Distribution – French Courts can rule on a competition law dispute over selective distribution and EU online sales

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An interesting article from Eversheds……

Précis

The Court of Justice of the European Union (CJEU) has ruled that the French Courts have jurisdiction to rule on a dispute over the online sale of Samsung products on websites based outside of France because such sales may harm bricks-and-mortar retailers in France.

What?

Concurrence, a retailer of consumer electronics based in Paris, had entered into a selective distribution agreement with Samsung, entitled “Specialist ELITE retailer” (the Agreement). The Agreement covered high-end Samsung products such as high tech TVs (the Products). However, the Agreement prohibited Concurrence from selling the Products online. In spite of this, Concurrence made sales both through its bricks-and-mortar store in Paris and its website.

In this context, a dispute arose between the parties. Samsung alleged that Concurrence had breached the Agreement by selling the Products on its own website, and terminated the Agreement on this ground. Concurrence challenged the termination of the Agreement, arguing that a ban on internet sales was unenforceable under EU and French competition law. In particular, Concurrence claimed that Samsung was not applying the ban on online sales for the Products uniformly, because the Products were sold on several e-tailer websites outside of France, without any action from Samsung.

By way of reminder, bans on online sales are prohibited as hardcore restrictions under EU competition law. However it is still unclear whether bans on sales on third-party platforms are also prohibited under EU competition law. In any event, suppliers may impose conditions for sales made over the internet in the context of selective distribution systems (SDS), provided that the criteria imposed for online sales mirror those for in-shop sales and are applied on a uniform basis.

Procedure

Concurrence brought an action for interim measures against various e-tailers before the Paris Commercial Court. It asked the Court to declare the prohibition of online sales unenforceable. Concurrence also sued one of the e-tailers in order to obtain the withdrawal of the Products from their market places in France, Spain, Germany, the UK and Italy, under French tort law on the grounds that Concurrence was suffering harm as a result of that e-tailer breaching the Agreement for Samsung’s SDS.

In parallel, Concurrence has sued Samsung before the French Competition Authority (FCA) on various grounds. The law suit brought before the Commercial Courts finally ended up at the French Supreme Court (Cour de Cassation), which stayed the case pending a referral for a preliminary ruling from CJEU.

Ruling

The preliminary ruling related to the interpretation of Article 5(3) of Council Regulation (EC) No 44/2001 (Brussels I Regulation) on national courts’ jurisdiction. The Brussels I Regulation lays down rules governing the jurisdiction of national courts and the recognition and enforcement of judgments in civil and commercial matters in EU Member States. The basic principle is that jurisdiction is granted to the courts of the EU Member State in which the defendant has its legal seat or domicile, regardless of its nationality. In certain circumstances, a defendant may be sued in the courts of another EU Member State. Article 5(3) of the Brussels I Regulation provides that in matters relating to tort liability (delict or quasi-delict), jurisdiction may also be granted to the courts in the EU Member State where the harmful event occurred or may occur. The Brussels I Regulation does not specifically address situations where damages are caused by online sales in the EU.

In that respect, the French Supreme Court asked CJEU how Article 5(3) should be interpreted for the purpose of conferring jurisdiction in this case. In particular, if there is an alleged breach of a prohibition on resale outside of a selective distribution network by means of online sales on websites operated in various Member States, does an authorised distributor, which considers that it has been adversely affected, have the right to bring an action in the courts of the territory in which the online content is or was accessible?

CJEU ruled that the place where the loss occurred under Article 5(3) is to be regarded as the place where the holder of the exclusive right suffers a reduction in its sales, that place being the same as the territory in which its right is protected (France in this case). The origin of the websites on which the products in question were offered for sale does not appear to be relevant for the purposes of determining jurisdiction. The French Courts will therefore have jurisdiction to assess whether Concurrence suffered from online sales made to French customers through the e-tailer/web market places based outside of France.

So What?

CJEU’s ruling is useful and welcome as it clarifies jurisdictional issues in the general context of cases involving competition law and cross border online sales. Within the EU, a distributor or retailer may bring an action before the national court in the country it is based in (in this case France) if businesses operating in other EU Member States are involved in reselling products outside of the selective or exclusive distribution network, and the distributor or retailer suffers a decrease in sales in its home country. It should be noted that the CJEU ruling is without prejudice to the assessment of the French Commercial Courts on the merits of the case. In particular was Samsung entitled to restrict online sales? In parallel with the Commercial Court procedure, an investigation on this point is still ongoing with the FCA. From an EU law perspective, the on-going investigation launched by the European Commission into the e–commerce sector should shed some more light on the legal position of bans imposed by manufacturers on sales made by distributors through third party platforms.