Selective Distribution Cases in the EU and its Member States(2021.10)

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TADA Hideaki(Professor, Department of Law, Toyo University and Former Visiting Researcher of the Competition Policy Research Center)

Abstract
Selective distribution (SD) is defined as “an agreement that restricts the number of authorised distributors based on selection qualitative criteria linked to the nature of the products and the complementary services that need to be provided to the buyers[1].” Under the Japan Fair Trade Commission (JFTC)’s Distribution Systems and Business Practices Guidelines (DSBP Guidelines)[2], SD is generally considered not problematic even if only distributors satisfying the enterprise’s criteria are allowed to handle the enterprise’s product “to the extent that such criteria are deemed to have plausibly rational reasons from the viewpoint of the consumers’ interests.” There have been, however, only a few cases under the Antimonopoly Act (AMA) where SD is discussed. Because of this, it is not clear how enterprises are allowed to make use of a SD system for their products. Legal issues in applying the AMA to SD have not been discussed, either. In the European Union (EU), on the other hand, the criteria for SD to be compatible with the TFEU 101 (1) was established as early as in the 1970’s. Since then there have been many SD cases delivered both at the EU and national levels, and various discussions take place in the ongoing revision process of the Vertical Block Exemption Regulation (VBER) and the Vertical Guidelines. This paper aims at exploring issues regarding SD such as basic concepts, elements to be taken into consideration and acceptable practices under the AMA. For that purpose, the author will look into the related legislation and case law of the EU and its Member States, and briefly mentions the revision of the VBER and the Vertical Guidelines. The Court of Justice of the EU (ECJ) rendered a landmark judgment in Coty in December 2017. The ECJ reaffirmed the established case law on SD for luxury goods by stating that a SD system for luxury goods designed to preserve the luxury image of those goods was complied with the TFEU 101 (1) so long as the so-called Metro criteria were met. It is, however, still not clear whether Coty is applicable to quality products. With this regard, Advocate General (AG) Wahl suggested that quality products be treated in the same way as luxury products. There are several cases at the national level following AG Wahl’s view. It is desirable that the scope of Coty be clarified. In Japan, the DSBP Guidelines distinguish SD from other restrictions on retailer’s sales methods (other restrictions)[3]. Both types of restrictions are deemed not problematic under the AMA so long as they have “plausibly rational reasons.” However, the reasons are described differently for SD and other types of restrictions. While the reasons for the former are based on “the viewpoint of the consumers’ interests such as preservation of quality of the product and/or assurance of appropriate use of the product”, those for the latter derive from “the purpose of ensuring proper sales of the enterprise’s product, such as assurance of the safety of the product, preservation of its quality and maintenance of credit of its trademark.” It is wondered whether this distinction is appropriate and the reasons for other restrictions could also be applied to SD. Since SD is principally used for trademarked luxurious and quality products, safety assurance of the product, preservation of its quality and maintenance of credit of its trademark could be valid reasons to justify the adoption of SD. Under the AMA, it is generally considered that maintenance and improvement of the prestigious image of a product does not serve consumers’ interests. However, taking Coty into consideration, the prestigious image of a product could be one of the elements to justify the adoption of SD. The revised VBER and Vertical Guidelines are expected to clarify the evaluation of online sales and SD under EU competition law. They may give suggestions to the evaluation of SD under the AMA and the possible revision of the DSBP. [1] OECD Competition Committee, Vertical Restraints for On-line Sales 2013, DAF/COMP (2013)13, p.11. [2] Part I. Restrictions on Trading Partner’s Business Activities, Chapter 2. Vertical Non-Price Restrictions, 5. Selective Distribution, Secretariat of the JFTC, “Guidelines Concerning Distribution Systems and Business Practices under the Antimonopoly Act”, 11 July 1991 (last revised 16 June 2017). [3] The restrictions mentioned are as follows: requirement of demonstration sales, delivery services, quality control and provision of exclusive shelves or display areas (Ibid., 6. Restrictions on Retailers’ Sales Methods).

Abstract

　Selective distribution (SD) is defined as “an agreement that restricts the number of authorised distributors based on selection qualitative criteria linked to the nature of the products and the complementary services that need to be provided to the buyers[1].”

Under the Japan Fair Trade Commission (JFTC)’s Distribution Systems and Business Practices Guidelines (DSBP Guidelines)[2], SD is generally considered not problematic even if only distributors satisfying the enterprise’s criteria are allowed to handle the enterprise’s product “to the extent that such criteria are deemed to have plausibly rational reasons from the viewpoint of the consumers’ interests.”

There have been, however, only a few cases under the Antimonopoly Act (AMA) where SD is discussed. Because of this, it is not clear how enterprises are allowed to make use of a SD system for their products. Legal issues in applying the AMA to SD have not been discussed, either.

In the European Union (EU), on the other hand, the criteria for SD to be compatible with the TFEU 101 (1) was established as early as in the 1970’s. Since then there have been many SD cases delivered both at the EU and national levels, and various discussions take place in the ongoing revision process of the Vertical Block Exemption Regulation (VBER) and the Vertical Guidelines.

This paper aims at exploring issues regarding SD such as basic concepts, elements to be taken into consideration and acceptable practices under the AMA. For that purpose, the author will look into the related legislation and case law of the EU and its Member States, and briefly mentions the revision of the VBER and the Vertical Guidelines.

The Court of Justice of the EU (ECJ) rendered a landmark judgment in Coty in December 2017. The ECJ reaffirmed the established case law on SD for luxury goods by stating that a SD system for luxury goods designed to preserve the luxury image of those goods was complied with the TFEU 101 (1) so long as the so-called Metro criteria were met.

It is, however, still not clear whether Coty is applicable to quality products. With this regard, Advocate General (AG) Wahl suggested that quality products be treated in the same way as luxury products. There are several cases at the national level following AG Wahl’s view. It is desirable that the scope of Coty be clarified.

In Japan, the DSBP Guidelines distinguish SD from other restrictions on retailer’s sales methods (other restrictions)[3]. Both types of restrictions are deemed not problematic under the AMA so long as they have “plausibly rational reasons.” However, the reasons are described differently for SD and other types of restrictions. While the reasons for the former are based on “the viewpoint of the consumers’ interests such as preservation of quality of the product and/or assurance of appropriate use of the product”, those for the latter derive from “the purpose of ensuring proper sales of the enterprise’s product, such as assurance of the safety of the product, preservation of its quality and maintenance of credit of its trademark.”

It is wondered whether this distinction is appropriate and the reasons for other restrictions could also be applied to SD. Since SD is principally used for trademarked luxurious and quality products, safety assurance of the product, preservation of its quality and maintenance of credit of its trademark could be valid reasons to justify the adoption of SD.

Under the AMA, it is generally considered that maintenance and improvement of the prestigious image of a product does not serve consumers’ interests. However, taking Coty into consideration, the prestigious image of a product could be one of the elements to justify the adoption of SD.

The revised VBER and Vertical Guidelines are expected to clarify the evaluation of online sales and SD under EU competition law. They may give suggestions to the evaluation of SD under the AMA and the possible revision of the DSBP.

[1] OECD Competition Committee, Vertical Restraints for On-line Sales 2013, DAF/COMP (2013)13, p.11.
[2] Part I. Restrictions on Trading Partner’s Business Activities, Chapter 2. Vertical Non-Price Restrictions, 5. Selective Distribution, Secretariat of the JFTC, “Guidelines Concerning Distribution Systems and Business Practices under the Antimonopoly Act”, 11 July 1991 (last revised 16 June 2017).
[3] The restrictions mentioned are as follows: requirement of demonstration sales, delivery services, quality control and provision of exclusive shelves or display areas (Ibid., 6. Restrictions on Retailers’ Sales Methods).