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14 January 2021
In recent years, the Belgian Competition Authority (BCA) has increasingly scrutinised anti-competitive restraints in vertical agreements and assessed these restraints under Article IV.1 of the Code of Economic Law (CEL) and Article 101 of the Treaty on the Functioning of the European Union (TFEU). In particular, following dawn raids carried out in 2018, the BCA's Investigation and Prosecution Service opened an investigation regarding alleged anti-competitive practices committed by Caudalie, a French cosmetics company specialising in vinotherapy, after a Belgian pharmacist complained that his supplier was imposing a pricing policy on him. Caudalie sells its products through a selective distribution network, meaning that only those authorised distributors that comply with the specific distribution criteria set out by Caudalie are allowed to sell its products.
On 20 November 2020 the competition prosecutor submitted a reasoned proposal for a decision to the president of the BCA alleging the following, which would constitute infringements of Article IV.1 of the CEL and Article 101 of the TFEU:
Restrictions contained in vertical agreements (ie, agreements between a supplier and its distributors) must be assessed under Article 101 of the TFEU, which prohibits any agreements that have as their object or effect the prevention, restriction or distortion of competition within the European Union. Regarding vertical agreements (eg, distribution agreements), guidance can be found in the EU Vertical Agreements Block Exemption Regulation (VBER) (330/2010), which sets out the conditions that a vertical agreement must fulfil to be deemed to fulfil the conditions for exemption under Article 101(3) of the TFEU. The European Commission's Guidelines on Vertical Restraints give additional guidance on the assessment of distribution agreements, including with regard to internet sales.
Under the competition law rules as set out in the VBER and the Guidelines on Vertical Restraints, distributors must always be allowed to freely determine their sales prices. Agreements between a supplier and its distributor, which directly or indirectly establish a fixed or minimum price or price level to be observed by the distributor when reselling a product to its customers (ie, resale price maintenance – for example, by imposing a maximum discount level) are strictly forbidden as they artificially encourage higher pricing.
Moreover, within a selective distribution system such as the one operated by Caudalie, distributors operating at the retail level of trade may not be prevented from engaging in active and passive sales towards end users. In other words, distributors must be free to sell, both actively and passively, to all end users, also with the help of the Internet. A violation of these rules is considered to be a hardcore vertical restriction that cannot enjoy the VBER's safe harbour and will likely be considered null and void.
The BCA's Competition College will now examine the proposed decision against Caudalie (the content of which has not been made public) to decide whether Caudalie's distribution practices and policy towards its distributors infringe competition law. Caudalie will be allowed to file written submissions in response to the proposed decision and will be heard at a hearing before the Competition College adopts its decision. The Competition College's decision can be appealed before the Market Court and a further appeal, on points of law only, remains available to the Supreme Court.
This may be the start of another long legal battle for Caudalie. This is not the first time that Caudalie has had to defend itself in competition law cases. In France, Caudalie finally won, after a five-year legal saga, its battle against Enova. Enova had exploited a platform selling Caudalie's products and claimed that Caudalie's selective distribution agreements infringed competition law as they provided that Caudalie's products could be sold online by the selected distributors only on their own websites (and therefore not on online platforms). In July 2018 the Paris Court of Appeal sided with Caudalie and upheld the marketplace ban in its selective distribution agreements.
The European Commission is currently assessing the rules contained in the VBER and the Guidelines on Vertical Restraints, which are due to lapse by May 2022. The rules currently applying to resale price maintenance and active and passive sales are particularly on the commission's radar and their concrete application may consequently be adapted or further elaborated on in the commission's ongoing assessment process.
For further information on this topic please contact Carmen Verdonck or Nina Methens at ALTIUS by telephone (+32 2 426 1414) or email (firstname.lastname@example.org or email@example.com). The ALTIUS website can be accessed at www.altius.com.
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