A significant recent fine imposed on Rolex by the French Competition Authority is a timely reminder of the strict rules that competition law imposes on how a manufacturer can control how others, such as distributors and retailers, sell its goods, and in particular the rules around restricting online sales.
Controls on retailers
In order to ensure that consumers are able to obtain a better deal by shopping around competing retailers, manufacturers are subject to strict rules on what restrictions they can impose on the retailers who stock their products. In our previous blog, we discussed how these rules were affected by changes to the law regarding vertical agreements introduced in 2022. In general a manufacturer cannot, for example:
- Tell retailers what retail price goods must be sold at (so called "resale price maintenance" or "RPM"), or impose a minimum price or maximum discount (although maximum prices are permitted) – whether a "recommended retail price" will be permitted depends on the extent to which discounts against this price are disincentivised;
- Tell retailers that they can only sell goods in "bricks and mortar" shops and not online unless this is objectively necessary and proportionate to protect their brand – although a manufacturer cancharge retailers less for products that will be sold in bricks and mortar stores and can impose certain rules on how their goods are sold online (for example restricting retailers from selling in third party online "marketplaces" where that is necessary for brand protection);
- Prohibit retailers from selling outside their "territory" even where the customer comes to them (for example by redirecting online sales to the allocated retailer for the customer's geographic location, or "geo-blocking" credit cards from outside the retailer's own area).
Following a lengthy investigation (including a dawn raid of Rolex's offices), the Autorité de la Concurrence (AdlC), the French competition regulator, imposed a €91.6 million fine on Rolex entities, including Rolex France, Rolex Holding SA, Rolex SA, and the Hans Wilsdorf Foundation, for prohibiting its authorised retailers from selling Rolex watches online for more than ten years under its distribution agreements with them. The AdlC was not prepared to accept Rolex's argument that this was necessary to combat counterfeiting and prevent sales by unauthorised retailers (noting that its competitors functioned without similar restrictions).
The significant fine imposed is a good reminder that competition authorities take seriously any attempt by manufacturers to limit the ability of consumers to shop around. A combination of authorised retailer programmes and bans on online sales can severely limit the ability of consumers to compare the prices that authorised retailers are charging for the same product, and therefore restrict the extent of competition between them.
However, Rolex's practice of recommended retail pricing was not considered to constitute a breach of competition law, because the AdlC accepted that retailers retained the ability to depart from the recommended price and decide their own prices.
ECJ Ruling on Super Bock's RPM Practices
The AdlC's decision in the Rolex case follows the judgment of the European Court of Justice (ECJ) in Super Bock in June 2023, in which the ECJ addressed the legality of price fixing in distribution agreements involving Portugal's leading beer manufacturer, Super Bock Bebidas. Between 2006 and 2017, Super Bock enforced strict controls on its distributors: setting minimum resale prices and reporting requirements, and imposing retaliatory measures against non-compliance. Following this, the Autoridade da Concorrência, the Portuguese competition authority, found Super Bock engaged in unlawful RPM and imposed a €24 million fine.
Super Bock appealed and the Lisbon Court of Appeal sought clarification from the ECJ on the concept of RPM as a "by object" restriction of competition – i.e. a restriction that is clearly designed to distort competition and which doesn't require the authority to demonstrate an appreciable negative effect. The ECJ clarified that just because RPM is a "hardcore" restriction which takes a distribution agreement outside the "safe harbour" of VABER (see our blog here), does not mean it is automatically a by object restriction. Establishing the latter will require a more detailed consideration of what the objective purpose of the restriction actually is (i.e. is it there to prevent competition on price, or for some other objective purpose such as brand protection?) The matter has since reverted to the Lisbon Court of Appeal, which upheld the sanction in light of ECJ's judgement.
Lessons for producers and retailers
The Rolex and Super Bock cases are a reminder to producers and distributors alike to proceed with caution when negotiating distribution agreements that might include rules about how the goods are sold:
- Suppliers should ensure that any restrictions, such as limits on online sales or recommended retail prices, are objectively necessary and proportionate to the legitimate objectives they seek to achieve.
- Competitors implementing less restrictive measures for similar risks can influence what regulators view as proportionate, and it is important to consider whether the objective can be achieved in a way that does not affect competition.
- Businesses should carefully review and negotiate distribution agreements to avoid clauses suggesting fixed or minimum resale prices and be careful about how they approach policing compliance with such clauses.
- The precise rules vary between jurisdictions – including now between the EU and UK – and a practice permitted in one jurisdiction may well be a breach of competition law in the other.
Such practices remain high on the agenda of competition regulators (see for example the Competition and Markets Authority's investigations of lighting and instrument manufacturers) and, as ever, a robust competition compliance policy and well-trained workforce are the best defence for any business.
If you would like to discuss how rules around competition and distribution arrangements affect your organisation, please contact Jamie Dunne, Charles Livingstone or your usual Brodies contact.
