A new legislative resolution in favour of consumers’ rights in online trade and internet retailing has recently been adopted by the European Parliament. It is intended to lead to a greater transparency in internet sales and opens wider range shopping offers for consumers. The same rationale led the Court of Justice of the European Union to deliver its judgement, a few days earlier, on online sales of dermo-cosmetic products.
The European court was not keen either to permit bans based on the requirement of protection of brand prestige- Josette Grech
The case arose after the French national competition authority launched an antitrust investigation into the commercial activities of Pierre Fabre Dermo-Cosmétique SAS, which manufactures and markets cosmetics and personal care products, mainly through pharmacies, across Europe. Pierre Fabre marketed its brands including Avène, Klorane, Galénic and Ducray under selective distribution contracts that stipulate that all sales of the products must be made in a physical space and in the presence of a qualified pharmacist.
In defending these sale restrictions, Pierre Fabre argued that pharmaceutical and personalised advice that is tailored to meet the expectations of efficiency and safety can be given only to consumers by a qualified pharmacist. In addition, they claimed that the online sale of dermo-cosmetic products has the potential of promoting their counterfeiting and impedes the requisite logistical monitoring by highly qualified professionals. Dismissing these justifications, the French authority found fault with such sale restrictions, claiming that, since the products did not qualify as medicines, a ban on all internet sales ran counter to competition law and consequently imposed a fine on Pierre Fabre.
The decision of the national competition authority was challenged by Pierre Fabre before the Paris Court of Appeal, which made a preliminary reference to the European court on the matter. The main question on which guidance was requested related to whether an absolute ban on internet sales amounted to a hardcore restriction of competition or whether it was potentially justifiable under EU law.
In its judgement the European court followed in the main the conclusions of its Advocate General, who had published its opinion on the case earlier this year. The European court ruled that a restriction imposed on the online sale of cosmetics and personal care products breaches EU competition rules and cannot be justified in the terms of the block exemption for distribution and supply agreements.
In coming to such a ruling, the European court based itself on the entrenched principle of free movement of goods and rejected arguments that sought to justify a ban on online sales on the basis that is was necessary to provide individual advice to consumers. The court pointed out that not even in the case of non-prescription medicines and contact lenses was it ready to allow restrictions on internet sales based on such argument.
The European court was not keen either to permit bans based on the requirement of protection of brand prestige. This is quite unprecedented bearing in mind the number of previous judgements in which the same court accepted that prestigious or luxury goods can be selectively distributed, and may hint at a different stance the court will be taking in the future in relation to restrictions in selective distribution systems for luxury products.
Yet the European court did confirm that, in principle, the restriction could benefit from individual exemption but left it up to the Court of Appeal of Paris to examine whether Pierre Fabre’s sale restriction could benefit from such an exemption.
jgrech@demarcoassociates.com
Dr Grech is an associate with Guido de Marco & Associates and heads its European law division.