To quote this paper: S. CHAABI, “New Sanction Imposed by the French Competition Authority: €91.6 Million Fine on Rolex for Restrictive Online Sales Practices in a Selective Distribution System”, Competition Forum, 2024, n°0059 https://competition-forum.com.

This ruling highlights the growing importance of the digital economy in France, where online sales have surged by 10.5% in 2023, amounting to EUR 160 billion^[1]. The FCA’s decision underscores its strict stance on anti-competitive practices.

The facts relate to the specific market of luxury watches’ distribution. Indeed, Rolex banned its distributors from selling Rolex’s watches online, on the ground of a fight against counterfeiting and parallel trade for ten years. The facts spread from October 13^th, 2011, to March 23^rd, 2022.

The decision concerning Rolex stems from complaints filed by the French jeweler Pellegrin & Fils and the French Jewelers’ Union (Union de la Bijouterie Horlogerie) in 2017.

Concerning Rolex’s distribution model, we can affirm that Rolex is a Swiss group that commercializes luxury watches under Rolex and Tudor brands. Rolex France is the most important distributor of luxury watches on the French market due to its renown and market shares. Rolex uses a network of independent certified resellers, such as Pellegrin & Fils based on a selective distribution system, involving exclusive agreements with them. These agreements stipulate that Rolex’s products are exclusively sold on physical outlets. 

The legal problematic is whether restrictions on online sales, aimed at preserving brand image and combating counterfeiting, can be considered proportionate and necessary, or if they inherently infringe on competition rules.

In the decision n°23-D-13, issued on December 19, 2023, the FCA confirmed that Rolex had implemented a vertical agreement restricting online sales. As a result, the FCA imposed a €91.6 million fine on Rolex for violating competition laws^[2].

Moreover, an injunction was imposed on the brand. Rolex had to publish its sanction in newspapers and magazines and communicate a summary of the sanction on its website.

To analyze this decision, we must study the qualification of online sales restriction as a vertical agreement prohibited by article 101 TFEU (I) in parallel with the dismissal of price fixing allegations (II), in order to understand the final sanction (III).

I. The Qualification of online sales restriction as a Vertical Agreement Prohibited by Article 101 TFEU

This decision arises from the need to clarify rules concerning online sales and distribution networks amidst numerous prior decisions.

The French Competition Authority’s reasoning in the Rolex case followed a structured approach with the characterization of the restriction by object and the assessment of potential exemptions, to examine whether the practice could benefit from exemptions on the grounds of the Block Exemption Regulation or individual exemption.

In this decision, Article 101(1) TFEU is used to assess the vertical agreement between Rolex France and its distributors regarding the ban on online sales of Rolex watches. This article prohibits agreements that may restrict or distort competition within the internal market.

The FCA found that prohibiting online sales was disproportionate and unnecessary, referencing the CJEU’s ruling[3] that such restrictions must be objectively justified for a legitimate purpose. The CJEU determined that clauses banning online sales are “by object” restrictions of competition, making them intrinsically anti-competitive without further analysis. Manufacturers must demonstrate that any restriction is proportional and necessary.

To be more precise, in this decision the first allegation against Rolex involved a vertical restraint through an agreement between entities at different levels of the distribution chain. Rolex argued that the restriction was necessary to protect its brand image and prevent counterfeiting. However, the FCA considers the online sales ban unlawful even if the reasons invoked were legitimate.

The FCA rejected Rolex’s justifications for prohibiting online sales for two main reasons. First, other luxury watchmakers facing similar challenges permit online sales under specific conditions, demonstrating that online sales are feasible for luxury brands. Secondly, alternative solutions exist against counterfeiting, such as Rolex’s “Certified Pre-Owned” program to ensure product authenticity and technologies like blockchain for traceability. The Authority concluded that these objectives could be met through less restrictive means (§356).

Thus, regarding the stipulations and agreements set in 1977, the absolute ban to sell online is considered inherently restrictive of competition, the Competition Authority considered this prohibition a vertical agreement that constituted a restriction of competition by object (§ 349).

Concerning the exemptions, the FCA considered that the total ban on online sales was a hardcore restriction ineligible for the block exemption.

The Block Exemption Regulation is a legally binding act that automatically exempts certain categories of vertical agreements from the prohibition set out in Article 101(1) of the TFEU.

In this case, the FCA argues that Article 4(c) of Commission Regulation No. 330/2010 excludes from the block exemption vertical agreements that restrict active or passive sales to end users by members of a selective distribution system acting as retailers. The associated guidelines emphasize the importance of the Internet as a sales tool, considering its use by a distributor as a form of passive selling. They stipulate that, in principle, every distributor must be allowed to use the Internet to sell its products.

The CJEU, in the Pierre Fabre judgment, ruled that a clause effectively prohibiting the Internet as a method of marketing restricts passive sales and constitutes a hardcore restriction, excluding the benefit of the block exemption.

The new Block Exemption Regulation of 2022, although not applicable to this case, specifies that preventing the effective use of the Internet for sales constitutes a hardcore restriction.

Moreover, the 2022 Guidelines accompany the regulation for interpretation purposes and aim to clarify and harmonize rules regarding online sales restrictions following the Pierre Fabre and Coty case law. The new guidelines clarify that hardcore restrictions can result from direct or indirect obligations, and that certain restrictions related to the use of specific online sales channels may benefit from the exemption if they do not prevent the effective use of the Internet for sales (§246-251). Companies can impose criteria for online sales that differ from those applied to physical stores, as long as the intent is not to hinder Internet sales.

This decision, echoing the precedent set in the Mariage Frères Group^[4] case for luxury teas, demonstrates the French Competition Authority’s serious stance on practices it deems anti-competitive.

The FCA stands on its ground regarding online sales as in the 2012 Bang & Olufsen case^[5]. In both instances, the companies implemented bans on online sales by their authorized distributors, which were deemed anti-competitive practices.

It aligns with French competition law’s core mission of protecting both consumers and competitors, principles that Rolex’s practices were found to contravene.

Concerning the individual exemption, according to Article 101(3) TFEU and its conditions, certain agreements are compatible with competition law, even if they fall under the scope of Article 101(1).  However, it must contribute to improving the production or distribution of goods or promoting technical or economic progress; ensure consumers receive a fair share of the resulting benefits; impose no restrictions beyond what is necessary to achieve these objectives; and not allow the parties to eliminate competition for a substantial part of the relevant products or services.

The conditions for an individual exemption under Article 101(3) TFEU were not met for this practice (§357). Rolex France failed to demonstrate that the total ban on online sales was indispensable to achieve the stated objectives, such as combating counterfeiting and parallel trade.

II. The Dismissal of Price Fixing Allegations

Interestingly, the FCA considers there is not enough evidence on the file to establish a restriction on pricing freedom by Rolex, on point 372 to 377 of the decision.

It is important to note that, according to established case law from the Court of Cassation, pointed out by the FCA (§363), demonstrating a generalized vertical agreement concerning adherence to recommended prices does not require identifying all distributors involved in the agreement. Instead, it must be shown that a significant number of them collectively expressed their intention to behave in this manner in the market. In this case, the evidence does not sufficiently establish that Rolex France invited its distributors to restrict their pricing freedom in the luxury watch distribution market during the specified period of the complaint.

While it is clear that Rolex France aimed to limit the discounts offered by its distributors, the available evidence does not demonstrate that this intention translated into an actual invitation for distributors to restrict their pricing freedom from December 31, 2006, to January 1, 2020. Furthermore, there is no confirmation that a significant number of distributors complied with such an invitation by applying the prices communicated by Rolex France. Thus, the existence of a generalized agreement between Rolex and its distributors to fix retail prices for Rolex watches, as alleged in the second complaint, has not been established.

The investigation revealed that distributors maintained the ability to discount Rolex products, often exceeding the levels recommended by the brand (§376). This aspect of the case was dismissed, highlighting the rarity of sanctions for vertical restrictions without accompanying price-fixing accusations.

Legal scholars have noted this as a “remarkable decision,”^[6] given that sanctions for vertical restrictions are typically coupled with findings of price control violations. This outcome may set a precedent, potentially benefiting selective distribution networks in the future.

III. The Sanction in Light of The Retroactive Application Of 2021 Procedural Notice on Fines

One of Rolex arguments (§ 423) was to affirm that since the 2021 procedural notice^[7] on fines tend to increase fines due to the new calculation basis, this would be passed down to the principle of retroactively applying harsher laws. But this argument was rejected.

European law plays a crucial role in addressing vertical restrictions, demonstrating its significant impact on national authorities’ decision-making processes, even before formal implementation. This underscores the importance of EU regulations in shaping competition policy across member states. It demonstrates how the French Competition Authority rigorously applies EU principles to online distribution, particularly in the luxury goods sector, which has been evolving for over 15 years.

To determine the appropriate sanction, the French Competition Authority relied on a methodological study to sanction Rolex.

First, it used the value of Rolex watch sales made by Rolex France in France in 2021 as the basis for the sanction. The practice was deemed continuous from January 1, 2015, to December 31, 2021, a total of seven years. The Authority considered the online sales ban a hardcore restriction of competition, particularly serious in light of the growth of e-commerce.

Thus, the seriousness of the practices justified the level of the sanction. Regarding the calculation based on duration, the Authority assessed the practice as continuous over the same seven-year period.

In individualizing the sanction, factors such as Rolex’s size, economic power, and overall resources were taken into account as much as Rolex’s ability to pay.

As a result of these considerations, the Authority concluded with a final amount of €91,600,000 to be paid jointly by Rolex Holding SA, the Hans Wilsdorf Foundation, and Rolex SA.

This fine, being the highest imposed^[8] to date by the FCA for online sales restrictions in vertical agreements, raises questions about the potential for increased penalties in future vertical restriction cases.

We can even go further and question if these restrictions are still justifiable today. Can we still argue the exceptions in front of a European law becoming more and more strict in this matter?

But this idea could be tempered regarding the sum of the sanction. Indeed, L-M. Augagneur^[9] reminds that even if the sanction seems severe, it still represents less than 1% of Rolex’s turnover.

Moreover, the financial penalty is not the only sanction imposed.

Indeed, communicating the decision plays a crucial role in deterrence and prevention. The decision will be published to inform the public and market participants. Article 6 of the decision provides for publishing a notice stating: “Rolex sanctioned by the French Competition Authority” in Le Figaro’s, as well as in Montres Magazine. Article 5 stipulates that the same notice will be published on Rolex’s website.

CONCLUSION 

The ability to conduct online sales is a crucial aspect of modern competition law. The Rolex case demonstrates the ongoing challenges luxury brands face in adapting their distribution strategies to the digital age while complying with competition laws.

This decision underscores the European competition authorities’ commitment to enforcing compliance with distribution rules across various sectors^[10]. Indeed, the decision does reflect a strong stance on enforcing competition rules, particularly regarding online sales restrictions in selective distribution systems. This is because online sales are considered as much a “competition lever”^[11] for intra brand and inter brand competition that Europe has developed important juridical means to reinforce the jurisprudence.

The Rolex case highlights the ongoing struggle for online sales freedom in luxury distribution networks, particularly for larger distributors. As T. Lambert notes^[12], while smaller networks may have already adapted, significant players still face challenges in embracing e-commerce.

But the distributors haven’t said their last word, the case was brought to the Paris Court of Appeal. A decision expected by all. 

Samra CHAABI

[1] Fevad Press Release, 8 February 2024. See RLDI, March 2024, No. 212, p. 31.

[2] Aut. conc., n°23-D-13, dec. 19, 2023

[3] CJEU, Pierre Fabre Dermo-Cosmétique, Case C‑439/09, march 3, 2011.

[4] EUR 4 million fine,  E. DAMITIO, “Online sales restrictions and anti-competitive practices within a distribution network: practices implemented in the luxury tea sector”, Competition Forum, 2024, n° 0058 https://competition-forum.com. 

[5] Aut. conc., n°12-D-23, dec.. 12, 2023

[6] T. Lambert, « Vente en ligne et réseaux de distribution : une liberté des distributeurs (encore) à conquérir », Recueil Dalloz, 2024, p. 1246.

[7] Aut. conc., jul. 30, 2021, Communiqué de l’Autorité de la concurrence relatif à la méthode de détermination des sanctions pécuniaires

[8] S. Ferhat, (2023, December 22). The French Competition Authority fines Rolex EUR 91 million for prohibiting its authorised retailers from selling its watches online. Clifford Chance.

[9] L-M. Augagneur, « Chronique concurrence : droit des pratiques anticoncurrentielles et contrôle des concentrations (Septembre 2023 – Janvier 2024) », Dalloz actualité, march, 29 2024.

[10] Ibid.

[11] T. Lambert, art. cit. p.5

[12] Ibid.