Luxury brands, third party platforms and EU competition law – guidance from AG Wahl

The Court of Justice of the European Union (‘CJEU’) has today handed down Advocate General Wahl’s opinion in the Coty Germany reference proceedings (see press release here, the full opinion should be published later today). The press release explains that the Opinion proposes that the European Court find that a supplier of luxury goods may prohibit its authorised retailers from selling its products on third-party platforms such as Amazon and EBay. For the background to the case see our earlier post here

The Opinion begins by restating that selective distribution systems for luxury and prestige products do not necessarily fall within the prohibition of anticompetitive agreements under Article 101(1) if they meet three well-established criteria:

  1. the resellers are chosen on the basis of objective criteria of a qualitative nature which are determined uniformly for all and applied in a non-discriminatory manner for all potential resellers; 
  2. the nature of the product in question, including the prestige image, requires selective distribution in order to preserve the quality of the product and to ensure that it is correctly used; and 
  3. the criteria established do not go beyond what is necessary.
AG Wahl then goes on to deal with the restriction which is at the centre of this dispute, namely a provision which prohibits the authorised sellers from using third party platforms for internet sales “in a discernible manner”. He states that – in the present state of development of e-commerce – such a restriction does not necessarily fall within Article 101(1) where three criteria are met. However, it seems to us that the criteria he lists is merely a restatement of the well-established criteria for lawful selective distribution set out above, i.e. that the criteria:  

  1. are dependent on the nature of the product; 
  2. are determined in a uniform fashion and applied without distinction; and 
  3. do not go beyond what is necessary.
The assessment of the facts will ultimately be left to the German Court.  However, AG Wahl does observe that the contested clause does not appear to be caught by Article 101(1). In fact, he suggests that the restriction is likely to improve competition by ensuring the products are sold in an environment that meets the qualitative criteria and guarding against the phenomena of “parasitism” (a more loaded term than the usual reference to ‘free-riding’). He points out that the restriction does not amount to an absolute prohibition on online sales (which is considered a serous restriction of competition) for two reasons. First, the restriction still allows authorised distributors to sell through their own websites and to make use of third party platforms “in a non-discernible manner”. Second, distributors’ own online stores are still the preferred distribution channel so such a restriction cannot be assimilated to an outright ban or substantial restriction on internet sales.  This analysis leaves a number of questions open, and certainly suggests that the analysis of such restrictions may change if the popularity of third party platforms continues to grow.  

Finally, the Opinion proposes that, in the event that a restriction on third party platforms does fall within Article 101(1), it may well be exempted under Article 101(3), including under the block exemption for vertical agreements. AG Wahl does not consider a third party platform ban to be a hardcore restriction which would automatically exclude the relevant distribution agreement from the benefit of the block exemption. 

Overall, the AG Opinion appears to be in line with the Commission’s recent final report in its e-commerce sector inquiry, which recognised that price is not the only relevant competition consideration when selling goods online: “While price is a key parameter of competition between retailers, quality, brand image and innovation are important in the competition between brands. Incentivising innovation and quality, and keeping control over the image and positioning of their brand are of major importance for most manufacturers to help them ensure the viability of their business in the mid to long term.”  The AG Opinion is a first step in showing how this balance may in future be struck – although crucially the Opinion is not binding on the CJEU who will now begin its deliberations in this case. The final word on these issues will be left to the European Court, and this will no doubt be keenly awaited by brand owners, online retailers and third party platforms alike.

A FRAND torpedo? An update on Vodafone v Intellectual Ventures

Patentees commonly litigate in Germany. The validity of a patent is considered separately from (generally after) any infringement claims. Infringement proceedings, including injunctive relief, are not typically stayed pending a validity challenge. The availability of a relatively quick infringement decision and potential injunction against a licensee who has not complied with the Huawei v ZTE framework seem to make it an attractive option. 

To avoid the risks of an injunction in Germany, implementers actually or potentially subject to infringement proceedings there might think about asking a court in another jurisdiction to consider any FRAND dispute. This could enable them to argue that issues relevant to an injunction, such as whether the implementer is a ‘willing licensee’, are already subject to the jurisdiction of another Court, making it more difficult for the patentee to get an injunction. 

This is exactly what happened in Vodafone v Intellectual Ventures. As this blog reported here, when faced with infringement proceedings in Germany, Vodafone launched a FRAND countersuit in Ireland (with an ex parte application for permission to serve out of the jurisdiction). Earlier this year (unreported judgment [2017] IEHC 160), Intellectual Ventures responded by making an application to the Irish Court on the basis of Articles 29 and 30 of the Recast Brussels Regulation. It claimed that the German Court had been ‘first seised’ and so the Irish Court was required (or alternatively that it should exercise its discretion) to decline jurisdiction, or at least stay the proceedings. 

Despite identifying a number of overlaps relating to FRAND between the Irish and German proceedings, the Irish Court did not agree that Article 29 applied. The Irish proceedings did not involve the same cause of action or even the same parties (because of the involvement of an Intellectual Ventures subsidiary in the Irish case). However, given the degree of overlap between the two sets of proceedings, the Court considered that some form of discretionary relief under Article 30 was appropriate. It decided not to decline jurisdiction under Article 30, but agreed to stay the proceedings pending the final judgment of the Düsseldorf Court, expected in September, at which point, the various issues discussed might become clearer, e.g. the extent to which the German Court would cover FRAND.

The success of Vodafone’s tactic is therefore yet to be fully determined. It will be very interesting to see to what extent the German Court takes into account the Irish proceedings when issuing its infringement decision, and in deciding whether to grant an injunction. In the meantime, it seems that implementers wishing to secure a favourable FRAND jurisdiction would ideally act pre-emptively, before patent infringement proceedings are issued.

A final point worth noting arises from Unwired Planet v Huawei (see this blog’s posts here and here).  In that case the English High Court decided that it could settle the terms of a FRAND licence (dealing with incidental FRAND disputes along the way) and that a FRAND licence between companies operating on a world-wide basis would be global in scope. 

There are many issues relevant to determining jurisdiction and the operation of the Recast Brussels Regulation. However, with the English Court clearly prepared to determine FRAND licence terms and having held that a FRAND licence will be global, there is perhaps more potential now to argue successfully that if FRAND proceedings have been issued in one jurisdiction, a Court in another should be cautious about granting an injunction or coming to any other conclusion that might conflict with any FRAND findings of the first Court. Indeed, if the implementer has made it clear that it will accept the terms settled by a Court, it may be difficult to argue convincingly that it should be regarded as “unwilling” or dilatory.

Online auction commitments demonstrate digital markets are central to CMA’s priorities

The CMA has accepted commitments from ATG Media, the largest provider of online auction sites in the UK, to bring an end to practices which it considered hinders competition from rival bidding platforms (press release and decision here and here). 

ATG’s Live Online Bidding (LOB) platforms cover a wide range of markets, including: antiques and art; industrial and insolvency; and construction and agricultural equipment. 

LOB platforms are aggregators that host live auctions run by multiple auction houses. They aim to attract both individual bidders and auction houses to list live auctions. Traditionally live bidding was available only by attending in person or by telephone.

The CMA’s investigation began in November 2016 and focused on three practices:

  • obtaining exclusive deals with auction houses, so that they do not use other providers;
  • preventing auction houses getting a cheaper online bidding rate with other platforms through Most Favoured Nation clauses; and
  • preventing auction houses promoting or advertising rival live online bidding platforms in competition with ATG Media.
In order to bring the investigation to an end ATG has given the CMA legally binding commitments under the Competition Act 1998 to stop all three practices. 

The CMA’s Annual Plan 2017/18 (here) stresses the importance of digital markets in its enforcement priorities: “Online aspects of markets have become a major focus of our work, as many industries have become more digital in how they trade, raising important questions of policy and law.”

Online platforms (particularly those with market power) are likely to face increased scrutiny as competition authorities across the world focus ever more of their resources on the digital economy.   

Innovation and merger control

We have written on a number of occasions in the past (examples here) about the ways in which antitrust grapples with the potential for product innovations to have adverse effects on competition.  Generally, such effects are felt by a number of competitors, which may be a small price to pay for the benefit of genuine product innovation which, taken overall, benefits consumers.

Today’s topic relates to a different subject, which is the role that future innovation plays in merger control.  Merger control is of course prospective.  Antitrust reviews have, by contrast, the advantage of being able to consider actual market developments (even if they also display a worrying tendency to look for likely effects even in cases where actual market developments can be assessed – see the ‘pay-for-delay’ cases, for example…).  Merger analysis on the other hand has to take a view of the likely impacts of acquisitions both on existing products and product pipelines.  The full text of the Dow-DuPont merger decision is not yet available, but it appears that the Commission has been looking ever further into future, by considering not only defined future products (as is not uncommon in pharma merger cases – think Novartis/GSK (oncology) or Teva/Allergan), but also more speculative research poles. The Commission’s factual investigation extended to comparisons of early stage patent filings and use of the esoteric art of ‘forward citation analysis’ (essentially looking at how many other patents cite a particular prior patent to assess its importance) to determine potential future overlaps.

This week the Commission issued three Statements of Objections (SO) to companies which in some way failed to comply with merger filing requirements, either by providing misleading information or by ‘jumping the gun’ in their implementation of a transaction.  Of note in this context is the SO sent to Merck and Sigma-Aldrich. The companies had merged in 2015, and as part of the deal were required to sell off certain Sigma-Aldrich assets relating to certain laboratory chemicals.  The Commission’s allegation now is that the parties failed to tell it about “an important R&D project” which should have been addressed in the commitments package.  While the decision to issue these SOs perhaps says more about the Commission seeking to maintain the integrity of its merger review process, the importance placed on the protection of future competition should not be under-estimated.  We plan to report further on the Commission’s analysis in Dow-DuPont once the decision is available.