The European Court of Justice refuses a ban on Internet Sales by Cosmetic Companies

On the 13^th October 2011, the European Court of Justice (ECJ) passed a preliminary ruling with respect to the ongoing French appeal case of “Pierre Fabre Dermo-Cosmétique SAS vs Président de l’Autorité de la concurrence,Ministre de l’Économie, de l’Industrie et de l’Emploi.” This case concerned the appellant asking the court not to prevent it from imposing a contractual condition upon retailers which banned sales of its cosmetic products outside of what it the appellantconsidered as ‘qualified establishments’ This condition effectively amounted to a selective distribution system. This condition stipulated that the sale of all products originating from Pierre Fabre Dermo-Cosmétique SAShad to take place in a pharmacy where a pharmacist can explain all possible side-effects of the product. This narrow definition of a ‘qualified establishment’ effectively would preclude any form of sale over the Internet.

The French court had already prohibited this ban citing that doing so would put a severe limitation on competition while limiting the options available to consumers. It further cited that the products in question were of a cosmetic nature and cannot be afforded any form of specific protection as medicinal products. Pierre Fabre Dermo-Cosmétique SAS decided to appeal this case. In the course of the appeal, the court felt it necessary to forward a preliminary reference to the ECJ regarding the interpretation of Article 101 of the Treaty on the Functioning of the European Union (TFEU) with regard to the circumstances of this case.

The ECJ, having considered the situation, asserted that the contractual conditions that the appellant was seeking to enforce can be considered as a ‘restriction by object’ under Article 101(1) of the TFEU. This effectively means that if any company had to attempt to restrict its sales to those carried out in physical shops  without any valid reasons pertaining to competition law such as national interest or holding a certain portion of the market, either on a local level or on a pan European level, this could likely be considered as illegal. This will mean that it has become very difficult for companies to prevent their goods being sold over the internet.

Nonetheless, it is theoretically possible to obtain a ‘block exemption’ under Article 2 of Regulation 2790/1999. This would normally allow the employment of ‘selection distribution systems’ when a company holds less than thirty percent of the local market.  Although this principle was applicable in this case, the court further stipulated that this could not be applied where the object of the contract is manifestly that of restricting options to consumers. Nonetheless, authorization for such trade by retailers, even over the Internet, would still be required. The principle is that such internet retailers cannot be discriminated against simply because their trade is carried out over the internet.

This judgment is yet another case where the ECJ is paving the way for a pan European increase in Electronic Commerce.

Contact us here should you require legal assistance on e-commerce.