Distribution/Franchising
Subscribe to Distribution/Franchising's Posts

EU Commission Releases First Findings on Geo-Blocking in E-Commerce Sector Inquiry

On 18 March, the European Commission (Commission) published its initial findings on geo-blocking in the framework of its ongoing antitrust sector inquiry into e-commerce.

The findings are based on responses to questionnaires sent to more than 1400 retailers and digital content providers from all 28 EU Member States in 2015.

The questionnaires focused on geo-blocking practices in the sales of goods (clothing, shoes and accessories, consumer electronics, household appliances, computer games and software, toys and childcare articles, books, media carriers, cosmetic and healthcare products, sports, outdoor, house and garden equipment), and in the provision of digital content services (films, sports, TV programmes, music).

The findings suggest that geo-blocking is a widespread practice. Where the sale of tangible goods is concerned, in most cases the decision to have geo-blocking in place is made unilaterally by the retailer.  In only 12 percent of the cases, retailers were forced by contract to put restrictions in place on cross-border sales.

On the other hand, geo-blocking in digital content is for the most part a contractual requirement imposed by suppliers (for 59 percent of the respondents).

The data on geo-blocking now published by the Commission seem to strengthen the Commission’s suspicions that geo-blocking practices are widespread and may significantly impact intra-EU cross-border trade. The Commission said that geo-blocking may be in breach of competition law, particularly when it results from agreements between businesses or if practised by a dominant market player.

However, the Commission also recognized that retailers and service providers may have valid reasons to put geo-blocking in place to restrict cross-border sales. In light of this, the Commission may decide to address the conditions under which geo-blocking is justified in further legislation or guidance to businesses first, rather than take  immediate enforcement measures on the back of the sector inquiry.

Any ensuing enforcement action would have to take place on a case-by-case basis, separately from the overall sector inquiry.

It is expected that the Commission will present its final report on the present inquiry by the middle of 2016.




Maryland AG Challenges Resale Price Maintenance Agreement

On February 29, 2016, the Attorney General of Maryland filed a complaint alleging that Johnson & Johnson Vision Care, Inc. (Johnson & Johnson) violated the Maryland state antitrust law by entering into an agreement with a retailer regarding a resale price maintenance (RPM) policy.

The complaint alleged that Johnson & Johnson initially instituted an RPM policy in response to objections from eye care professionals that they were losing business to discount retail stores, including Costco Wholesale Corporation (Costco), who were charging less than the eye care professionals to fill prescriptions for Johnson & Johnson’s contact lenses.  Once Johnson & Johnson implemented its RPM policy, which fixed minimum retail prices for all retailer sellers of its contact lenses, Costco complained to Johnson & Johnson that the policy prevented Costco from offering discounted pricing on the lenses that its customers had come to expect.  In response to Costco’s complaint, Johnson & Johnson entered into negotiations with Costco regarding the terms of its RPM policy.  Ultimately, Johnson & Johnson agreed with Costco to amend its RPM policy to permit Costco to provide gift cards and other discounts to Costco customers who purchased Johnson & Johnson’s contact lenses from Costco.  Johnson & Johnson then entered into similar RPM policy amendments with certain other retailers.  (more…)




Court Declines To Certify Damages Class in Baseball Blackout Suit

On May 14, 2015, the Southern District of New York issued two opinions in Laumann v. Nat’l Hockey League, No. 12-cv-1817, excluding plaintiffs’ damages expert under Daubert and denying plaintiffs’ motion to certify a damages class. The court did, however, certify a class under Federal Rule of Civil Procedure 23(b)(2) for the purpose of pursuing injunctive relief. The case is part of a growing body of case law in which courts have considered Daubert motions at the class certification stage. The plaintiffs had sought to certify two classes of individuals who purchased “out-of-market” baseball or hockey packages, either online or through a television service provider.

The plaintiffs in Laumann alleged that agreements between the defendants—sports leagues, regional television networks that produce each team’s games, and television service providers—violated Section 1. The challenged restraint was “territorial exclusivity,” the restriction on regional networks from selling content to consumers who live outside the network’s geographic market. Instead, a Yankees fan who lives in Iowa, for example, could only watch Yankees games by purchasing an “out-of-market package,” a bundle that includes all games except games involving teams from the Iowa region. The agreements required “blackouts” of games in class members’ home team areas, thereby requiring out-of-market package subscribers to also subscribe to a local cable package in order to watch their favorite teams. Plaintiffs’ theory of damage was that, without the challenged restraint, regional sports networks would sell content directly to out-of-market fans, and therefore consumers would have a second option, which would put downward pressure on the price of the all-inclusive out-of-market package. The court held that having fewer options and paying higher prices were distinct forms of injury that were both recognizable. Laumann, 2015 WL 2330107 (class certification opinion), at *8.

The court decided to exclude the opinion of plaintiffs’ damages expert because his model was “largely untethered from the actual facts of th[e] case.”  Laumann, 2015 WL 2330036 (Daubert opinion), at *11.  Therefore, the model was not a “scientifically-reliable way to predict with some precision the prices of [out-of-market] telecasts,” and it had to be excluded. Id. at *10. The expert, Dr. Noll, used the defendants’ viewership data to create a model with variables estimated by statistical techniques. The court noted that “many pages of Dr. Noll’s declarations consist[ed] almost entirely of complex equations beyond the comprehension of the Court or the lawyers in this case.” Id. At *5. Defendants’ economist called the model “junk science” that “relie[d] too heavily on mathematical assumptions and random error, and too little on actual data about consumers and their preferences,” and in effect the court agreed. Id. at *7, *14.

Regarding class certification, the court held that, with Dr. Noll’s opinion excluded, a class could not be certified under Rule 23(b)(3). The court noted that Rule 23(b)(3) requires plaintiffs to “show that they can prove, through common evidence, that all class members were . . . injured by the alleged conspiracy.” Laumann, 2015 WL 2330107 (class certification opinion), at *9 (internal quotation marks omitted) (quoting Sykes v. Mel S. Harris & Assoc., 780 F.3d 70, 82 (2d Cir. 2015)). [...]

Continue Reading




Local Wholesaler-Retailer Dispute Has Federal Implications

On August 14, the U.S. District Court for the Southern District of Mississippi issued an opinion finding that state regulations bolstered one antitrust claim and hindered another in an ongoing dispute between a northern Mississippi convenience store chain, Major Mart, and an Anheuser-Busch InBev (ABI, a/k/a “Red Network”) distributor, Mitchell Distributing Company.

In Mississippi, by statute, like those of many other states, beer manufacturers must designate exclusive sales territories for each brand.  Mitchell holds the exclusive right to sell ABI brands to retailers in the counties in which Major Mart operates its 11 convenience stores.

The relationship between Mitchell and Major Mart started to break down in 2010, when Major Mart claimed that it was receiving inaccurate and confusing price information from Mitchell.  Major Mart asked Mitchell for compensation of lost profits due to the incorrect pricing information.  Mitchell denied the request, and Major Mart decided later to remove ABI displays and signs, lower the prices of competitors’ products, and reduce the cooler space allocated to ABI in some of its stores.  According to Major Mart’s complaint, Mitchell retaliated by (1) demanding shelving allocation that represented ABI’s market share of approximately 70 percent, (2) demanding price parity with competing products of ABI, (3) changing its deliveries to Major Mart stores to once a week so as to fill up Major Mart’s coolers and storerooms, leaving no room for competitor products and (4) delivering on Fridays so that Major Mart stores would not have cold beer on the “best selling day of the week.”

After litigation was first initiated, the parties reached a settlement in 2011, agreeing that Mitchell would increase its deliveries to at least twice per week and Major Mart would reconsider shelf space allocation and increase prices on competing brands of beers to the same price as ABI products.  This temporary resolution, however, failed when Major Mart did not reallocate its shelf space.  In response, Mitchell once again cut deliveries to one day per week and thereafter began to provide sales coupons and promotional giveaways exclusively to Major Mart’s competitors.  Major Mart also claimed that Mitchell delivered beer that was close to the end of its shelf-life, replaced fresher beer Major Mart had with older beer and missed deliveries during key dates, including July 4 and just as students were returning to college.  Eventually, Major Mart sued.

Major Mart alleged that Mitchell engaged in monopolization and attempted monopolization in violation of the Sherman Act and price discrimination in violation of the Robinson-Patman Act.  In response, Mitchell filed a motion for summary judgment asserting that the Sherman Act did not apply, as (1) Mitchell’s actions were immunized by the State Action Doctrine—the principle that the Sherman Act does not apply to states acting in their capacities as sovereigns—and (2) Mitchell’s actions, which occurred solely in Mississippi, did not affect interstate commerce—as required for Sherman Act jurisdiction.

Quickly discarding the State Action Doctrine assertion, the court noted that to qualify as a state’s action, conduct must be “undertaken pursuant to [...]

Continue Reading




District Court Pares Down Price Discrimination Suit Against Chrysler

On July 11, 2014, the Northern District of California dismissed one of two federal antitrust claims brought against Chrysler Group LLC under the Robinson-Patman Act, 15 U.S. C. § 13, as well as several state statutory and common law claims.  Matthew Enterprise, Inc. v. Chrysler Group LLC, No. 13-cv-04236-BLF (N.D. Cal. July 11, 2014).  The plaintiff, a franchise car dealer and direct customer of the defendant, alleged that Chrysler committed anticompetitive price discrimination by offering volume discounts to new dealers on more favorable terms than those offered to established dealers like the plaintiff and by selectively offering the plaintiff’s competitors disguised price discounts in the form of below-market rent.  The court allowed the former claim to go forward but dismissed the latter for failure to state a claim under Federal Rule of Civil Procedure 12(b)(6).

The court began by recounting the purposes behind the Robinson-Patman Act, as described by the Supreme Court in FTC v. Sun Oil Co., 371 U.S. 505, 520 (1963): “to curb the use by financially powerful corporations of localized price-cutting tactics which had gravely impaired the competitive position of other sellers . . . and to ensure that businessmen at the same functional level . . . start out on equal competitive footing so far as price is concerned.”  Matthew Enterprise, slip op. at 6 (internal quotation marks omitted).  It explained that in order to state a “secondary-line case” involving competition among customers of a common seller, a plaintiff must plead facts showing that “(1) the relevant sales were made in interstate commerce; (2) the products were of like grade and quality; (3) the seller discriminated in price between the Plaintiff and another purchaser of the same products; and (4) that the effect of that price discrimination was to injure, destroy, or prevent competition to the advantage of a favored purchaser.”  Id., slip op. at 7.

The plaintiff in Matthew Enterprise alleged that Chrysler offered volume discounts to established car dealers based on a formula that took into account the dealer’s prior year sales.  Because new dealers, by definition, did not have prior  year sales, Chrysler used different criteria to determine the volume at which new dealers would receive a discount, which the plaintiff alleged was substantially lower than the volume the plaintiff needed to sell in order to qualify for the discount.  For example, the plaintiff alleged that “this inequality of treatment led to [one new competitor] receiving vehicle subsidies during July 2012, despite selling only sixty vehicles, while Plaintiff failed to receive incentives, despite selling 130 vehicles.”  Id., slip op. at 8.  These allegations, taken as true for purposes of the motion to dismiss, allowed the court ultimately to conclude “that Chrysler ha[d] set up its newly opened dealers as a class of ‘favored purchasers’” in violation of the Robinson-Patman Act.  Id., slip op. at 9.

Regarding the second price discrimination claim, the court noted that it was not aware of any Ninth Circuit case law holding that the Robinson-Patman Act applies to real [...]

Continue Reading




Distribution in China – Legal Issues

Contact: Frank Schoneveld, Kevin Qian, John Huang and Winston Zhao

McDermott Will & Emery is pleased to offer “Distribution in China – Legal Issues*,” a one-stop resource covering distribution in China, including:

  • The business models and legal structures most commonly used for distribution in China
  • Important issues to consider in the design of a distribution system for China, such as taxation, foreign exchange, antitrust, and specific rules applicable to retail and wholesale distribution activities
  • Pre-contract matters of which negotiators of distribution agreements for China should be aware
  • The main issues parties should take into account when drafting a distribution contract for use in China, including pricing and payments, exclusivity and territorial restrictions, product liability and intellectual property rights

*This publication originally appeared as a four-part White Paper series.

To read the full article, click here




Distribution in China – Legal Issues, Part IV. Drafting the Distribution Contract

Contact: Frank Schoneveld, Kevin Qian, John Huang and Winston Zhao

“Distribution in China – Legal Issues” is a four-part series.  Part I discussed the business models and legal structures most commonly used for distribution in China.  Part II looked at important issues to consider in the design of a distribution system for China, such as taxation, foreign exchange, antitrust, and specific rules applicable to retail and wholesale distribution activities.  Part III dealt with pre-contract matters of which negotiators of distribution agreements for China should be aware.  Part IV outlines the main issues parties should take into account when drafting a distribution contract for use in China.  These include pricing and payments, exclusivity and territorial restrictions, product liability and intellectual property rights.

Read the full article here.




Distribution in China – Legal Issues, Part III. Pre-Contract Matters

Contact: Frank Schoneveld, Kevin Qian, John Huang and Winston Zhao

“Distribution in China – Legal Issues” is a four-part series.  Part I discussed the business models and legal structures most commonly used for distribution in China.  Part II looked at important issues to consider in the design of a distribution system for China, such as taxation, foreign exchange, antitrust, and specific rules applicable to retail and wholesale distribution activities.  Part III deals with pre-contract matters of which negotiators of distribution agreements for China should be aware.  Part IV will outline the main issues parties should take into account when drafting a distribution contract for use in China.  These include pricing and payments, exclusivity and territorial restrictions, product liability and intellectual property rights.

To read the full article, click here.




China Fines Liquor Producers Over US$70 million for Fixing Minimum Resale Prices

by Frank Schoneveld

Last week one of China’s antitrust regulators, the National Development and Reform Commission (NDRC), imposed fines of RMB419 million (+/- US$72 million) on two of the most famous producers of Chinese liquor, Moutai and WuLiangye.  The fines were imposed for restricting the minimum price at which their distributors could resell the liquor. This was found to be illegal resale price maintenance. The fines are unprecedented in China and signal major new antitrust enforcement activity in the distribution of goods and in the alcoholic beverages sector in particular.

The fines imposed are at the lower end of the possible range of fines between 1% and 10% of each company’s annual revenues.  It remains to be seen whether any of these companies’ customers or distributors will now start private actions in the Chinese courts to recover damages for breach of the antitrust rules.  So far there have been over 60 private cases in Chinese courts against both foreign and domestic corporations for alleged breach of the antitrust rules. 

Both the liquor companies are State Owned Enterprises (SOE) unlike the six Korean and Taiwanese companies who were fined by the NDRC in January the equivalent of some US $56 million for a price fixing cartel in the Liquid Crystal Display (LCD) market. 

In general, foreign companies have largely ignored China’s antitrust rules as enforcement has been weak or non-existent and local subsidiaries of multinationals have down-played the risks.  Clearly however, antitrust law in China can no longer be ignored.  Many corporations with businesses in China are now scrambling to complete a China antitrust audit and put in place a robust compliance program to address questionable conduct.  Those who don’t do so face the now very real risk of significant fines by the Chinese antitrust authorities. 




Distribution in China – Legal Issues, Part I. Business Models and Structures

For more information, please contact Frank Schoneveld, Kevin Qian, John Huang or Winston Zhao.

“Distribution in China – Legal Issues” is a four-part series.  Part I discusses the business models and legal structures most commonly used for distribution in China.  Part II will look at important issues to consider in the design of a distribution system for China, such as taxation, foreign exchange, antitrust, and specific rules applicable to retail and wholesale distribution activities.  Part III will deal with pre-contract matters of which negotiators of distribution agreements for China should be aware.  Part IV will outline the main issues parties should take into account when drafting a distribution contract for use in China.  These include pricing and payments, exclusivity and territorial restrictions, product liability and intellectual property rights.

To read the full article, click here.




STAY CONNECTED

TOPICS

ARCHIVES