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OLG Schleswig-Holstein: prohibition of sale via online platforms at odds with the ban on cartels

OLG Schleswig-Holstein: prohibition of sale via online platforms at odds with the ban on cartels

The Oberlandesgericht (OLG) Schleswig-Holstein, the appeal court of the German state of Schleswig-Holstein, ruled in a judgement of 5 June 2014 that Casio Europe (Casio) may not prohibit approved specialist photography shops from selling digital cameras via online platforms like eBay and Amazon. The OLG said the prohibition was at odds with the ban on cartels.

The case
Casio produces digital cameras. These cameras are sold via wholesalers, via large stores like Karstadt, Saturn and Media Markt, and via Casio’s own online store. Casio also sells the cameras via approved specialist photography shops. In order to become an approved reseller, the specialist photography shops must sign an agreement with Casio. This agreement stipulates that the cameras may be sold in the physical shop, via catalogues, folders and in the shop’s own online store. Sale via online platforms like eBay and Amazon is contractually prohibited, however (the prohibition). The Wettbewerbszentrale, a German lobby organisation, went before the Landgericht Kiel, the district court of the German city of Kiel, to demand that the prohibition be lifted. When the claim was awarded, Casio appealed the case to the OLG.

Constraints on competition
The OLG said that the prohibition restricts competition. Although the approved specialist photography shops are permitted to operate their own online stores, they are largely dependent on price comparison sites and internet search engines in order to be found in the first place. Sale via online platforms like eBay and Amazon is much more effective. In particular the restriction of the effectiveness of accessibility was designated by the OLG as a relevant infringement of competition.

The OLG furthermore concluded that the contractual prohibition was actually aimed at restricting competition. There is lively competition on online platforms. As a result, the prices for the offered products that are sold in other ways are put under pressure. Casio is attempting to reduce this price pressure with the prohibition. A side-effect of the prohibition is also that Casio’s online store is found sooner than the online stores of the approved specialist photography shops. This enables Casio to keep turnover for itself.

Selective distribution
Casio asserted that the prohibition was necessary because of the high-tech nature of its cameras, which it said could not be sold to consumers without professional explanation. Sale via online platforms would also have a negative effect on Casio’s reputation because of the ‘flea market character’ of those platforms.

The OLG stated first and foremost that under certain circumstances, a prohibition of sale via online platforms may be permitted under competition law in the context of selective distribution. It is a condition in that case that the producer has developed a well-founded sales strategy which is implemented consistently.

With reference to the L’Orèal judgement of the European Court of Justice, the OLG reached the conclusion that Casio’s digital cameras do not necessitate the use of a selective distribution system. After all, these are mass products that are no more complex than similar cameras from other manufacturers. Professional explanation is not needed for the sale of these cameras. Furthermore, the sales prices are relatively low. In addition to this, Casio has not developed any clear sales strategy. In the sale to wholesalers, for instance, Casio does not have any guarantee whatsoever that quality is safeguarded. At large stores it is purely coincidental if a consumer stumbles upon a salesperson who is familiar with the particular model. If Casio had actually wanted to guarantee the quality and professional explanation, it would have to have focused on sale via specialist photography shops.

Hardcore restriction
The OLG qualified the prohibition as a hardcore restriction. The OLG derived this from article 4 (b) of the Block exemption vertical cooperation. On grounds of this, the restriction on the customers to whom the distributor may sell the contract products is designated as a hardcore restriction. This is precisely what is at play in the case at hand: specialist photography shops may not sell to customers who wish to purchase products via online platforms. Because there is a hardcore restriction, the restriction of the competition is also noticeable. The OLG refers in this context to the Expedia judgement from the European Court of Justice.

Conclusion
A heated discussion is taking place in Germany on whether the sale of products via online platforms may be prohibited from the perspective of competition law. In 2009 the OLG Karlsruhe and the OLG Munich came to the conclusion that such a prohibition is permissible. Last year the Kammergericht Berlin came to the opposite opinion, however. The Bundeskartellamt (BKA), the German competition authority, also has reservations. Adidas recently scrapped its prohibition of sale via online platforms from its distribution agreements after the BKA voiced criticism of the prohibition.

The events in Germany once again underscore that the competition law assessment of internet sale is the focal point of attention in the context of vertical distribution. The technological possibilities offered by the internet are clearly the reason behind this. Everyone active in internet sales would therefore be wise to keep a close eye on the developments.

Anyway, what view should we take of the prohibition of sale via online platforms at this point? The starting point seems to be that sale via online platforms can be prohibited. This must take place in the context of a selective distribution system, however. A condition for this is that the particular products have such specific properties that they must be sold via a selective distribution system. The prohibition must also be necessary from the viewpoint of a clear and well-supported sales strategy. This strategy must finally be applied consistently and without discrimination. A manufacturer that itself sells odd lots or discontinued models via online platforms most likely operates inconsistently and therefore cannot prohibit its distributors from also being active via online platforms.

By Eric Janssen

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