I.- THE IMPACT OF THE INTERNET ON DISTRIBUTION.
Over the last decade, Internet has brought about substantial changes in consumer habits, and continues to do so, with the creation of new formulas for the sale of products and services. The following data gives us an idea of the dimension of this social and business phenomenon:
In 2013, almost 70% of Spanish homes were connected to the Internet, with the acquisition of goods and services occupying the 11th position in order of the priority given to the use of Internet services. In 2013, 11 million people used this means for the purchase of goods and services (31% of the Spanish population), and although in the European Union the average was 47%, this differential offers a notion of the tendency to follow in Spain in the years to come. In just 6 years, this rate has increased from 18% in 2007 to 31% in 2013. Finally, sales figures by electronic commerce reached 183.110 million Euro in 2012, while in 2007 this figure was only 38.000 million Euro, having increased almost fivefold in five years.[1]
The system of online sales is advancing in various directions. This is on accountof its subjects, since contracting between businesses (B2B) has joined private consumption transactions (B2C) with great force. And from the point of view of the scope of online sales, today they are present in sectors where in the past it would have been difficult to imagine, such as the purchase of a motor car, heavy machinery, furniture etc. This business method is possible due to the technology, payment security in transactions and the facility with which consumers may access the offer of products and services, allowing them to compare and make choices without being physically present in a sales establishment.
However, this scenario affects the traditional distribution model, where in the past the figure of the distributor was essential as the propagator of information, as the active prescriber and vendor of products and services, in the absence of any other efficient means of reaching the consumer and in order to guarantee a quality service. This said, online sales have an effect of territorial permeability so that friction between exclusive distributors are generated, and ultimately said distributors feel that their territory is invaded and that their exclusive right is broken because of the sales generated by the websites of authorised distributors in other territories. Distribution contracts signed at the beginning of the nineties did not contain restrictive clauses relating to online sales, simply because this means was not thought to be a means of trading goods and services on a large scale and because some entrepreneurs did not visualise the future dimension that this sales channel would take on. Notwithstanding this, when electronic commerce started to become more relevant, distribution contracts, especially those of a selective nature, started to include clauses, which prohibited the distributor, either directly or indirectly, from Internet sales.
II.- PROHIBITIVE OR RESTRICTIVE CLAUSES REGARDING INTERNET USE. SCOPE AND EXCEPTIONS.
The exclusive distribution contract in itself supposes a restriction on the freedom of sales and the granting of a right to exclusive and excluding sales to persons authorised by the manufacturer for the commercialisation of its products or services in a determined sector of the market, in exchange for which the latter requires the rendering of these services to be carried out in accordance with certain rules and a minimum sales volume, which justifies the granting of a sales monopoly in a territory. In order to guarantee the effective exclusivity of the right granted, the distributor usually calls for the manufacturer to take the necessary measures to prevent other distributors in different territories and even unauthorised distributors from gaining access to the assigned territory. In the case of distribution contracts and particularly in cases of selective distribution, the manufacturer requires the distributor to dispose of facilities for the sale of products and the provision of services, which are in line with the prestigious and exclusive image associated with the product trademark.
European Union legislation interprets as particularly serious restrictions, and in principle, as prohibited, amongst others, agreements with a distributor of a territory, which prohibits access to its web by potential clients from other territories; the fixing of maximum online sales or cancelling operations with clients outside of the exclusively assigned territory, when orders are received by Internet.[2]
Ultimately, the Community legislature puts the interests of the consumer above the principle of contract freedom between manufacturers and distributors, prohibiting agreements, which prevent consumers from benefitting from the advantages of electronic commerce. In other words, in general, it declares illegal contractual terms whose object is the direct or indirect prohibition of Internet sales to the distributor. The question is whether this restriction should be deemed absolute or whether it allows clarifications, and if so, what are the limits.
The judgement from the Court of Justice of the European Union (CJEU) in the Pierre Fabre case[3] demonstrated the principle of free trade through the Internet within the framework of the European Union and the illegality of clauses which prohibit its use, dealing in-depth with selective distribution. Nevertheless, the judgement also kept the door open regarding the legality of such clauses, an absolute prerequisite being that the result must be legitimate. However, this may still occur and in fact it does in contracts concerning sectors in which competition is not only based upon price, but also on other factors such as the rendering of specific services for products of high quality or high technology (for example: cosmetics or advance technology electronic equipment).
From the point of view of the type of commercial action of the distributor, we can conclude that the particularly important prohibition of restriction established in article 4 b) of the Group Exemption Regulation does not operate in a radical manner, and must take into account the nature of the sale in respect of who is the active subject generating the purchase and sale transaction (active or passive sales). Sales carried out through the web may be identified as a kind of passive sale and are recognised as such by the EU Commission, so that prohibitions and limitations to passive sales would be prohibited. It is for this reason precisely, that the Commission considers that the application of restrictions to the use of Internet in contracts is compatible with the Group Exemption Regulation to the extent that promotion on the Internet or the use of Internet may lead to active sales in territories or groups of exclusives of other distributors. Thus, the use of a search engine for the publication of advertisements specifically directed at users in a certain territory, would represent an active sale and therefore, may be the object of contractual prohibition[4]. An active sale may also be understood to be a sale, which is derived from actions of sending e-mail messages with offers to certain clients or groups of clients in the territory of another exclusive distributor, and would therefore be susceptible to prohibition. On the other hand, it would not be possible to legally prohibit sales which are derived from situations where the user expressly requests the distributor to keep him informed of offers and based upon this, subsequently acquires the products from the distributor’s website.
In the same way, we must distinguish between the sale and the delivery of a product, given that in respect of certain kinds of products, the legislation of an individual member state of the European Union may establish that they should be delivered by qualified people, as in the case of contact lenses (Ker Optica case[5]). This requirement for professional qualification is not just a legal provision, it may also form part of an agreement between supplier and distributor, so that when technical or qualitative particularities call for it, contracts may include clauses which oblige the distributor to effect the delivery of its products to its clients via an entity or a person with specific professional qualifications; in cases such as distribution contracts for professional cosmetics, products for pharmacists or therapists. This requirement contributes to the efficiency of the distribution and the security of the consumer, and at the same time is not discriminatory to offline sales, and although it is still a restriction, it must be deemed an exception to the general prohibitive rule.
Likewise, the supplier or manufacturer may impose conditions upon the distributor for the sale of products via Internet when minimum standards of image and quality are required, which commonly arises in selective distribution contracts. In such cases, the distributor would be allowed to have one or more physical establishments or showrooms in order to be able to form part of the group of authorised distributors. With the object of safeguarding the correct projection of the image of the products of the entrepreneur, the obligation imposed upon the distributor must be considered legal so that in cases where the distributor hosts his web page on the platform of a third party, the clients do not access the web of the distributor via the name or logo of the platform of said third party. In the same way, and with the same aim of guaranteeing standards of quality and service, the manufacturer may require from the distributor that the products sold online are delivered within specified (but reasonable) deadlines, and likewise demand that secure payment gateways are used in order to certify the transparency and security of purchase operations.
Another rule to be taken into account when analysing the legality of the restrictions of use regarding online sales consists of considering whether they are equivalent to the restrictions imposed upon conventional distribution (offline). Restrictions imposed upon distributors for online sales, which are not globally equivalent to those imposed upon sales through physical establishments shall be deemed to be illegal. For example, a clause stating that the distributor may not sell a certain amount of a product to a final client shall be understood to be legal, and the same may be perfectly specified in cases of online sales, since the objective which is being sought is common, regardless of the sales channel or tool employed: preventing an unauthorised third party from selling products, and benefitting from the commercial and financial effort made by the official distributor. Finally, it is also reasonable to think that, for reasons of uniformity and the image criteria of the entrepreneur, sales on the web page of the distributor may be subject to the presentation of the products in accordance with an aesthetic and technical standard set forth by the manufacturer or supplier, in the same way that offline sales may require that the distributor relies on business premises with certain features, location or decorative elements, in order to form part of a group of authorised distributors.
III. CONCLUSIONS
The current legal and case law framework of the European Union imposes changes upon distribution contracts in force, which include direct or indirect prohibition clauses regarding Internet sales by the distributor, taking into account that in practice they are inapplicable. The projection of the Internet on distribution systems is profound and unstoppable, and therefore it is recommendable, in the interests of both supplier and distributor, that traditional distribution agreements are updated in line with this new scenario.
Clauses which prohibit internet sales are not of an absolute nature, and, it is possible to agree upon certain restrictions inasmuch as they do not imply a direct or indirect prohibition and they comply with certain requirements. Therefore, restrictive agreements designed to prevent conduct, which undermines the essence of determined distribution agreements, may exist. Also it is possible to establish guides and instructions to be complied with so that the distributor may carry out online sales, with the object of protecting standards of quality and efficiency, which the average consumer associates with a trademark or a business, but also in order to assure the respect of an exclusive sales right granted to distributors in their respective territories.
Eduardo Vilá
Vilá Abogados
For more information, please contact:
16th March 2015
[1] Source: National Institute of Statistics.
[2] Group Exemption Regulation EU 330/2010 of 20th April 2010.
[3] Case C/439/09 of 13th October 2010.
[4] Guidelines on vertical restraints. Communication of the Commission. 2010/C 130/01 of 10 th May 2010.
[5] CJEU Case C-108/09 of 2nd December 2010.
