Setting the scene. The French company Dammann Frères manufactures and commercialises “high-end” teas that are sold both in its bricks-and-mortar shops and on its website. Independent distributors also resell Dammann Frères products in-store and online.

Dammann Frères has not opted for a selective or exclusive distribution system, but for an independent distributors network. Some of those distributors have concluded trademark license agreements with Dammann Frères and purchase exclusively from them or from suppliers indicated by them.

Some of the company’s practices raised competition concerns. First, Dammann Frères proceeded to impose minimum resale prices of its products by suggesting prices which its distributors agreed to. The second practice lies in the prohibition imposed by Dammann Frères on its distributors to resell its products on third-party internet platforms i.e. marketplaces.

The French Competition Authority (“FCA”) investigated the practices in the online distribution sector of high-end teas on its own motion and issued its decision n°20-D-20 on December 3rd, 2020.

It identified two different practices: a minimum price setting for the resale of its products; and the prohibition of the resale of its products on third-party internet platforms.

I. The setting of a minimum resale price

On price setting. The finding of the FCA that Dammann Frères imposed prices on its distributors lies in the interpretation of the “recommended prices” that the company regularly communicated and the fact that the freedom left to distributors to set their own prices was small to non-existent. Indeed, the FCA found that the company regularly sent out catalogues indicating price listing that it strongly encouraged its distributors to follow. The FCA found that these prices were in fact imposed through terms and conditions of sales and distribution agreements. It also found that the company sometimes went as far as imposing sanctions on distributors who charged lower prices, such as removing discounts.

On the agreement. Price-fixing agreement is defined as “an agreement between sellers to raise or fix prices in order to restrict inter-firm competition and earn higher profits”[1]. In this case, the FCA deducted the agreement from the fact that most distributors did practice the prices suggested by Dammann Frères. For instance, the distribution agreements regarding online sales featured a clause restricting sales on online stores by forbidding distributors to “practice any promotional offer or price discount without prior approval”. The Authority considered that the meeting of minds and the agreement were complete due to the signature of such agreements by some of the distributors.[2] Moreover, it appeared that some of the distributors regularly informed Dammann Frères when lower prices were charged.

On the restriction of competition. Dammann Frères argued that they aimed at protecting their brand image. The FCA deemed that this reason was not sufficient to justify such a practice and considered that Dammann Frères’ intent was to align all prices online and in stores in order to protect its own website from the competition of its distributors.

As such, it falls under the scope of Article 101 of the Treaty on the Functioning of the European Union that prohibits “all agreements between undertakings which may affect trade between Member States and which have as their object or effect the prevention, restriction or distortion of competition” – transposed in French law under Article L420-1 of the Commercial code in similar terms.

The FCA considered that Dammann Frères’ practice was harmful enough to be qualified a “by object” restriction, according to established case-law.[3] The FCA adds that this practice had resulted in a restriction of intrabrand competition between online sales website and as such represents a “by effect” restriction as well.

The FCA concludes by stating that such a practice cannot benefit from an exemption under Article 2 of Commission Regulation 330/2010 as it constitutes a hardcore restriction according to Article 4 of the Regulation.[4]

II. The prohibition of resale on marketplaces

The FCA fined Dammann Frères on the ground of the price-fixing agreement but rejected the second complaint based on the prohibition for distributors to resell on third-party platforms.

Application of the Coty case. In this decision, the FCA applied the Coty case in which the European Court of Justice judged that a supplier of luxury products could prevent its authorised distributors to sell on a third-party website.[5] In the Coty case as well as in the Dammann Frères case, this restriction aimed at protecting the brand image of luxury and high-end products.

The FCA concluded that the record did not allow for an identification of marketplace customers among all online buyers. As a consequence, excluding resale on marketplaces does not limit the distributors’ access to customers.

Moreover, the FCA considered that this restriction did not prevent distributors to sell online and gain increased visibility through marketplaces (through advertising and search engines).

Thus, the FCA found that this practice did not constitute a hardcore restriction in the sense of Article 4 b) of Regulation 330/2010.

It also added that the market shares of Dammann Frères and its distributors were inferior to 30% and that the agreement therefore fell under the protection of the Vertical Block Exemption Regulation.

In this decision, the FCA applied the Coty case outside of a selective distribution network; and took into account all the above-mentioned elements to sanction Dammann Frères with a 226 000 € fine for the sole practice of price fixing.

Claire-Emeline AUDUC

[1] Glossary of Competition terms, concurrences.com; Glossary of industrial organisation economics and competition law, OECD (online)

[2] It is sufficient that a significant number of distributors expressed their intention to behave accordingly on the market: Cases by the Cour de cassation, 3rd June 2013, Beauté Prestige International, and 7th January, 201, Société Philips France, n° 09-14.316, 09-14.667

[3] CA Paris (Ch. 5-7), 16th May 2013, n° 2012/01227, société Kontiki

[4] Commission Regulation (EU) No 330/2010 of 20 April 2010 on the application of Article 101(3) of the Treaty on the Functioning of the European Union to categories of vertical agreements and concerted practices

[5] Judgment of 6 December 2017, Coty Germany GmbH vs Parfümerie Akzente GmbH, C-230/16, EU:C:2017:941