Mar 3, 2011
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Blocking Web sales limits competition

Mar 3, 2011

March 3 - Firms that block sales of their products on the Internet could be breaking EU rules, an adviser to Europe's highest court said on Thursday, a view that would loosen luxury brand owners' grip on their image.

"eBay say such restrictions are unfair"

An absolute ban on Web sales could be disproportionate and anti-competitive, European Court of Justice Advocate General Jan Mazak found.

He was giving his opinion on a case in which French cosmetics firm Pierre Fabre Dermo-Cosmetique, maker of the Avene, Klorane, Galenic and Ducray brands, obliged distributors to sell its products only in shops.

Luxury brand owners have long argued that bricks-and-mortar outlets are necessary to protect their image and exclusivity, but online retailers such as eBay say such restrictions are unfair.

"Pierre-Fabre's absolute refusal to allow its French distributors to sell its products on the Internet appears to be disproportionate," Mazak wrote in his opinion. The firm's claim that a ban was justified on public health grounds "appears to be objectively unfounded", as the products were not medicinal.

"An absolute ban on selling via the Internet, in the context of a selective distribution network which goes beyond what is objectively necessary in order to distribute goods in an appropriate manner in light of their material qualities, aura and image, has the object of restricting competition", Mazak said.

While only an opinion for now, Mazak's views will go before the ECJ judges, who uphold the recommendations of advocates-general in more than 80 percent of cases. The French competition regulator said in October 2008 that PFDC's sales restrictions effectively banned all Internet sales and were therefore anti-competitive. PFDC appealed to a Paris court, which then asked for advice from the EU court.

The European online retail market, which generated sales of 172 billion euros last year, is expected to see revenues up nearly a fifth this year, according to the Centre for Retail Research, in a study conducted in January.

It said European online spending had outpaced the U.S. market for the past three years.
By Conor Sweeney
(Writing by Foo Yun Chee, editing by Rex Merrifield and Will Waterman)

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