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French competition authority fines Bang & Olufsen for prohibiting online sales

Pierre de Montalembert

11 February 2013
With the recent Pierre Fabre case[1] and the Opinion No 12-A-20 of 18 September 2012 on the competitive functioning of e-commerce, one cannot ignore that online sales and the internet sector are of considerable interest to the French Competition Authority (the "Authority").  

The decision No 12-D-23 of 12 December 2012 on practices implemented by Bang & Olufsen in the sector of selective distribution of Hi-fi and home cinema equipment is further proof of this interest.

BACKGROUND

Several Hi-fi manufacturers, namely Bang & Olufsen France, Bose, Focal JM Lab and Triangle Industries, were suspected of preventing their approved distributors from selling their products via internet.

By its decision No 06-D-28 of 5 October 2006, the Authority approved and made binding the commitments proposed by the undertakings concerned, with the exception of Bang & Olufsen, to amend their selective distribution contracts in order to enable the members of their networks to sell their products online. The proceedings opened against Bang & Olufsen followed their ordinary course. They had been suspended for two years pending the ruling of the Court of Justice in the Pierre Fabre case and came to their end with the present Decision.

THE DECISION

As expected, the Authority broadly referred to the ruling of the Court of Justice in the Pierre Fabre case. The Authority recalled that a clause in a selective distribution contract banning the sale of products online amounts to a restriction of competition by object. Such a restriction is prohibited under Competition law, unless it is objectively justified having regard to the properties of the products at issue (e.g. for health and safety reasons) or it generates countervailing benefits which meet the requirements set by Article 101(3) TFEU.  In any case, such a clause cannot benefit from the block exemption of Regulation No 330/2010 on vertical agreements.

In line with these principles, the Authority held that, by prohibiting de facto since 2001 the 48 resellers of its selective distribution network from selling the brand products online, Bang & Olufsen has unilaterally limited the commercial freedom of its dealers, who could otherwise have reached more consumers thanks to internet. This ban also limited competition between the distributors of the same brand, thus depriving consumers of lower prices and limiting their choice, in particular for those living a long way from a physical point-of-sale.

Denying the charges and arguing that only mail order sales -not internet sales- were banned, Bang & Olufsen provided neither objective reasons nor offsetting benefits which could have exempted the prohibition.

On that ground, the Authority imposed a fine of €900.000 on Bang & Olufsen France and its Danish parent company Bang & Olufsen A/S jointly.  In addition, the Authority required Bang & Olufsen France to amend, within three months, its selective distribution contracts to authorize the dealers to sell the brand products online.

In determining the amount of the fine the Authority took account of the gravity of the practice and its duration since 2001 on the one hand, but considered on the other hand that the harm to the economy was very limited as only a small number of consumers could have been affected.

COMMENTS

The Bang & Olufsen decision confirms, if need be, the severity of the Authority vis-à-vis clauses prohibiting online sales.

This is consistent with the Authority's Opinion on e-commerce of 18 September 2012, in which the Authority stated that "in view of the important role of e-commerce, it is essential that manufacturers do not implement practices designed to restrict its development or, more specifically, to unjustifiably obstruct the expansion of pure players retailers". The Authority made it clear that, if each manufacturer is free to organise its distribution methods and to impose certain conditions on the sale of its products in physical retail outlets and online in order to protect the high-end image of the product or in view of the product's technical characteristics (high-tech products), this does not mean that offline distribution should be favoured over the internet.  A manufacturer cannot, under any circumstances, prevent as a matter of principle an approved distributor from selling its products online.

Vigilance is thus required for brand owners, especially as the Decision does not provide any details on the circumstances in which such a prohibition could be objectively justified or exempted under Article 101(3) TFEU.

Pierre de Montalembert

Marie Lagrue


[1]                 Decision of the French Competition Authority No 08-D-25 of 29 October 2008 relating to practices in the sector of cosmetic and personal care products (Pierre Fabre case) that was subject to a ruling of the Paris Court of Appeal on 29 October 2009, which referred to the Court of Justice of the European Union (the "Court of Justice") for a preliminary ruling a question relating to the ban on internet sales (CJEU, 13 October 2011, C-439/09) and Decision of the Paris Court of Appeals of 31 January 2013 confirming Decision 08-D-25.

Pierre de Montalembert

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