A contractual clause in a selective distribution contract banning distributors from selling products online constitutes a restriction of competition by object under Article 101 TFEU, unless objectively justified, the Court of Justice of the European Union has ruled.

The judgment stems from a legal challenge by French cosmetics manufacturer Pierre Fabre Dermo-Cosmétique (PFDC), whose brand portfolio includes Klorane, Ducray, Galénic, and Avène. PFDC’s distribution contracts mandated that retail sales take place exclusively in a physical space and in the presence of a qualified pharmacist, effectively prohibiting all online sales across its European network.

Following an investigation, the French Competition Authority concluded in 2008 that this absolute internet ban restricted competition, breaching both French and EU competition rules. PFDC appealed the finding to the Court of Appeal in Paris, which referred questions to the CJEU regarding whether such clauses constitute restrictions by object, whether they qualify for a block exemption, or if they can receive an individual exemption.

The CJEU clarified that selective distribution systems are permissible under EU law only if resellers are selected based on objective, non-discriminatory qualitative criteria necessary to preserve product quality. Addressing PFDC’s arguments, the Court emphasized that requirements for personalized customer advice or the need to protect a prestigious brand image do not constitute legitimate aims capable of justifying a blanket ban on e-commerce.

Regarding regulatory exemptions, the CJEU determined that the Vertical Agreement Block Exemption Regulation does not apply to vertical agreements restricting active or passive sales to end users. Because a clause prohibiting internet sales restricts passive sales to prospective online buyers operating outside a distributor’s physical area, the contract cannot benefit from a block exemption.

However, the Court noted that such distribution agreements may still qualify for an individual exemption under Article 101(3) TFEU if the national court determines that all requisite statutory conditions are satisfied.