Restrictive practices: how to keep Amazon and eBay away

It is an unusual occurrence for an OECD policy document to have a direct impact on a commercial lawyer drafting terms and conditions of business, but the Competition Law and Policy Unit of the OECD recently published a paper on vertical restraints for online sales which raises topics which need to be considered by practitioners involved in advising on the distribution chain.

The paper recognises that the world of retailing has been turned upside down by the internet, making price competition more intense, geographic markets wider and allowing consumers to buy goods that might not otherwise be available to them

Consumers now have a far wider range when it comes to selecting suppliers and this has a major impact upon how manufacturers look to regulate their distribution chain.

Those companies who are simply not 'box shifters of generic product' but rather are producers of highly sophisticated white goods or who produce high-end luxury goods have been keen to regulate distribution of the merchandise through specific outlets rather than allowing a free for all in the market place.

Trade customers

Manufacturers give a number of reasons why they wish to stipulate to whom a trade customer should and should not retail their goods. They tend to focus on elements of service; justifying their position by saying that their products require both technical support at the time of selection by the consumer and additionally specialist servicing provision during the life of the product, which can only really be conducted properly by someone with expertise and access to original parts.

What tends not to be overtly discussed however is perhaps an endeavour to maintain an even price structure, or what in previous eras would have been referred to as retail price maintenance and this is a key danger area.

Lawyers are rightly wary to take any steps which will be seen as anti-competitive or create pricing cartels or which in any way could be interpreted as a restrictive practice.

Commercial reasons

Yet there is an argument that one can quite properly incorporate provisions for clients in their terms and conditions of business to restrict the rights of the trade customer as to whom they may on-sell goods, so long as proper and genuine commercial reasons can be demonstrated.

In one case a leading sunglasses manufacturer refuses to sell to any UK based online distributors or even to registered opticians unless they can demonstrate that they have one or more retail outlets, i.e. a traditional bricks and mortar retailer, justifying their position with the explanation that their products need to be fitted correctly and the consumer may want post-sales support. Moreover they argue that as they are an "exclusive brand" they wish to control distribution channels in order to maintain their niche. They even insist that their sales representatives carry out a site visit before accepting a new trade customer and challenges to their approach have to date been unsuccessful.

Amazon and eBay

One of the key concerns expressed by brand owners is to ensure that merchandise they wish to be distributed through traditional trade outlets does not appear on either eBay or Amazon and hence the following sorts of clauses are becoming more familiar in terms and conditions.

By way of example:

'We reserve the right to refuse terms and/or supply to any customer who we deem to be reselling or retailing our products through unapproved channels.

These unapproved channels include: Any third party retail or wholesale company based in the UK or abroad; Shops and websites that have not been authorised as official stockists of our Products,

We specifically do not approve selling via EBay, Amazon or any other similar website. Customers with new or moved locations should notify us for approval in advance.'

Consequently this attempt to introduce a provision contractually so as to regulate on sales via 'unregulated' websites seems capable of being justifiable, perhaps back-up by the manufacturer endeavouring to control distribution as a result of exclusive trademark licences having been granted to particular jurisdictions, although even those may be capable of challenge. This is clearly an evolving area of law where practitioners need to exercise some caution.