Selective Distribution in France: Criteria, Online Sales & Network Protection (Reg. 2022/720)

Selective distribution is the model of choice for producers whose goods depend on how, and by whom, they are sold — perfumes and cosmetics, watches and jewellery, consumer electronics, sporting goods and luxury products of every kind. Rather than sell to anyone, the supplier undertakes to supply only distributors it has approved against published criteria, and requires those distributors not to resell outside the network. In EU law the model is defined by Regulation (EU) 2022/720 as "a distribution system in which the supplier undertakes to sell the contract goods or services, directly or indirectly, only to distributors selected on the basis of defined criteria, and in which those distributors undertake not to sell those goods or services to unauthorised distributors within the territory reserved by the supplier to operate that system" (Art. 1(g)).

The attraction of selective distribution is control; its difficulty is that the control is achieved by excluding distributors, and exclusion is the business of competition law. A selective network is therefore lawful only within limits: the criteria must be of the right kind and applied in the right way, the network must not be used to eliminate a form of distribution or to prop up prices, and — the modern battleground — it cannot be used to shut distributors out of online selling. This guide addresses the selective-distribution contract and the competition rules specific to it; the general mechanics of the block exemption are developed in our guide on vertical agreements, to which we cross-refer.

What is selective distribution — and how does it differ from exclusive distribution?

Selective distribution restricts the number of distributors by criteria; exclusive distribution restricts them by the attribution of a territory. The difference is not merely descriptive. According to the Commission, an exclusive distributor is protected against active sales from outside its territory, whereas a selective distributor is protected against active and passive sales by non-approved distributors. A selective network carries no territorial exclusivity: the selective distributor's protection runs against outsiders to the network, not against other members on a map.

Is a selective contract concluded intuitu personae?

Not inherently. Although a selective contract presupposes that the distributor is chosen for its ability to meet the criteria, that does not make the contract intuitu personae — to treat mere satisfaction of the criteria as an intuitus personae would sit awkwardly with competition law's demand for objective selection criteria, since it would let the supplier reject, on purely subjective grounds, a candidate who in fact meets the objective criteria. The parties may nonetheless stipulate an intuitu personae clause whose breach justifies termination against the distributor.

Selection through the general terms of sale

Selection may operate through requirements set out in the supplier's general terms of sale (Art. L 441-1), which then define not only how the products are supplied — price, payment, delivery — but the conditions required to be supplied at all: the fitting-out of the point of sale, its location, the reseller's competence, and so on.

When is a selective network lawful? The Metro criteria

The foundational rule comes from the Court of Justice's judgment in Metro I (CJEC, 25 Oct. 1977, case 26/76): selective distribution is "an element of competition compatible with Article 101(1) on condition that the choice of resellers is made according to objective criteria of a qualitative character, relating to the professional qualification of the reseller, its staff and its premises." The Commission restates these "Metro criteria" in its Vertical Guidelines: selective distribution escapes Article 101(1) where, given the nature of the product, such a system is a legitimate requirement to preserve its quality and ensure its proper use, and where the criteria defined do not go beyond what is necessary (Guidelines, point 149).

The four conditions

Drawing the case law together, a purely qualitative selective network falls outside Article 101(1) where four conditions are met: first, that the properties of the product make a selective system a legitimate requirement, given the product's nature and in particular its high quality or technicality, to preserve its quality and ensure its proper use; second, that the choice of resellers rests on objective qualitative criteria fixed uniformly for all potential resellers and applied without discrimination; third, that the system aims to improve competition and so to counterbalance the restriction of competition inherent in selective distribution, notably on price; and fourth, that the criteria imposed do not go beyond what is necessary. Whether these conditions are met is assessed objectively, having regard to the interest of the consumer.

Where the Metro criteria are satisfied, the restriction of intra-brand competition that selective distribution entails is compensated by an improvement of inter-brand competition on the plane of quality (Guidelines, point 148). The criteria are indisputably necessary where required by a regulation or a commercial usage; failing that, the requirement of necessity is assessed objectively, having regard to the nature of the products or their mode of marketing. Criteria relating to the competence of the distributor and its staff — the professional aptitude required to sell in good conditions or to run an after-sales service — are admitted, as are criteria relating to the distributor's premises, such as a repair workshop, a presentation and demonstration area, or a location fitting the products' brand image (an image argument, the sources caution, to be used carefully). This recognition of the supplier's requirements, made necessary by the normal commercialisation of the products, has been analysed as an application of the "rule of reason" or, better, as a taking-into-account of ancillary restrictions: distributors eliminated because they do not meet the necessary criteria are not apt to market the products, and so cannot claim a legitimate interest in being protected against what they would present as a limitation of competition. The pharmaceutical sector is a long-standing illustration, where laboratories refused to supply large retail outlets that did not have the status of a pharmacy (officine).

Are your selection criteria lawful?

The following statements reflect the Metro conditions; a purely qualitative network that satisfies them falls outside Article 101(1). It is an orientation aid, not legal advice. Consider whether: the nature of the product genuinely warrants selective distribution; the criteria are objective and qualitative (competence, staff, premises); they are fixed uniformly for all potential resellers; they are applied without discrimination; they do not go beyond what is necessary for good commercialisation; their content is explicit and verifiable; and they do not, in effect, eliminate a form of distribution or low-price sellers.

A network meeting all seven is, on its face, a purely qualitative Metro-compliant network. Quantitative or non-qualitative criteria are not thereby unlawful, but they are restrictive and need the block exemption or an individual exemption. Indicative only.

Qualitative or quantitative selection — what is the difference in law?

The criteria divide into those that do not restrict competition and those that do. Criteria that exceed the needs of the product's good commercialisation are treated as restrictive of competition, because their application eliminates distributors who could market the products normally. The distinction is drawn between "simple" networks — imposing qualitative criteria without which good commercialisation would not be assured — and "complex" networks, which stipulate, in addition, selection conditions not indispensable to good commercialisation. In the Commission's vocabulary, this is the line between purely qualitative and quantitative selective distribution. The elimination caused by "complex" or non-purely-qualitative networks is objectionable, unless it benefits from an exemption under Article 101(3) TFEU or Article L 420-4 of the Commercial Code.

Quantitative criteria and the block exemption

A restrictive selection criterion may nonetheless be exempted — individually or by category. Where the agreement falls within Regulation (EU) 2022/720, all the selection criteria are in principle exempted, provided they do not constitute, in themselves or by their application, hardcore or excluded restrictions within the meaning of Articles 4 and 5. A quantitative limitation — capping the number of distributors, for example by reference to the population of each zone understood as the catchment area (Guidelines, point 163) — is exemptable where it rests on objective criteria that the network promoter must nonetheless make explicit. The rationale was captured early in the watch sector: because the quantity of watches a manufacturer could produce was materially limited and the potential clientele for durable articles of that price was narrow, approving every retailer meeting the professional and standing criteria would reduce each one's possible sales to a few units a year, so that — given the very limited turnover they could hope to make — they would scarcely be interested in a real sales-promotion effort, leading to a deterioration rather than an improvement of the service rendered. Quantitative selection, in other words, can itself serve the good commercialisation of the product.

The motor-vehicle sector illustrates the point. Answering a preliminary question from the Court of Cassation, the Court of Justice held that "defined criteria", for a quantitative selective system under the former motor-vehicle regulation, means criteria whose precise content can be verified; to benefit from the exemption, such a system need not rest on objectively justified criteria applied uniformly (CJEU, 14 June 2012, case C-158/11, Auto 24 v Jaguar Land Rover). Quantitative selection has long been admitted in that sector given the scale of the investments at stake.

How far can "luxury" or brand image justify a selective network?

Luxury products qualify for selective distribution by reason of their reputation, quality and price — a luxury product being characterised by its intrinsic quality (raw material, production standard) or extrinsic quality (presentation, promotion) and by its rarity, from which flow its notoriety and its "aura of prestige and luxury". In the luxury-cosmetics sector, qualitative selection criteria that do not go beyond what is necessary to ensure the products are sold in good conditions of presentation are not, in principle, caught by Article 101(1), provided they are objective, fixed uniformly and applied without discrimination — the tribunal reasoning that it is in consumers' interest that the luxury image of such products not be tarnished, failing which they would no longer be regarded as luxury products. There is, in the cosmetics sector, a segmentation between luxury cosmetics and non-luxury cosmetics that answers different consumer needs and is not, economically, open to criticism; and although the "luxury" nature of luxury cosmetics also flows from their high intrinsic quality, higher price and the manufacturers' advertising campaigns, selling them within selective systems designed to ensure a valorising presentation contributes to that image.

The limit set by Pierre Fabre

But image alone cannot justify anything. In Pierre Fabre the Court of Justice held that "the objective of preserving a prestige image cannot constitute a legitimate objective for restricting competition, and cannot therefore justify a contractual clause pursuing such an objective falling outside Article 101(1) TFEU" (CJEU, 13 Oct. 2011, case C-439/09, point 46). At the same time, the preservation of an "aura of luxury" or "prestige" can justify restrictions of competition (CFI, 12 Dec. 1996, case T-19/92, Leclerc). Reconciling the two, one may distinguish according to whether the image of luxury or prestige results from the very nature of the product or from a commercial-policy choice of the supplier's own.

Can I refuse a distributor who meets the criteria — or must I admit everyone who qualifies?

This is where selective networks are most often litigated, and the answer differs between competition law and the ordinary law of contract.

In competition law

The criteria must be applied "without discrimination", so the supplier is, in principle, bound to select all those who meet them — large-scale retail included, where it qualifies. But the modern position is more nuanced. The Court of Cassation has held that "neither European nor national competition law prohibits the mere refusal, by the operator at the head of a qualitative selective network, to approve distributors who meet the selection criteria; only a discriminatory implementation of those criteria having the object or effect of distorting competition, or a refusal having the same object or effect, is prohibited by Articles 101(1) TFEU and L 420-1 of the Commercial Code" (Cass. com., 16 Feb. 2022, no. 20-11.754). A refusal to approve is objectionable where it forms part of a general policy to exclude a form of distribution capable of selling the products, to create artificial barriers to entry, or to eliminate distributors pursuing a low-price policy (CA Paris, 16 Feb. 2022, no. 20/04895). The mere fact that a selected distributor thereby enjoys a strong local position does not, without more, make the refusal an agreement (CA Paris, 27 Nov. 2019, no. 18/06901). The doctrinal reason a discriminatory refusal can be caught at all is that a selective network is itself analysed as an agreement (entente) between the supplier and its selected distributors — who, by signing, consent in advance to the criteria and to their non-discriminatory application — so the selection is not a purely unilateral act but part of that contractual relationship. And where the supplier holds a dominant position, an isolated refusal to sell can be caught separately as an abuse of dominance, which "may in particular consist in a refusal to sell" (Art. 102 TFEU; Art. L 420-2 of the Commercial Code).

In the ordinary law of contract

Where a selective network does not fall under the law of anti-competitive practices, a refusal to select a distributor who meets the criteria is analysed as a simple refusal to sell, which is no longer objectionable in itself, and which may in any event be justified by a reorganisation of the network. This is why a distributor has no right to renewal of its contract even though it would still meet the selection criteria: although that looks at first like a form of discrimination, it is not in itself objectionable, because the refusal to sell is no longer sanctioned per se. It could be argued, in the general law of contract, that the promoter breaches the requirement of good faith by not selecting a distributor who meets the criteria it has itself laid down — but that argument would require establishing the promoter's intention, and the freedom not to select applies to both quantitative and purely qualitative selective distribution.

What obligations can you impose on approved distributors?

Selective distribution seeks a marketing that conforms to the nature of the products and a uniform application of the supplier's strategy, so it loads the distributor with obligations that limit its freedom. Some improve the commercialisation of the products and are admitted despite restricting competition; others go beyond that purpose and are condemned.

Purchase and stock

Selective distribution does not in principle exclude an exclusive-purchase obligation on the distributor, and does not lose the block exemption merely by combining with one — though a dense network or a cumulative effect can raise a foreclosure problem (Guidelines, point 151). Generally the distributor need only stock, beyond an initial minimum assortment, an assortment defined by the supplier together with new products the supplier launches, the aim being to widen the final customer's choice. A minimum annual purchase quota is common, to recoup promotion and marketing costs, but the amount must be reasonable — an excessive quota could artificially eliminate selectable distributors. Purchases from the supplier cannot be refused on the ground that they will later be resold to other network members.

Presentation of the products

The distributor may be required to sell the products in their original state and packaging; to present them only in the approved establishment (Reg., Art. 4(c)(i)(3)); and to display them in a valorising — or at least non-devaluing — environment. A clause of imposed location (implantation), used to protect an approved distributor against the competition of other approved distributors opening a point of sale nearby, can also benefit from an individual exemption. The supplier may require that other notable brands be present in the point of sale, but cannot impose their identity, nor exclude particular ones (Reg., Art. 5(1)(c)).

Resale — and its limits

A minimum resale volume may be imposed provided it does not eliminate competing suppliers. A selected wholesaler may be forbidden to resell to consumers or end users ("jumped sales"), because its customers are the retailers who must be protected. But the network cannot forbid a member from cross-supplying other members of the network. And any obligation on members of a selective network not to sell given brands is generally excluded.

Two boundary points recur. A supplier may not use price differences between Member States, or the way the minimum-purchase figure is computed, to inflate turnover artificially or to hinder trade within the European Union (CJEC, 21 Feb. 1984, case 86/82, Hasselblad). And, on the premises, requirements such as a separate cash register — used to assess the activity and profitability of the department where the products are sold — have been accepted as qualitative criteria, provided they remain tied to the good commercialisation of the products rather than to controlling the reseller's wider business.

Online sales: what can you restrict, and what is off-limits?

Online selling is where the modern boundaries of selective distribution are drawn, and the governing principle is strict. An outright ban on distributors selling online is — absent an objective justification that is hard to identify — a restriction by object under Article 101(1) TFEU. Answering a preliminary question, the Court of Justice held that a plain prohibition on selling via the internet is a restriction by object where a concrete examination shows it is not objectively justified, because it excludes de facto a mode of marketing that does not require the customer's physical movement and considerably reduces the approved distributor's ability to sell to customers outside its territory (CJEU, 13 Oct. 2011, case C-439/09, Pierre Fabre). Regulation (EU) 2022/720 consolidates this by expressly classing as a hardcore restriction the fact of "preventing the effective use of the internet by the buyer or its customers to sell the contract goods or services" (Art. 4(e); Guidelines, point 203).

Indirect bans count too

A ban on using the internet may be direct or indirect. An indirect ban can result, according to the Commission, from requiring the distributor to prevent customers located in another territory from viewing its website, to seek the supplier's authorisation before individual online sales, or from prohibiting the use of online advertising channels (Guidelines, point 206).

What you can require

Within those limits the supplier has real latitude, and the 2022 reform gives it more. It may require distributors to operate one or more physical points of sale, which excludes "pure players" that sell only online — a requirement the Regulation supports by recognising the possibility of prohibiting a member from operating from an unauthorised place of establishment (Art. 4(c)(i)(3)), and which the new Guidelines confirm (point 208(d)). It may impose quality standards on the online store as on the physical one. On marketplaces, a restriction on using online marketplaces can apply, but if the supplier itself uses a marketplace forbidden to its distributors, or restricts marketplace use for only some approved distributors, it is unlikely that the Metro criteria (Guidelines, point 338) or the conditions of an individual exemption (point 342) would be met. This aligns with the earlier ruling that a ban preventing members of a luxury selective network from using third-party undertakings visibly for their online sales does not amount to a restriction of customers within the meaning of Article 4(b) of the former block-exemption regulation (Regulation (EU) 330/2010, since replaced by Regulation (EU) 2022/720) — a marketplace restriction is treated differently from a ban on internet selling as such. An internet ban is permissible only where objectively justified — for example by product characteristics requiring sale exclusively in a physical point of sale, or a direct exchange between seller and customer where safety requirements demand it.

Can you restrict this online practice?

The rules above sort common online restrictions into the permissible and the prohibited. Among those generally permissible: requiring a physical point of sale (so as to exclude pure players), imposing quality standards on the online store, and — within limits — restricting the use of a named online marketplace. A ban on online sale can stand only where it is objectively justified, for example by product safety. Among the hardcore restrictions: banning distributors from selling online at all, requiring them to block customers from other territories from their site, and requiring the supplier's authorisation before each online sale.

A total or disguised ban on effective internet use is a hardcore restriction (Reg. 2022/720, Art. 4(e)). Physical-shop, quality and marketplace requirements are, within limits, permissible. Indicative only.

How do you protect the network against sales outside it?

The defining obligation of a selective network is that members do not resell to unauthorised distributors, and the supplier can build real protection around it — within limits set, again, by competition law.

The ban on out-of-network resale

By definition, the distributor must be bound not to resell to non-selected distributors (Reg., Art. 1(g)); it must accordingly verify the status of every professional buyer and keep the invoices for possible control by the supplier. The supplier may require the distributor to pass this ban on to its own direct customers (the "pass-on"). But the Regulation makes clear that the ban is valid only for resales to unauthorised distributors "located in the territory on which the selective distribution system is operated" (Art. 4(c)(i)(2)). It follows that the promoter cannot oppose a member's resale of products to a parallel distributor outside the selective territory. Where the promoter of the network is in a dominant position, it may even be required to satisfy orders from distributors linked to a competing network.

Acting against third parties who breach the network

A manufacturer can obtain compensation for the loss caused by a third party who participates, directly or indirectly, in a breach of the ban on resale outside the network. Sales by mere private individuals cannot constitute such a breach (Cass. com., 11 Jan. 2023, no. 21-21.847). An unauthorised reseller is liable where it sourced from an approved distributor forbidden to sell outside the network, and cannot escape by interposing intermediary shell companies to mask the approved distributor's identity; it may, however, exonerate itself by proving the product was lawfully acquired on a parallel network or from another approved distributor.

Combining selective with an exclusive territory

Combining selective and exclusive distribution on the same territory cannot benefit from the block exemption, because it ends up limiting the active sales of the selective distributor, which is in principle a hardcore restriction (Reg., Art. 4(c)). By contrast, the supplier may restrict the active sales of selective distributors into another territory on which it has installed an exclusive-distribution system (Reg., Art. 4(c)(i)(1)) — which allows the two systems to co-exist more coherently across territories.

Can selection criteria pursue sustainability goals?

Yes — this is a recent addition to the permitted qualitative criteria. Qualitative criteria may now respond to sustainability objectives, such as combating climate change, protecting the environment or limiting the use of natural resources. A selection founded on the distributor's capacity to provide recharging services or recycling facilities in its points of sale, or to make deliveries by sustainable means, could accordingly be admitted (Guidelines, point 144). The criterion remains subject to the same discipline as any other: it must be objective, applied without discrimination, and proportionate to the goal pursued.