16 Aug 2019
Penalty of €250,000 Imposed by French Authority for Online Sales Restrictions
It has been announced that the French Competition Authority (the “FCA”) has imposed a fine of EUR 250,000 on Trek Bicycle Corporation and its subsidiary Bikeurope B.V. (together “Bikeurope”) for having prohibited its authorised retailers from selling its bicycles online from 2007 to 2014. The infringement was deemed a restriction by object that breached the French Commercial Code and Article 101 of the Treaty on the Functioning of the European Union. The FCA ruling, announced in July 2019, indicates that restricting consumers’ ability to buy products online will lead to monetary sanctions. The case should act as a warning to brand owners that, although they may be permitted to protect the luxury element of their products through selective distribution, any further and unnecessary restrictions will be deemed infringements of competition law.
Bikeurope assembles, distributes and sells high-end bicycles through a network of authorised resellers. The FCA’s investigation into Bikeurope first started after it received evidence of potential wrongdoing from France’s Directorate General for Competition, Consumer Affairs and Repression of Fraud. The FCA is said to have speedily followed up with dawn raids at the companies’ premises, which subsequently led the issue to become a full-scale investigation.
According to the FCA, Bikeurope’s general terms and conditions of sale initially required that any bicycles sold online had to be delivered to the “authorised place of sales”, that is, the retailer’s brick and mortar shop. Bikeurope then imposed an absolute prohibition on online sales. Bikeurope monitored the conduct of its retailers and, in the event of non-compliance, sent warning letters, as well as threats to terminate commercial relations.
The FCA found that in one email that had been sent out in 2012, Trek France, the French branch of Bikeurope, had expressly stated that “we do not allow distance selling of our bikes (including online)”. The French arm’s justification for doing so apparently included their wish that customers should benefit from the retailer’s expertise, and that their bikes were wholly and competently assembled by the retailer.
For retailers who failed to comply with Bikeurope’s demands, the French arm increased the pressure, by threatening to terminate their contracts. Trek France sent several “last warning” letters to retailers Riviera Bike, Velo9 and Périgois Cycles between 2008 and 2011, stating that “if, before 30 April, your site does not clearly state that the product must be delivered in your store, [we] will be obliged to issue you with a final notice [...], under penalty of terminating our contractual relations.”
The FCA found that although Bikeurope were entitled to safeguard the high-end image of their products, the imposition of the restrictions on online selling was disproportionate to that aim. It reduced competition for consumers in terms of price and products.
The FCA considered that the online sales restriction imposed by Bikeurope on its retailers went beyond what was necessary to protect the safety of consumers. It further considered that the restriction was not justified by the technical characteristics of the bicycles, nor by the need to preserve the image of the brand or the quality of the services provided to customers.
In determining the amount of the fine, the FCA did not count as a mitigating circumstance the fact that, in 2014, Bikeurope voluntarily removed the restrictions at issue following the Pierre Fabre judgment delivered by the Paris Court of Appeal in the previous year. That judgment, applying the preliminary ruling of the Court of Justice of the EU in the same case (Case C-439/09, Pierre Fabre) had found that the prohibition of online sales by Pierre Fabre constituted a restriction by object.
Hong Kong sellers may be interested to know that the FCA’s decision also builds on the principles developed in the EU Court of Justice’s Coty judgment. In the Coty judgment, the Court of Justice held that luxury goods suppliers may prohibit their authorised suppliers from selling on a third-party platform, but only in certain circumstances. The case concerned a selective distribution agreement between Coty Germany, a leading German supplier of luxury cosmetics, and one of its distributors. The agreement had the effect of prohibiting the distributor from distributing Coty’s products on marketplaces such as Amazon. While in the previous Pierre Fabre case the Court had held that, in general, an absolute ban on online sales constitutes an infringement of competition law, in Coty it decided that within the framework of luxury goods, a marketplace ban imposed by a supplier in a selective distribution agreement may be excluded from the scope of competition law, if the ban is necessary to preserve the quality and proper use of the products at issue.