Amid the increasing growth of the online shopping platform, consumers are becoming accustomed to the comfort of making purchases at the click of a button and are abandoning the traditional "bricks and mortar" shopping experience.
The popularity and accessibility of the internet creates a variety of challenges for manufacturers and retailers who need to be innovative and stay ahead of the game.
One of the key challenges is for retailers to do this in a way which also takes account of the minefield of legal restrictions and protections which apply equally in the online world as they do in the real market world.
It is in the public interest for online commerce to flourish in a competitive marketplace.
Retailers worldwide have a responsibility not to engage in conduct that could be deemed anti-competitive or unconducive to an open market.
Recent European legal cases have exposed the repercussions of anti-competitive conduct, such as prohibiting online selling mechanisms within distribution networks, bringing this issue into the spotlight.
The European Union position raises considerations for Australian manufacturers and retailers with an international presence and puts into perspective the challenges of continuing to adapt to the changing conditions of the online selling sphere.
European crackdown: A tough approach
Recently, there has been a marked crackdown on anti-competitive behaviour in the EU, with penalties being handed down to retailers that have engaged in conduct deemed to restrict market competition.
Under European Union law, agreements which prevent, restrict or distort competition are prohibited.
In a recent decision of the French Competition Authority, it was held that Bang & Olufsen had engaged in anti-competitive activity by placing a de facto ban on its distributors since 2001, preventing them from selling its products on the internet.
Bang & Olufsen was fined €900,000 by the French Competition Authority.
Interestingly in this case, there was no contractual clause in Bang & Olufsen's distribution agreements expressly prohibiting its 48 distributors from selling its goods online.
Despite this, the French Competition Authority considered the contractual ban on mail-order sales, coupled with the brand's circular on its internet policy being silent in relation to online sales from the distributors' own websites, amounted to a de factoban on internet sales.
The contractual distribution framework put in place by Bang & Olufsen was held to be a limitation on the commercial freedom of its distribution partners that deprived them of consumers they could otherwise have reached through the internet.
It also resulted in consumers being deprived of lower prices and limited their choice in the marketplace.
The decision was handed down despite the fact that consumer demand for internet sales of the types of hi-fi products offered by Bang & Olufsen is low and that Bang & Olufsen's distributors had not specifically asked to be able to sell the products online.
Earlier this year, the Paris Court of Appeal handed down its decision from an appeal lodged by a health and beauty product organisation against a €17,000 fine issued by the French Competition Authority following a 2006 investigation.
The beauty giant was fined for prohibiting the sale of its cosmetic products online by restricting sales of these products to stores that have a qualified pharmacist in residence.
The Paris Court of Appeal deferred its judgment until after the Court of Justice (ECJ) provided its guidance on the subject of the proceeding. In this preliminary ruling, the ECJ acknowledged the legitimate desire to "maintain the prestigious image" of the cosmetic products in question, but considered that a total prohibition on this "modern method of distribution" was unjustifiable in the circumstances.
The Paris Court of Appeal upheld the fine issued by the French Competition Authority on the basis that the internet was not a barrier to ensuring that the organisation's products were sold in an environment where customers could access personalised advice.
An argument based on consumer safety was rejected by the Paris Court of Appeal in light of the fact that the organisation's products are sold without medical prescriptions.
The decision did hold that it is possible for manufacturers to restrict sales of their products online to distributors that have physical points of sale with a pharmacist present.
Furthermore, the manufacturer maintains control over the quality of the websites of distributors that choose to sell its products online, to ensure that customers have access to online sales advice.
An Australian perspective: Be vigilant about your business practices
Back home, Australian consumers continue to spend big online, with online sales in Australia projected to grow between 10 and 15% per annum over the next 3 years.
The Australian Competition and Consumer Commission (ACCC) last year announced its intention to focus investigation and enforcement resources towards identifying conduct which may impede emerging competition involving online traders.
The ACCC is particularly on the lookout for current "bricks and mortar" retailers seeking to dominate the online space in a way that sees new online competitors unable to break through.
A case in point is the 2011 decision by the Federal Court of Australia to fine Ticketek $2.5 million for misusing its market power against a small online business selling discount tickets.
The ACCC is also focusing on clothing importers who are reaching agreements with international suppliers to stop selling their products to Australians on overseas websites or directing these suppliers to increase the prices being asked for their products on the web.
Simply because overseas retailers do not have a physical presence in Australia, does not mean that Australian "bricks and mortar" retailers are entitled to exercise anti-competitive conduct against them in the Australian marketplace.
These online retailers may be considered effective competitors of more traditional retailers if their products and services are considered substitutable.
This means that Australian retailers are not able to misuse their market power to damage or eliminate a competitor in the Australian marketplace, no matter where their fixed location may be.
In the context of manufacturers/suppliers that supply goods to an online retailer, requiring that online retailer to sell at or above a specified price for any purpose is likely to breach the prohibitions on resale price maintenance.
Similarly, refusing to supply online retailers who don't agree to sell above a specified minimum price, or because they discount goods, is also likely to breach the same prohibition.
In the Australian context, conduct which has the intention of driving online retailers out of the market, or substantially causing them damage or preventing them from entering the market may amount to a misuse of market power, if the party exerting the pressure has a substantial degree of market power.
Crossing borders
The implications of the European cases and the ACCC's current focus on promoting a competitive marketplace online are good reminders for manufacturers and retailers alike to assess current practices and procedures.
The message is clear: ensure compliance within your own distribution networks and towards market as a whole.
For more information about legal issues affecting the fashion industry, including the implications of your business arrangements and selling online, contact Lisa Egan, Partner at K&L Gates – lisa.egan@klgates.com or Caroline Cossio, Senior Associate at K&L Gates – caroline.cossio@klgates.com. Contributing author: Hoda Solaymani-Jamal.