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29 January 2008
The Internet has become an established sales channel and growth generator in the mail order business. The new possibilities for the presentation of goods and online ordering are now being explored even by manufacturers of high-quality brand products, such as Gucci. One of the reasons for this may be the fact that the Internet and e-commerce both address a technology-literate audience, including younger customers in particular. Consequently, online sales are necessarily a focal issue within franchise systems. The provisions to be found in franchise agreements vary considerably, ranging from a total ban on online sales to a partial restriction with qualitative requirements imposed on the franchisee's internet presentation.
Whether and to what extent such contractual provisions are permissible are primarily questions of antitrust law, namely of the EU Regulation on Vertical Agreements (2790/1999). However, the regulation and relevant guidelines issued by the European Commission address only fundamental aspects of online sales, leaving many questions unanswered. These questions ultimately concern the problem of aligning under antitrust law the principle of the freedom of online sales with the distribution concept pursued by the franchisor. Therefore, lawful internet distribution concepts must balance the competitive consequences of limited online sales for the franchisee against the franchisor's interest in a functioning franchise system and protection of its trademark, on a case-by-case basis.
So far there is little German case law on the issue of online sales. The only decision on this matter handed down by the Federal Court of Justice concerned the question of whether the manufacturer of a trademarked perfume was entitled to exclude distributors which sold exclusively via the Internet from its supply system.(1) Therefore, the decisions rendered by the regional and higher regional courts on internet sales restrictions are all the more interesting. The Berlin Regional Court recently ruled on whether a manufacturer was entitled to prohibit the sale of goods by a distributor via an auction platform.
The manufacturer of school satchels bearing the SCOUT trademark sold its products via the Internet and also supplied a number of mail order companies. It had supplied goods to a distributor, subject to the condition that the distributor did not sell the products via auction platforms, which the manufacturer believed would harm the image of the products. The distributor had undercut the manufacturer's recommended price when selling via auction platforms.
The distributor reacted to the action taken by the manufacturer by filing for an interlocutory injunction and demanding that delivery of the products not be subject to a ban on sales via auction platforms. Among other things, the distributor argued that the manufacturer's products generated a very large portion of its total turnover and that without them it would make a loss.
The Berlin Regional Court found in favour of the distributor, holding that the manufacturer's conduct was anti-competitive.(2) The court held that the condition imposed by the manufacturer constituted an anti-competitive restriction that did not fall under the exemption provisions of the EU Regulation on Vertical Agreements. The reason given by the court was that the manufacturer had a market share of over 30% on the relevant market (school goods), thus exceeding the threshold for an exemption under the regulation.(3) According to the facts set out in the judgment, the manufacturer itself advertised SCOUT using its market share as a selling point, claiming to be the undisputed market leader. The court held the manufacturer to this claim.
By invalidating an exemption where the 30% market share threshold was exceeded, the court failed to advance to the focal question of the case, namely whether a ban on the sale of goods by a distribution partner via auction platforms constitutes an impermissible core restriction (Article 4 of the regulation). The answer to this question is of relevance to all suppliers, including franchisors, whose market share is 30% or less.
The distributor argued that the ban on sales via auction platforms constituted an impermissible core restriction because the manufacturer ultimately used the ban in order to enforce recommended prices (Article 4a of the regulation) and unlawfully limit the circle of customers (Article 4b of the regulation). However, this argument falls short, including with regard to franchise systems. It overlooks the fact that a franchisor needs a (lawful) ability to structure distribution according to its own concepts. A franchisor of high-quality fashion may well use the Internet as a distribution channel (and permit its franchisees to do so), with the intention of staging a "spectacular presentation in corporate design".(4) Yet this could lead to standards that may be unattainable for some auction platforms. This case is a prime example of the fact that the room for manoeuvre in the contractual regulation of internet sales depends substantially on the circumstances of the individual case.
For further information on this topic please contact Karsten Metzlaff at Nörr Stiefenhofer Lutz's Berlin office by telephone (+49 30 20 94 2000) or by fax (+49 30 20 94 2094) or by email (email@example.com). Alternatively, contact Karl Rauser at Nörr Stiefenhofer Lutz's Munich office by telephone (+49 89 28 6280) or by fax (+49 89 28 0110) or by email (firstname.lastname@example.org).
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