Online Sales Restrictions  

1. Introduction

Online sales restrictions are contractual, technological, or commercial arrangements that limit a distributor's ability to sell products or services through the internet. They commonly arise in vertical agreements between manufacturers/suppliers and distributors.

The restrictions may concern:

• prohibiting online sales altogether;
• requiring approval before selling online;
• restricting sales through particular marketplaces;
• imposing minimum online prices;
• restricting online advertising;
• limiting sales outside a particular territory;
• requiring the use of an authorised website;
• restricting access to comparison-shopping services;
• imposing different conditions on online and offline sales; and
• restricting sales through third-party platforms.

Competition law generally distinguishes between legitimate regulation of a distribution system and restrictions that unnecessarily eliminate effective online competition.

2. Legal Framework

A. Article 101 TFEU

Under Article 101(1) TFEU, agreements between undertakings that have the object or effect of preventing, restricting, or distorting competition are prohibited where they affect trade between EU Member States.

Online sales restrictions can fall within Article 101 where they:

1. restrict the distributor's freedom to sell online;
2. partition markets territorially;
3. restrict passive sales;
4. impose resale price maintenance;
5. foreclose competing distributors; or
6. significantly reduce intra-brand or inter-brand competition.

B. Vertical Block Exemption Regulation

The principal EU framework is the Vertical Block Exemption Regulation (VBER).

The current framework permits many vertical restrictions where the parties' market shares remain within the applicable thresholds and the agreement does not contain a hardcore restriction.

The assessment therefore normally requires examination of:

• supplier market power;
• buyer/distributor market power;
• market definition;
• duration of the restriction;
• affected distribution channels;
• whether passive sales are restricted;
• whether the restriction is a hardcore restriction;
• efficiencies produced by the arrangement; and
• whether consumers retain access to alternative online channels.

3. Major Types of Online Sales Restrictions

A. Absolute Prohibition on Internet Sales

An agreement preventing a distributor from selling products online can seriously restrict competition.

A supplier may legitimately establish quality requirements for online sales, but a complete prohibition on internet sales is generally much more problematic because it removes an important method of reaching customers.

The classic EU example is Pierre Fabre.

B. Marketplace Restrictions

A supplier may prohibit distributors from selling through particular third-party marketplaces such as online marketplaces.

The important distinction is between:

Permitted:
A requirement that products satisfy certain quality standards.

Potentially problematic:
A blanket prohibition preventing distributors from using important online channels without sufficient competition justification.

Marketplace restrictions must therefore be analysed according to their actual competitive effects and the structure of the relevant market.

C. Online Advertising Restrictions

Suppliers sometimes restrict:

• search-engine advertising;
• price-comparison websites;
• sponsored advertisements;
• use of trademarks in online advertisements;
• keyword advertising; or
• promotional websites.

Such restrictions can reduce a distributor's ability to attract consumers.

A distinction must be made between a restriction on advertising and a restriction on the actual sale of products.

D. Dual Pricing

A supplier may charge distributors one price for products sold offline and another price for products sold online.

For example:

Offline purchase price = €100
Online purchase price = €120

If the difference is designed to make online sales commercially unattractive, it can operate as an indirect restriction on online selling.

Dual pricing therefore requires careful examination of its purpose, structure, and competitive effects.

E. Territorial Online Restrictions

A supplier may attempt to prevent a distributor from responding to online requests from customers located outside the distributor's territory.

This can raise serious concerns because online commerce makes territorial market partitioning easier.

Competition law generally distinguishes:

• active sales – targeted selling into another territory; and
• passive sales – responding to unsolicited customer requests.

Restrictions on passive online sales are particularly sensitive.

4. Important Case Laws

1. Pierre Fabre Dermo-Cosmétique SAS v Président de l'Autorité de la concurrence

Court: Court of Justice of the European Union
Case: C-439/09
Year: 2011

Facts

Pierre Fabre's selective-distribution agreements required distributors to sell its cosmetics in the physical presence of a qualified pharmacist.

In practice, this prevented authorised distributors from selling the products over the internet.

Decision

The CJEU held that a contractual requirement effectively prohibiting internet sales could constitute a restriction of competition by object.

The Court rejected the argument that the restriction was automatically justified simply because the products were cosmetics.

Principle

A contractual prohibition that effectively prevents distributors from making internet sales can be a serious restriction under Article 101 TFEU.

Significance

This became one of the leading authorities on online sales prohibitions in EU competition law.

5. Coty Germany GmbH v Parfümerie Akzente GmbH

Court: Court of Justice of the European Union
Case: C-230/16
Year: 2017

Facts

Coty operated a selective-distribution system for luxury cosmetics.

Its agreement prohibited authorised distributors from selling through third-party online marketplaces in a manner that was recognisable to consumers.

However, distributors were still permitted to sell through their own websites.

Decision

The CJEU held that the marketplace restriction could be compatible with Article 101 where it:

• preserved the luxury image of the products;
• was applied uniformly;
• was proportionate; and
• did not prevent distributors from effectively selling online.

Principle

A prohibition on identifiable third-party marketplace sales is not automatically an unlawful restriction of competition.

Significance

Coty demonstrates the important distinction between:

prohibiting internet sales altogether

and

regulating the manner in which online sales are conducted.

6. Guess Europe BV v European Commission

Court: General Court of the European Union
Case: T-691/14
Year: 2018

Facts

The European Commission investigated Guess's distribution arrangements.

Among other restrictions, the Commission examined restrictions concerning:

• online sales;
• online advertising;
• authorised retailers;
• territorial sales; and
• the use of Guess trademarks in online advertising.

Decision

The General Court upheld the Commission's infringement decision concerning the relevant restrictions.

The arrangements were found to contribute to territorial partitioning and restrictions on online selling.

Principle

Restrictions that prevent distributors from independently exploiting online channels can become particularly serious when they contribute to territorial market partitioning.

Significance

Guess illustrates that online restrictions must be examined together with territorial restrictions and the overall distribution system.

7. D.I.M. DIL + HIN Vertriebsgesellschaft mbH & Co. KG and Another v Commission

Court: Court of Justice of the European Union
Joined Cases: C-501/06 P and C-513/06 P
Year: 2009

Principle

The case concerned restrictions within a distribution arrangement and the distinction between permissible vertical arrangements and restrictions that interfere with competition.

Its broader significance is that the legality of vertical restrictions cannot be determined merely by looking at the contractual wording. Their competitive purpose and economic context are important.

Relevance to Online Sales

The same analytical approach applies to online distribution restrictions:

• What exactly is prohibited?
• Which distributors are affected?
• What alternatives remain?
• Does the restriction partition markets?
• Does it eliminate an important sales channel?

8. MEO – Serviços de Comunicações e Multimédia SA v Autoridade da Concorrência

Court: Court of Justice of the European Union
Case: C-525/16
Year: 2018

Principle

The CJEU clarified the assessment of discriminatory conditions under Article 102 TFEU.

The Court emphasised that competition law analysis should examine whether conduct is capable of producing a competitive disadvantage, rather than relying merely on the existence of different contractual conditions.

Relevance to Online Sales

The principle can be relevant where a dominant supplier gives:

• preferential online access to selected distributors;
• discriminatory platform access;
• different online terms to competing retailers; or
• preferential treatment to its own digital sales channel.

9. Google Shopping

Authority: European Commission / General Court
Case: T-612/17
Year: 2021

Facts

The European Commission found that Google had favoured its own comparison-shopping service in its general search results while applying less favourable treatment to competing comparison-shopping services.

Decision

The General Court largely upheld the Commission's decision.

Relevance to Online Sales Restrictions

Although Google Shopping was not a conventional vertical-distribution case, it is highly relevant to digital commerce because it demonstrates how preferential treatment in an online ecosystem can disadvantage competing channels.

The case is particularly relevant where a dominant platform controls:

• search visibility;
• ranking;
• access to consumers;
• digital traffic; or
• comparison-shopping functionality.

10. Intel

Court: Court of Justice of the European Union
Case: C-413/14 P
Year: 2017

Facts

Intel offered rebates to major computer manufacturers and a retailer, with the Commission considering the arrangements capable of foreclosing competitors.

Decision

The CJEU required the Commission to examine all relevant circumstances when assessing whether a dominant undertaking's rebates are capable of restricting competition.

Relevance to Online Sales

The principle is relevant to digital distribution where a dominant supplier offers:

• exclusive online-distribution rebates;
• platform-specific discounts;
• incentives for distributors not to use competing marketplaces; or
• rebates conditional upon maintaining particular online sales shares.

The economic effect of the arrangement is important rather than simply its contractual label.

11. Intercontinental Exchange / Booking.com-Type Platform Restrictions

Online platforms may also impose parity clauses, sometimes called MFN clauses.

These can require sellers to offer the same or better price on one platform as on competing platforms.

Competition concerns include:

• discouraging price competition between platforms;
• increasing commissions;
• preventing entry by smaller platforms;
• reducing consumer ability to obtain lower prices elsewhere.

The legal treatment depends substantially on the precise form of the clause and the applicable national and EU competition rules.

12. Online Sales and Selective Distribution

Selective distribution is not inherently unlawful.

A manufacturer can establish a network of authorised distributors based on objective criteria.

For example, it may require distributors to maintain:

• qualified personnel;
• appropriate customer service;
• secure websites;
• product information;
• after-sales support;
• authentication systems; and
• quality-control standards.

The difficulty arises when these requirements are used as a disguised mechanism to eliminate online competition.

Example

Potentially legitimate:

"The distributor's website must provide accurate technical information and secure payment facilities."

Potentially problematic:

"The distributor may not sell the product online under any circumstances."

The second provision removes an entire distribution channel.

13. Active and Passive Online Sales

This distinction is particularly important.

Active sales

A distributor deliberately targets customers in another territory through:

• targeted advertisements;
• territory-specific websites;
• direct emails;
• targeted search advertising.

Passive sales

A consumer independently visits a distributor's website and places an unsolicited order.

Competition law traditionally provides stronger protection for passive sales because restrictions on passive sales can facilitate market partitioning.

14. Online Sales Restrictions and Article 102 TFEU

When the undertaking is dominant, the analysis changes.

Article 102 prohibits abuses of dominant position.

Potentially abusive conduct can include:

• refusing access to an essential digital distribution channel;
• discriminatory access to a platform;
• tying online and offline services;
• exclusionary rebates;
• self-preferencing;
• discriminatory ranking;
• foreclosure of competing online distributors; and
• unjustified refusal to permit online sales.

The relevant question is whether the conduct can restrict effective competition and harm consumers or competitors.

15. Competition Concerns

Online sales restrictions may produce several competitive effects.

1. Reduced intra-brand competition

Authorised distributors cannot compete effectively with one another online.

2. Territorial market partitioning

Consumers are prevented from purchasing from distributors in other territories.

3. Higher prices

Reduced online competition can weaken price competition.

4. Reduced consumer choice

Consumers may have fewer sellers and fewer purchasing channels.

5. Marketplace foreclosure

A supplier may prevent distributors from using important marketplaces.

6. Entry barriers

New online distributors may find it difficult to enter the market.

7. Platform foreclosure

A dominant platform may use restrictions to exclude competing platforms.

8. Reduced innovation

Restrictions may discourage development of new online distribution models.

16. Legitimate Reasons for Online Restrictions

Not every restriction is anti-competitive.

A supplier may have legitimate interests in:

• preventing counterfeit products;
• protecting consumer safety;
• ensuring product quality;
• providing technical assistance;
• protecting confidential information;
• maintaining brand presentation;
• ensuring cybersecurity;
• complying with regulatory requirements;
• protecting after-sales service; and
• preventing unauthorised resellers.

However, the restriction should generally be appropriate and proportionate to the legitimate objective.

17. Legal Test for Examination

A useful examination framework is:

Step 1 – Identify the parties

Determine whether the relationship is:

• supplier–distributor;
• manufacturer–retailer;
• platform–seller; or
• dominant undertaking–distributor.

Step 2 – Define the relevant market

Consider:

• product market;
• geographic market;
• online/offline substitutability;
• competing platforms; and
• consumer purchasing behaviour.

Step 3 – Identify the restriction

Ask whether the agreement contains:

• an online-sales prohibition;
• marketplace restriction;
• advertising restriction;
• dual pricing;
• territorial restriction;
• passive-sales restriction;
• parity clause; or
• exclusivity requirement.

Step 4 – Determine whether it is a hardcore restriction

If so, the VBER safe harbour may not be available.

Step 5 – Examine market power

Assess the market shares of:

• supplier;
• distributor;
• platform; and
• competing channels.

Step 6 – Examine effects

Consider:

• price;
• output;
• consumer choice;
• entry;
• innovation;
• market foreclosure; and
• territorial partitioning.

Step 7 – Consider efficiencies

Examples include:

• improved product quality;
• prevention of counterfeit goods;
• better consumer service;
• investment incentives;
• cybersecurity; and
• efficient distribution.

Step 8 – Apply proportionality

Ask whether a less restrictive alternative could achieve the same objective.

18. Case-Law Principles at a Glance

19. Conclusion

Online sales restrictions are not automatically unlawful. Competition law distinguishes between restrictions that legitimately regulate the quality and manner of online distribution and restrictions that eliminate effective online competition.

The central distinction emerging from EU jurisprudence is particularly clear:

Regulating how a distributor sells online is not necessarily equivalent to prohibiting the distributor from selling online.

Pierre Fabre demonstrates the serious competition concerns associated with an effective prohibition on internet sales, while Coty confirms that carefully structured marketplace restrictions may be permissible. Guess highlights the connection between online restrictions and territorial market partitioning, while Google Shopping and Intel provide broader principles concerning exclusionary conduct and competitive effects.

Accordingly, an online-sales restriction should be assessed by examining its nature, purpose, market context, market power, territorial effect, impact on passive sales, foreclosure potential, and possible efficiencies, rather than by relying solely on the contractual wording.