Restrictions contained in vertical agreements, i.e. agreements between a supplier and its distributors, have to be assessed under Article 101 TFEU, which prohibits any agreements that have as their object or effect the prevention, restriction or distortion of competition within the EU. Regarding vertical agreements, such as distribution agreements, guidance can be found in the Vertical Agreements Block Exemption Regulation (“VBER”), which sets out the conditions that a vertical agreement must fulfil to be deemed to fulfil the conditions for exemption under Article 101 (3) TFEU. The European Commission’s Guidelines on Vertical Restraints give additional guidance on the assessment of distribution agreements, including in particular on internet sales.
Under the competition law rules as laid out in the VBER and the Vertical Guidelines, distributors must always be allowed to freely determine their sales prices. Agreements between a supplier and its distributor, which directly or indirectly establish a fixed or minimum price or price level to be observed by the distributor when reselling a product to its customers (called “resale price maintenance”), for example by imposing a maximum discount level, are strictly forbidden as they artificially encourage higher pricing.
Moreover, within a selective distribution system such as the one operated by Caudalie, distributors operating at the retail level of trade may not be prevented from engaging in active and passive sales towards end users. In other words, distributors must be free to sell, both actively and passively, to all end users, also with the help of the internet. A violation of these rules is considered to be a hardcore vertical restriction that cannot enjoy the VBER’s ‘safe harbour’ and will likely be considered null and void.
The BCA’s Competition College will now examine the proposed decision against Caudalie (the content of which has not been made public) to decide whether Caudalie’s distribution practices and policy towards its distributors infringe competition law. Caudalie will be allowed to file written submissions in response to the decision proposal and will be heard at a hearing before the Competition College adopts its decision. The Competition College’s decision can be appealed before the Market Court and a further appeal, on points of law only, remains available to the Supreme Court.
This may be the start of another long legal battle for Caudalie. This is indeed not the first time Caudalie has had to defend itself in competition law cases. In France, Caudalie finally won, after a five year legal saga, its battle against Enova. Enova had exploited a platform selling Caudalie’s products and claimed that Caudalie’s selective distribution agreements infringed competition law as they provided that Caudalie’s products could only be sold on-line by the selected distributors on their own websites (and therefore not on on-line platforms). In July 2018, the Paris Court of Appeal sided with Caudalie and upheld the market place ban in its selective distribution agreements.
It should be noted that the European Commission is currently assessing the rules contained in the VBER and the Vertical Guidelines, which are due to lapse by May 2022. The rules currently applying to resale price maintenance and active/passive sales are particularly ‘on the radar screen’ and their concrete application may consequently be adapted or further elaborated upon in the ongoing Commission assessment process.