Caudalie fined over $ 1 million over minimum price warrants and selling restrictions in the EU

Anti-competitive crackdown in the European Union isn’t confined to tech monopolies like Apple, and in fact, has seen a growing number of consumer goods brands – from sportswear titans to skin-care companies – enter the market. his line of sight. In the wake of the opening of a competition-focused investigation into Caudalie in 2017, the Competition College of the Belgian Competition Authority (“BCA”) imposed a fine of more than $ 1 million to the French skin care brand on the grounds that its practice of prohibiting authorized distributors from selling its products at a price lower than a specified price and of limiting their ability to sell its online offers to consumers in other Member States, which is contrary to EU competition law.

The Belgian Competition College took up the Caudalie case after an initial investigation by the BCA’s Investigation and Prosecution Service, which received a complaint from a Belgian store owner, who reported that Caudalie was imposing a strict pricing policy on its authorized sale of company products. (Caudalie sells its products exclusively through a selective distribution network, and therefore, only authorized retailers who meet its specific criteria are permitted to stock and sell its products.)

Following a preliminary investigation, the BCA’s investigative department determined that there was sufficient evidence to show that the 26-year-old grape-seed-centric skin care brand engaged in anti-competitive practices in violation of Article IV.1 of the Code of Economic Law and Article 101 of the Treaty on the Functioning of the European Union. (The restrictions contained in vertical agreements (that is to say those concluded between a supplier, such as Caudalie, and its distributors) must be assessed in the light of Article 101 of the TFEU, which prohibits agreements aimed at “restricting , prevent or distort competition within the EU and [that] have an effect on trade between EU Member States. As such, the investigator presented a proposal for a decision on the matter to the Competition College in November 2020.

In a May 6 ruling, the Competition College determined that Caudalie and a number of its subsidiaries are accused of violating EU competition law by imposing minimum price mandates and restricting sales. active and passive within its selective distribution network by limiting online sales. by its distributors to consumers established in other EU Member States.

A manufacturer, like Caudalie, is authorized to set up a selective distribution system, and therefore, limiting the pool of authorized distributors of its products, and beyond, may restrict “active and passive sales by [those] distributors to unauthorized resellers, ”according to Annabelle Lepièce and Sander De Volder of CMS Law. However, according to EU law, distributors operating at the retail level should still be able to passively offer products, including through e-commerce sites. (This is different, according to Lepièce and De Volder, when “exclusive distribution agreements or selective distribution agreements are combined with exclusivity terms, where active sales (i.e. those in which a retailer actively targets potential consumers) may be restricted. ”)

Consequently, and taking into account the value of the sales of Caudalie in question and the duration of the illegal practices, the decision of the Competition College requires Caudalie to pay a fine of € 859,310 ($ 1.04 million) and to refrain from such anti-competitive activities in the future.

Lepièce and De Volder assert that “the imposition of such commercial limitations on distributors is considered to be hardcore restrictions and therefore infringements of EU and Belgian competition law”. At the same time, they note that “the case law of the Court of Justice of the European Union – the Coty v. Akzente Perfumery case, in particular, in which the court ruled that luxury brands can restrict the sale of their products on third party online platforms through selective distribution systems in order to preserve the quality of their products – found that “The conditions relating to the standardization of quality may, indeed, be necessary to preserve the luxury image of particular products and hence serve a legitimate objective under competition law.

In this context, Caudalie was authorized to submit clauses “that it can impose on distributors in order to safeguard the integrity of its distribution network and protect its brand image, [and] these commitments were made legally binding by the [Competition College’s] decision.”

While it is not yet clear whether Caudalie will challenge the decision of the Competition College, it can be appealed to the Market Court and then to the Supreme Court of Belgium.

The Caudalie case is not the only one of its kind in the retail sector. Indeed, in 2018 alone, the European Commission imposed fines of more than 150 million euros on consumer goods companies in connection with anti-competitive practices, with particular emphasis on restrictions on the online distribution of products. companies. Among the fines imposed in 2018? The fine of 40 million euros imposed by the European Commission TO GUESS? Inc. and a number of its subsidiaries after finding that the American brand wrongly imposed drastic contractual selling restrictions on its distributors, including banning its authorized retailers from serving online ads and making cross-border sales to consumers of the European Economic Area. Martijn van de Hel of Maverick Advocaten NV previously revealed that Guess imposes a series of restrictions on its distributors, prohibiting cross-selling between selective distributors and (indirect) price maintenance.

Likewise, van de Hel points to the subsequent sanctions imposed on Nike and Hello Kitty maker Sanrio on the basis of anti-competitive activities. In March 2019, following a two-year investigation, Nike was fined € 12.5 million for preventing its licensees from engaging in cross-border sales. Meanwhile, in July 2019, Sanrio was fined 6.2 million euros for comparable violations.

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