Dutch Court adopts Advocate General Wahl’s opinion regarding bans on sales through online platforms
In a judgement of 4 October 2017 the Amsterdam District Court followed Advocate General Wahl’s opinion on the admissibility of limitations imposed by Nike European Operations Netherlands B.V. (“NEON”) on Nike selective distributors as to the use of online sales platforms.
The relevant facts of the case are, briefly summarized, as follows:
NEON is responsible for the distribution of the Nike products in Europe;
Action Sport Soc. Coop, A.R.L. (“Action Sport”) is a sports products retailer in Bagheria, Sicily (Italy);
Action Sport ordered the Nike products for the purpose of resale in its brick and mortar shop in Bagheria;
Purchase orders were accepted through NEON order acknowledgements which were always accompanied by the NEON Standard Conditions of Sale (“the Conditions”);
The Conditions provide, inter alia, that the purchaser submits to the jurisdiction of the Courts of Amsterdam for the purposes of any legal action or proceedings arising out of or in connection with any order and/or the Conditions and that the purchaser will at all times comply with Nike’s Selective Retailer Distribution Policy (“Selective Distribution Policy”) in force;
The Selective Distribution Policy, inter alia, provides that the retailer shall display all Nike products for consumer sale directly and exclusively within either (i) its own website or (ii) NEON authorised retailers own websites. Retailer shall not allow other companies (which are not NEON authorised retailers) to display Nike products for consumer sale within its own website and shall not display Nike products for consumer sale within websites of other companies (which are not NEON authorised retailers);
Action Sport displayed Nike products through Amazon. Amazon is not a NEON authorised retailer;
NEON repeatedly informed Action Sport that the sales through not authorised platforms are contrary to the provisions of the Selective Distribution Policy and requested immediate termination of the sales through that channel. The requests were not met with by Action Sport;
NEON terminated the relationship for continued breach by Action Sport of its contractual obligations pursuant to the Selective Distribution Policy;
Action Sport initiated summary proceedings against NEON in Italy, but the Italian Court declared that it did not have jurisdiction in view of the explicit exclusive jurisdiction clause in the Conditions. Thereupon NEON initiated legal proceedings against Action Sport before the Amsterdam Court requesting a declaration from the Court that NEON terminated in a legally valid manner and that Action Sport is not entitled to any termination compensation.
Considerations of the Court
The Court, after having ruled that the Conditions and consequently the Selective Distribution Policy therein contained apply to the relationship between the parties, took the following aspects into consideration as regards the question whether the Selective Distribution Policy is admissible under article 101 section 1 TFEU:
Purpose of the Selective Distribution Policy
According to the Court the Selective Distribution Policy clearly has as its purpose to establish a selective distribution system for NEON. This purpose follows from the provision which provides that “All retailers must comply with the new Distribution Policy in order to remain, or become, customers of NEON” and entails that not only the retailers are bound to the Selective Distribution Policy, but also that NEON is bound to only accept those retailers as customers which adhere to the said Policy.
Compliance with the conditions of the Block Exemption Regulation 330/2010
The Court first made reference to the principles laid down in the judgement of the European Court of Justice (“ECJ”) in the Metro-case which have remained unaffected in subsequent case law of the ECJ:
“….the Commission was justified in recognizing that selective distribution systems constituted, together with others, an aspect of competition which accords with Article 85 (1), provided that resellers are chosen on the basis of objective criteria of a qualitative nature relating to the technical qualifications of the reseller and his staff and the suitability of his trading premises and that such conditions are laid down uniformly for all potential resellers and are not applied in a discriminatory fashion.”
With due observance of the above principles, the Court decided that the provisions of the Selective Distribution Policy met with the conditions set by the case law of the ECJ.
Necessity of the limitation to safeguard the luxury brand image
When considering the question whether the limitations to display the Nike products for consumer sale within websites of other companies (which are not NEON authorised retailers) are necessary to safeguard the luxury brand image of Nike products, the Court referred to the considerations made by Advocate General Wahl on this issue in his opinion in the Coty-case:
- As the Commission has observed, relying in particular on the results of its sector inquiry, it is apparent that, at this stage of the development of e-commerce, distributors’ own online stores are the preferred distribution channel for distribution via the internet. Thus, notwithstanding the increasing significance of third-party platforms in the marketing of retailers’ products, the fact that authorised distributors are prohibited from making use in a discernible manner of those platforms cannot, in the present state of development of e-commerce, be assimilated to an outright ban on or a substantial restriction of internet sales.
- In the second place, it seems to me that the file submitted to the Court does not permit the conclusion that at present such a prohibition must be generally regarded as disproportionate to the objective pursued.
- It should be emphasised that, whereas the supplier — the network head — is in a position to impose certain obligations on its authorised distributors because of the contractual relationship between them, and thus to exercise a certain control over the distribution channels used for its products, it is not in a position to exercise control over the distribution of its products through third-party platforms. From that aspect, the obligation at issue may appear to be an appropriate means of achieving the objectives pursued by Coty Germany.
- Admittedly, it cannot be denied that online platforms, such as the platform at issue in the main proceedings, are capable of devising methods that ensure that the products concerned are represented in an appealing manner, just as authorised distributors do. However, compliance with the qualitative requirements which may be lawfully imposed in the context of a selective distribution system can be effectively ensured only if the internet sales environment is devised by authorised distributors, who are contractually linked with the supplier/head of the distribution network, and not by a third-party operator, whose practices escape the influence of that supplier.
The Court regarded the considerations of the Advocate General Wahl convincing and therefore saw no reason to stay the case and wait for the judgement of the ECJ. In addition the Court considered that the facts in the case between NEON and Active Sport were different from the facts in the Coty-case in the sense that NEON admits a number of third party online platforms to its selective distribution system and that the Selective Distribution Policy allows distributors to effect online sales through those platforms.
Considering all of the above, the Court decided that the NEON Selective Distribution Policy is admissible under article 101 section 1 of the TFEU and that NEON was entitled to demand compliance from Action Sport
The Amsterdam Court has followed the opinion of Advocate General Wahl on the issue of bans on sales through online third party platforms and one might say that it has thus pre-empted the judgement to be given by the ECJ in the Coty-case.
For further information on (selective) distribution matters, please contact Jaap van Till of our firm.