Setting up a selective distribution network allows a supplier to choose its resellers on the basis of defined criteria, in order to preserve its brand image and ensure high-quality marketing. This mechanism, common for luxury, high-tech and cosmetic products, stands at the crossroads of contractual freedom and competition law. Poor structuring of these agreements can lead to sanctions for anti-competitive practices. Our firm, which regularly handles such disputes, offers an overview of the case law that has shaped this area. It is essential for the head of a network to understand the limits not to cross in order to secure its sales channels, an issue that falls within the broader framework of vertical restraints in competition law. For assistance in defending your interests in disputes relating to distribution networks, specialist legal input is indispensable.

The principle that selective distribution systems are lawful

Contrary to popular belief, selective distribution is not in itself prohibited under competition law. It is regarded as a form of « non-price » competition, focused on service quality, which can be beneficial to consumers. However, its validity is subject to strict conditions, largely defined by European case law and then adopted by French authorities.

The Metro I and II case law (conditions of lawfulness)

The founding judgments of the Court of Justice of the European Communities, Metro of 1977 and 1986, set out the basis for the validity of selective distribution networks. To escape classification as an anti-competitive agreement, such a system must meet three cumulative conditions. First, the nature of the product must justify a selection of resellers, for example because of its technical nature or its image of prestige. Second, the choice of distributors must be made on the basis of qualitative, objective and verifiable criteria, such as staff qualifications or the layout of the point of sale. Third, these criteria must not be applied in a discriminatory manner and must not go beyond what is necessary to guarantee quality distribution.

The influence on French law (Competition Council)

French law quickly aligned itself with this pragmatic approach. The French Competition Council (Conseil de la concurrence), which became the Competition Authority (Autorité de la concurrence), has consistently applied the « Metro criteria » to assess the lawfulness of networks. It examines whether the restrictions imposed on distributors are proportionate to the objective of preserving the quality and image of the products. This analysis now fits within the broader framework set by Regulation (EU) 2022/720 on vertical restraints, which grants a block exemption to many vertical agreements, including selective distribution, provided that the market shares of the supplier and buyer do not exceed 30% and the agreement contains no hardcore restrictions.

The objectivity of the selection of distributors

The cornerstone of a selective distribution network’s validity lies in the objective and qualitative nature of the approval criteria. The supplier cannot refuse a reseller on the basis of arbitrary considerations. Case law has progressively drawn the contours of what is acceptable.

Professional qualification requirements (Vichy, Givenchy)

For certain products, the presence of qualified staff is a legitimate requirement. In the Vichy case, it was held that the marketing of dermo-cosmetic products could be reserved to pharmacists, because of their ability to provide informed advice. Similarly, for luxury perfumes, the Givenchy case law validated the requirement of a beauty consultant to assist customers. The objective is to ensure that consumers receive a level of service appropriate to the nature of the product.

Criteria relating to the sales space (enclosed area, shop window)

The environment in which the product is sold is another frequently used criterion, especially in the luxury sector. Courts have accepted the lawfulness of clauses imposing a specific sales space, separate from other activities, or the presence of a shop window to showcase the products. These requirements must however be justified by the need to maintain a prestigious presentation and must not have the sole purpose of excluding certain types of distributors in a disguised manner.

Compatibility of the sales outlet with the brand image

A supplier is entitled to ensure that the sales outlet and the general environment of the point of sale do not harm its brand image. A shop whose positioning is manifestly incompatible with the prestige of the products may legitimately be refused approval. The assessment is however made on a case-by-case basis and the refusal must be justified by tangible and objective factors, not by a mere subjective perception of the inadequacy of the outlet.

The principle of non-discrimination and quantitative selection

Even if selection criteria are objective, they must be applied equally to all candidate distributors. Any difference in treatment must be justified. Limiting the number of distributors, or quantitative selection, is also viewed with heightened suspicion by the authorities.

Prohibition of discriminatory clauses and applications (Binon, Biotherm)

Case law, particularly in the Binon and Biotherm cases, has sanctioned networks where the criteria, although lawful on the surface, were in practice applied leniently to some distributors and with extreme rigour to others. If a supplier admits into its network resellers who do not comply with the stated conditions, it can no longer rely on those same conditions to refuse a new entrant who would comply with them. Such a practice reveals that the real objective is not quality distribution, but a restriction of competition.

Quantitative selection: limits and exceptions (Rolex, Seiko)

Limiting in advance the number of resellers in a given zone (quantitative selection) is a far more restrictive practice than mere qualitative selection. It is allowed only in very exceptional cases. Case law, particularly in luxury watchmaking cases such as Rolex or Seiko, has sometimes validated it where the supplier demonstrates that it is indispensable to ensure sufficient profitability for its distributors, given the significant investments imposed on them for the promotion and after-sales service of highly technical products. The burden of proof is however heavy.

The exclusion of certain forms of distribution

Historically, network heads have often sought to purely and simply exclude certain forms of sale deemed incompatible with their image, such as mail order or, more recently, online sales. Case law has strongly framed these exclusions.

Prohibition of a priori exclusion (pharmacies, mail order)

A fundamental principle is that no form of commerce can be excluded on principle. A distributor, whether a pharmacy, a department store or a mail-order vendor (VPC), must be admitted into the network provided it meets the objective qualitative criteria defined by the supplier. Refusing approval solely on the ground that the candidate operates through a particular distribution channel is unlawful.

Online sales: specific rules and case law (Pierre Fabre, Coty, Stihl)

Online sales have given rise to abundant litigation. The Pierre Fabre judgment of 2011 marked a turning point, holding that a clause imposing a general and absolute ban on internet sales was a hardcore restriction of competition. Subsequently, the Coty judgment of 2017 introduced an important qualification: for luxury products, a supplier may prohibit its authorised distributors from selling on third-party platforms (marketplaces) that are not controlled by the distributor. The Court held that such a prohibition was proportionate to the objective of preserving the luxury image. The Stihl case confirmed this line for technical products requiring a physical demonstration. Thus, while an outright ban is prohibited, restrictions framing the conditions of online sales to preserve quality are permitted, as detailed in our analysis of vertical restraints specific to e-commerce.

The commercial freedom of distributors

Once approved, the distributor must retain a certain degree of commercial freedom. The selective distribution contract must not turn into a straitjacket eliminating all autonomy. The main freedoms concern pricing policy and relationships with other suppliers.

Pricing freedom and limits on imposed prices

This is a cardinal principle of competition law: the authorised distributor is free to set its own resale prices. The network head may communicate recommended sales prices, but cannot under any circumstances impose minimum sales prices. Such a practice constitutes a hardcore restriction, causing the agreement to lose the benefit of any exemption and exposing the company to heavy sanctions.

Freedom to market competing products (brand clauses, minimum turnover)

The supplier generally cannot impose total exclusivity on its distributors by prohibiting them from selling competing products. Such non-compete clauses are very strictly regulated by European law. It is however possible to require that a certain minimum turnover be achieved with the network’s products or that competing brands do not benefit from a prominent display detrimental to the supplier’s brand. The balance is delicate and clauses must be drafted with great care so as not to be deemed excessive.

Freedom of cross-supplies within the network

Sales between approved members of the same selective distribution network, also called cross-supplies (rétrocessions), must in principle remain free. Prohibiting a distributor from sourcing from another member of the network is considered an anti-competitive restriction. These exchanges allow for better stock management and foster intra-brand competition that benefits the end consumer.

The protection of selective distribution networks

A lawful and well-structured network has the right to defend itself against sales made by unauthorised third parties. The efficiency and credibility of the system depend on its ability to remain watertight.

The watertightness of the network and its lawfulness

For a selective network to be considered legitimate, the supplier must demonstrate that it applies it consistently and that it actively combats parallel sales. If the supplier remains passive in the face of notorious unauthorised resellers, it loses its legitimacy to refuse new entrants or to impose constraints on its members. Watertightness is not only a right, it is also a condition of the network’s validity.

Actions against distributors outside the network (unfair competition, trademarks)

The network head has several legal tools to act against unauthorised resellers. Action for unfair competition is the most common. It may be brought if the third party obtained the goods by fraudulent means (for example, by deceiving a network member) or if its sales methods degrade the brand image of the products. In certain cases, where the third party’s conduct amounts to taking advantage of the reputation and efforts of others, it may be analysed as economic parasitism. Action for trademark infringement may also be considered if the unauthorised reseller alters the products or their packaging, or if the resale undermines the function of the trademark as an indication of origin.

Setting up and managing a selective distribution network requires continuous legal analysis to ensure compliance. For an in-depth analysis of your situation and tailored advice, contact our team of lawyers.

BOOK AN APPOINTMENT