Client\'s Problem) on 29 October,

¶ … Client's problem)

On 29 October, 2008, the Conseil de la concurrence (French Competition Board) ruled that Pierre Fabre Dermo-Cosmetique SAS ('PFDC') had infringed on Article L.420-1 of the Code de Commerce (Commercial Code) and Article 81 EC (now Article 101 TFEU) by prohibiting its distributors to sell its products (pharmaceutical, para-pharmaceutical, and homeopathic cosmetics and personal care items) over the Internet. PFDC had engineered this ruling for it felt that its products required consumers to solicit advice from a qualified pharmacist before purchasing them, and that, therefore, their purchase could only be completed in an offline environment. The distributors felt that they were losing out to PDFC's greatest arch rival - Cosmetique Active France - who stimulated business in a large way through online selling. The Board agreed stating that PDFC was impeding competition aside from which it was restricting consumers from buying online and limiting the commercial freedom of its distributors.

Rule (the Rule in the case)

Since the Internet is a new channel of competition, earlier restrictions do not apply to this case since competitive challenges are far more severe causing PDFC's distributors heavy loss if they comply with PDFC. The Board also claimed that, whilst in certain circumstance, vertical agreements could be used to restrict competition, each case is different, and acceptance of the Regulation hinges on a per case basis. The scope of competition must always be carefully looked into and since it is so vast here (endangering the opportunities of the distributors of PDFC), exceptions must be made. PDFC claims (contrary to the perspective of the Commission and the Authority) that its ban is 'objectively justified' in that it holds for the safety and better discretion of the consumer. The Board, however, considered 'objective justification' to be viable in only two instances (a. where the practice is directly derived from national law that has been stipulated for public security and b. where the practice leads to protection of that agreement). PDFC did not meet these two cases. Furthermore, companies similar to PDFC regularly employ Internet marketing and distribution. Finally, the products in question were not medicinal products and, therefore, did not require that they be sold only in a physical space under supervision of a qualified pharmacist. PDFC's concerns of counterfeiting products and free riding were also unfounded. In conclusion, a general ban on Internet marketing is possible only in very unique instances where there is undoubted proof that improvement of the product would be gained by such a ban; otherwise online marketing and distribution aids price transparency and international trade as well as making things easier for the consumer.

Analysis (how the law will effect the clietn's case)

The Board considered that a ban on internet sales imposed by a producer to its selected (authorised) distributors, is prohibited by Article 81 EC (now: Article 101 TFEU).

PDFC, therefore, has to allow its distributors to sell its products over the web. PDFC can point to the clause of vertical agreements where they need to practise caution ( therefore only selling in an offline environment) so that discontentment with product will not ruin company and sales. However, the Advocate ruled that PDFC can always state a warning on its site regarding the properties of its products -- similar companies do this all the time.