19 May 2024, 03:46
By Stephen Sidkin Dec 23, 2015

The future of selective distribution agreements

What can distributors of furniture brands in the UK learn from how Germany has approached the fashion brands Asics and Adidas? According to Stephen Sidkin, the implications for the future of selective distribution agreements are significant …

In August the German competition authority, the Bundeskartellamt, announced the conclusion of its long-running investigation in respect of certain provisions of the selective distribution system of sports footwear brand, Asics.

Selective distribution systems are used by brands to achieve greater control over the resale market than is achievable using an ordinary distributorship agreement.

In a selective distribution system the brand sets certain criteria – usually image centric – which must be observed by all retailers, and agrees only to supply such resellers. Correspondingly, retailers which are members of the system accept restrictions as to whom they can resell – being end users or other resellers which are members of the system.

By focusing on criteria which affects a brand’s image – for example, range of branded product, store lighting, and staff training – the brand owner can achieve the desired image and ensure consistency in the purchase experience enjoyed by the end user.

The Bundeskartellamt found that the provisions of the selective distribution system implemented by Asics’ German subsidiary – which prohibited distributors from using price comparison engines for their online presence, and the Asics brand names on websites of third parties to guide customers to their own online shops – are anti-competitive.

The competition authority concluded that such provisions are concerned primarily with controlling online and offline price competition. Its findings were made on the basis that such provisions restrict the online sales activities of small- and medium-sized authorised dealers, and, as such, their ability to sell the products over the internet.

Consequently, there is a risk that such sales restrictions will “prevent consumers from enjoying the benefits of the availability of both online and offline sales” and the consequent price reductions.

The Bundeskartellamt also criticised the provision of the Asics selective distribution system, which prohibited distributors from using online marketplaces such as Amazon and eBay.

The decision in respect of Asics follows a similar investigation by the Bundeskartellamt in 2014 of the conditions set by Adidas for the online sale of its products – in particular, Adidas‘ restriction on sales via online marketplaces.

The Bundeskartellamt decided that such restriction gave rise to serious competition concerns. The investigation in respect of Adidas was concluded in June 2014 after Adidas amended its sales conditions, taking out all reference to its restriction on sales via online marketplaces.

Asics has now followed suit, by amending the clauses in its selective distribution system which were the subject of competition law objections.

UK furniture brands operating selective distribution systems which contain similar restrictions risk attack by competition authorities within the EU. For such brands to proceed on the basis that the Bundeskartellamt’s decison only applies to fashion companies, and that furniture companies are for some reason immune to EU competition law, is simply wrong.

“Asics has amended the clauses in its selective distribution system which were the subject of competition law objections. UK furniture brands operating selective distribution systems which contain similar restrictions risk attack by competition authorities within the EU”

It is open to both the European Commission and the national authorities of EU member states to follow the lead of the Bundeskartellamt. Indeed, national competition authorities may feel the need to do so where the complainant is a retailer incorporated in the particular member state.

It is also open to retailers which have been refused admittance to a brand’s selective distribution system – for example, because of their use of, say, price comparison engines – to challenge the refusal.

In the interim, the UK Competition and Markets Authority (CMA) is undertaking an economic research project concerning vertical agreements (agreements between companies at different levels of the supply chain) and the internet.

In undertaking the project, the CMA has been gathering information from lawyers, economic consultants and business representative groups as to how suppliers of branded goods restrict online sales. Earlier this year, the CMA was not planning to produce formal guidance or changes in the law as a result of its project – however, the Bundeskartellamt’s decision may change its mind.

Stephen Sidkin is a partner at corporate law firm Fox Williams LLP. He established and leads Fox Williams’ agentlaw team. This article was published in the December issue of Furniture News magazine.

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