Selective distribution: can sales on marketplaces be prohibited?

The question is one of the most debated in distribution law over the past decade: can a manufacturer or supplier validly prohibit its approved distributors from selling its products on platforms such as Amazon, Cdiscount or Fnac Marketplace? The answer is yes, subject to conditions. But these conditions are precise, governed by European competition law, and failure to comply with them exposes the supplier to significant sanctions. This topic directly concerns manufacturers of premium products, managers of franchise or distribution networks, and all e-merchants operating within a selective contractual framework.

This article reviews the applicable legal framework, recent case law and the best practices to put in place to secure your distribution network.

What is selective distribution?

How does a selective distribution network work?

Selective distribution is a system whereby a supplier chooses its resellers according to criteria determined in advance, and prohibits them from reselling to non-approved distributors. This method of distribution is common in the luxury, cosmetics, high-end electronics, watchmaking and technical sports equipment sectors.

Unlike exclusive distribution, which divides the market by geographic zones, selective distribution is based on the quality of the distributors: staff training, product presentation, services associated with the sale, etc.

From a legal standpoint, this type of agreement is classified as a vertical restraint within the meaning of Article 101 of the Treaty on the Functioning of the European Union (TFEU). It is therefore in principle prohibited, unless it benefits from an exemption. This is the purpose of Commission Regulation (EU) 2022/720 of 10 May 2022, which replaced the previous Regulation 330/2010 and came fully into force on 1 June 2023 after a transitional period.

What are the conditions for a selective distribution network to be lawful?

European case law, stemming from the famous Metro case (ECJ, 25 October 1977), sets three cumulative conditions for a selective distribution network to escape the prohibition on anticompetitive agreements:

1. The nature of the product must justify the selectivity. The product must have objective characteristics (technical complexity, luxury image, need for specialised advice) that make it necessary to regulate distribution in order to preserve its quality or use.
2. The selection criteria must be objective, uniform and non-discriminatory. They must be applied in the same way to all candidates for approval. A refusal of approval based on a subjective criterion or applied selectively exposes the supplier to an action for unfair competition.
3. The criteria must not go beyond what is necessary. Any restriction must be proportionate to the objective pursued.

These three conditions are assessed in the light of French and European case law, and compliance with them determines not only the lawfulness of the network, but also the validity of all the contractual clauses that flow from it, including the prohibition on selling on marketplaces.

Can sales on Amazon or other platforms be legally prohibited?

What the CJEU's Coty judgment says

The definitive answer to this question came from the Court of Justice of the European Union in the judgment Coty Germany GmbH v Parfümerie Akzente GmbH (CJEU, 6 December 2017, Case C-230/16). The Court held that a supplier may prohibit its approved distributors from making visible use of third-party platforms for the online sale of its products, provided that this prohibition is justified by the luxury nature of the product, applied in a uniform and non-discriminatory manner, and does not go beyond what is necessary to preserve the brand image.

In so doing, the Court reinforced the idea that marketplace-type platforms, owing to their lack of personalisation and their standardised commercial environment, may be incompatible with the commercial policy of a premium brand. A distributor cannot require its supplier to distribute its products in a context that would harm their image.

This decision had an immediate impact in France, where the Competition Authority had already taken a position in 2018 in its decision no. 18-D-23 of 24 October 2018, accepting that a prohibition on selling on marketplaces could be lawful within a selective distribution network, provided that the network itself was valid and that the prohibition met the criteria of proportionality.

Which products may be subject to a prohibition on selling on marketplaces?

In practice, the French and European courts have recognised the possibility of prohibiting marketplaces mainly for the following categories:

• Luxury or prestige products (perfumes, high-end cosmetics, watches, leather goods)
• Technical products requiring sales support (high-end consumer electronics, specialised medical or sports equipment)
• Products whose commissioning or explanation requires the intervention of a qualified salesperson

By contrast, everyday products, without any particular characteristics justifying selective distribution, cannot be subject to such a restriction. In the Samsung/Concurrence case decided by the Court of Cassation on 7 December 2022 (Cass. com., no. 19-22.538), the courts examined the lawfulness of the selective distribution of high-end televisions and analysed the clauses prohibiting sales on marketplaces in that light.

What are the limits on prohibiting sales on marketplaces?

When does a marketplace prohibition clause become unlawful?

Even within a valid selective distribution network, a marketplace prohibition may become unlawful if it is not properly constructed. Several scenarios are to be avoided:

First pitfall: prohibiting all sales on the internet. The prohibition on selling on third-party platforms must not translate into a general prohibition on selling online. An approved distributor must be able to maintain its own e-commerce site. Regulation 2022/720 is explicit on this point: a restriction on internet sales is a hardcore restriction which, in principle, is not exempted.

Second pitfall: applying the prohibition in a discriminatory manner. If certain approved distributors benefit from exceptions while others are sanctioned for the same practices, the prohibition may be challenged. In the Samsung/Concurrence case, the Court was notably called upon to analyse whether occasional exceptions to the prohibition on selling on marketplaces had created a de facto practice between the parties.

Third pitfall: the absence of a clear contractual basis. A marketplace prohibition must be explicitly provided for in the distribution contract, with precise and unambiguous wording. A mere usage or tolerance is not sufficient to justify it legally.

Fourth pitfall: exceeding the market share threshold. Regulation 2022/720 makes the block exemption subject to the condition that the supplier's market share does not exceed 30% on the relevant market. Above this threshold, the distribution network and the restrictions it contains must be subject to a thorough self-assessment under Article 101(3) TFEU.

Marketplace prohibition — lawful or unlawful?

Interactive tool · Selective distribution

Marketplace prohibition — lawful or unlawful?

Lawful Unlawful Risk of unlawfulness Not enforceable

Situation 01

Valid selective network, luxury product, uniform prohibition

Lawful

Situation 02

Prohibition of all online sales, including on the distributor's own site

Unlawful

Situation 03

Prohibition applied to certain distributors only

Unlawful

Situation 04

Prohibition without an explicit contractual basis

Not enforceable

Situation 05

Invalid network (ordinary product, subjective criteria)

Unlawful

Situation 06

Supplier market share above 30%, without individual exemption

Risk of unlawfulness

Analysis

Conditions / points of vigilance

Applicable references

Disclaimer. This module is for general informational purposes. It does not constitute legal advice. Each situation must be examined in the light of the circumstances specific to the network concerned and recent legislative or case-law developments.

What happens when a distributor sells on a marketplace outside the network?

What sanctions apply to sales outside the network?

Article L442-2 of the Commercial Code is the main enforcement tool in French law. It provides that any person participating directly or indirectly in the violation of the prohibition on resale outside the network, within the framework of an exempted selective or exclusive distribution agreement, incurs liability and is required to make good the harm caused.

This means that not only the approved distributor who sells outside the network may be held liable, but also third parties who knowingly facilitate such sales, under certain conditions. It was on this basis that the Shiseido brand sued eBay in summary proceedings before the French courts.

In the Court of Cassation judgment of 11 January 2023 (Cass. com., no. 21-21.847, Shiseido/eBay), the Court reiterated an important point: sales made by mere private individuals do not constitute a violation of the prohibition on resale outside the network. Article L442-2 applies only to professionals. It is therefore for the holder of the network to demonstrate the professional nature of the seller present on the marketplace, which can pose a real evidentiary difficulty.

In practice, the available measures include:

• A formal notice to the approved distributor in breach of its contractual commitments, with termination of the distribution contract
• A summons in summary proceedings before the commercial court to put an end to the manifestly unlawful disturbance
• An action for unfair competition against third parties who facilitate resale outside the network
• An application for an injunction to the platform for the removal of unlawful listings, subject to conditions

How to build an enforceable and secure marketplace prohibition?

Which contractual clauses should be drafted?

The drafting of the distribution contract is decisive. A poorly drafted marketplace prohibition will be challenged or found unlawful. Here are the elements that must appear in any selective distribution contract aimed at regulating online sales:

The precise definition of the platforms covered. It is not enough to refer to "marketplaces" in general. The contract must define the channels concerned (third-party marketplaces, auction sites, price aggregators) by distinguishing them from the distributor's own site, whose online sales must remain authorised.

The conditions under which online sales are authorised. The approved distributor may sell online on its own site, provided that the site complies with the approval criteria defined by the supplier (graphic charter, customer service, return policy, etc.). These criteria must be objective and non-discriminatory.

A control and sanction clause. The contract must provide for the procedures for verifying compliance with the obligations and the consequences of a breach, in particular termination of the contract.

A non-discrimination clause. To guarantee the lawfulness of the prohibition, the supplier must undertake to apply the same rules to all of its approved distributors. Any exception granted to certain distributors must be documented and justified.

What control should be exercised over sales outside the network?

Detecting sales outside the network, particularly on marketplaces, is a major operational challenge. The available monitoring tools make it possible to track the appearance of protected products on unauthorised platforms. Where a violation is found, it is advisable to have a bailiff's report of findings drawn up to secure the evidence, before any formal notice.

The Shiseido/eBay judgment of 11 January 2023 reminds us that an action against the platform itself requires demonstrating its active role (beyond mere hosting) or having previously notified it of the unlawfulness of the sales in a precise and documented manner, in accordance with the Law of 21 June 2004 for confidence in the digital economy (LCEN), now supplemented by the European Regulation on digital services (DSA, Regulation EU 2022/2065).

What are the risks for a supplier who wrongly prohibits marketplaces?

What sanctions apply in the event of an unlawful prohibition?

A supplier who prohibits marketplaces without its network being valid, or in a disproportionate manner, exposes itself to several risks:

• The nullity of the contested restrictive clauses, with possible retroactive effect
• Damages for the benefit of the distributors harmed
• Sanctions from the Competition Authority, which may open proceedings on its own initiative or following a complaint
• Fines from the European Commission in the event of a practice affecting trade between Member States

The stakes are all the more serious because proceedings before the Competition Authority may lead to injunctions to modify the distribution network and to financial penalties proportionate to the supplier's turnover.

Securing the marketplace prohibition within a selective distribution network

Securing the marketplace prohibition within a selective distribution network

Regulation (EU) 2022/720 · 2022 Guidelines · CJEU

How does the Mirabile firm assist companies on these issues?

Why consult a lawyer before setting up a selective distribution network?

Setting up or overhauling a selective distribution network is a legally sensitive operation. It involves a prior analysis of the lawfulness of the network in the light of competition law, rigorous contractual drafting and anticipation of litigation risks. The most common mistake is to reuse a contract template without checking its suitability for the supplier's actual situation, its products and its position on the market.

The Mirabile firm intervenes at every stage of building or securing a distribution network:

Legal audit of the existing network. The firm analyses the contracts in force, verifies the compliance of the selection criteria with the requirements of European and French law, and identifies risky clauses, in particular clauses relating to online sales and marketplaces.

Drafting and negotiation of distribution contracts. Each contract is drafted to measure, with particular attention to clauses on online sales, approval criteria, termination conditions and control mechanisms. The firm ensures that the marketplace prohibition, if justified, is formulated so as to be enforceable in the event of a dispute.

Support in the event of a dispute. When an approved distributor breaches its commitments by selling on an unauthorised marketplace, the firm assists the supplier in gathering evidence, drafting formal notices and, if necessary, bringing the matter before the summary proceedings or trial judge. The firm also acts to defend distributors who have been unfairly excluded or sanctioned.

Regulatory monitoring and updating of contracts. Distribution law is constantly evolving. Regulation 2022/720, which came into force on 1 June 2022 and has been fully applicable since 1 June 2023, introduced significant changes compared with the previous regime. The firm assists its clients in updating their contracts and commercial practices to remain compliant.

Concrete example: a cosmetics manufacturer facing Amazon

A high-end cosmetics manufacturer finds that several of its approved distributors are reselling its products via Amazon Marketplace, outside the framework authorised by their contracts. The Mirabile firm first carries out an audit of the network to confirm its lawfulness and the validity of the restrictive clauses. It then has bailiff's reports drawn up on the Amazon pages concerned, identifies whether the sellers are professionals or private individuals (a decisive distinction reiterated by the Court of Cassation in the Shiseido/eBay judgment of 11 January 2023), then sends formal notices to the distributors in breach. In the event of resistance, it brings the matter before the summary proceedings judge of the commercial court to obtain the immediate cessation of the unlawful sales and an interim payment on account of the harm suffered. In parallel, it formally notifies Amazon of the unlawfulness of the reported sales, in accordance with the procedures provided for by the DSA, in order to have the listings concerned removed.

Key takeaways

Selective distribution does indeed make it possible to prohibit sales on marketplaces, but this prohibition cannot be taken for granted. It rests on a precise legal structure: a valid network, a product justifying the selectivity, objective and non-discriminatory criteria, a clear contractual clause and uniform application. In the absence of any one of these elements, the prohibition may be annulled, the network called into question and significant sanctions imposed.

In a commercial environment where platforms occupy an increasing place, the legal securing of a distribution network is not a formality. It is a strategic investment that the Mirabile firm helps you build and defend.

This article is published for informational purposes and does not constitute legal advice. For any question relating to your situation, contact the Mirabile Avocat firm.