these cases are a reminder that the balance between protecting a company’s brand and distribution network and competition-law-friendly-behaviour is not always easy to find. If a total ban on online sales cannot be authorised, other limits can be imposed on distributors to ensure the coherence of the distribution network. For example, restrictions may be imposed on the way in which contract goods or services must be sold online, such as prohibiting the use of specific sales channels or imposing quality standards for online sales (eg, requirements for the presentation of goods or services in online stores).

In view of the sum of fines and damages to which a company may be exposed, it is prudent for companies to always ensure that the restrictions they impose are lawful.