Online sale restrictions in Poland - the bicycle market saga– en route to a stricter approach or already there?

Almost one year ago the President of Competition and Consumers Protection (“OCCP President”) informed about another proceedings, concerning online sales restrictions in the Polish market for distribution of bicycles (the “Scott Case”)[1]. This is already 5th proceeding conducted by the OCCP President concerning the Polish market for the distribution of bicycles. It seems to suggest two particularly noteworthy aspects of Polish public antitrust enforcement: (i) the approach to online sales restrictions in Poland changes, and (ii) a spillover effect of antitrust proceedings in markets under scrutiny is a serious risk for business in Poland.

Online sale restrictions under the old Polish VBER – was anything certain?

Only nine months before the information about the newest bicycle market proceedings was issued the OCCP President issued a decision finding that Merida Polska sp. z o.o. (“Merida”) has breached competition law provisions through an anticompetitive online sale ban, imposed on its distributors active on the retail level of the Polish bicycle market (the “Merida Case”)[2]. The Merida Case has been decided based on the rules of the “old” Polish Vertical Block Exemption Regulation (which was in force until the end of May 2023)[3]. Similarly to the “old” EU VBER provisions, the “old” Polish VBER has not directly recognized online sales restrictions as hard-corre restrictions of competition law[4].

Hence, the approach to online sales restrictions has been left for the authorities to elaborate on. The effect was that as a rule online sales restrictions were qualified as a general limitation of customers (including passive sales), a hard-corre restriction type of anti-competitive market sharing. However, the fact is that under the ‘old” Polish VBER rules we have faced different outcomes of public antitrust proceedings concerning online sales restrictions.

First, in 2013 the OCCP President imposed fines on Royal Canin Polska and its distributors, for a rule that retail sale to consumers was only possible through veterinarian facilities that do not conduct Internet sales of these products (the “Royal Canin Case”). The practice has been recognized as a by-object and a hard-corre restriction (limitation of customers type of practice). Next, in 2015 the OCCP President recognized that online sales restrictions imposed on distributors by Investment Trading Consulting (the “ITC Case”) are a by-object and a hard-corre restriction[5]. However, at the end of the day in the ITC Case, the OCCP President took a more liberal approach and instead of imposing financial fines it issued a commitment decision, obliging ITC to change distribution agreements provision which stipulated that: All forms of sales via the Internet or through non-stationary trade (mail order, etc.) are prohibited due to the requirement for individual counselling at the time of sale of the product. Marketing and publication of product information on the Internet are permissible[6].

 

The Polish Bicycle market saga – the new roadmap for online sale restriction cases in Poland?

The Polish bicycle market saga may be of key importance for understanding the approach of the OCCP President and possible outcomes for online-sale bans for entrepreneurs in Poland. The saga started in 2019, with dawn raids conducted by the OCCP President on the premises of the biggest bicycle market players. Next, in November 2021, the OCCP President informed on his website that following concerns raised by the authority, a bicycle manufacturer Trek, “changed the terms of the existing contracts with its contractors, and under the new rules, it will not restrict the area and distribution channels” (the “Trek Case”).

The OCCP President described Trek’s practices as follows: distributors “were only allowed to hand over the bicycles to customers at a stationary point of sale, even if the purchase was made online. The above regulations de facto resulted in a division of the market between the distributors by limiting the area of the dealerships' operation to their immediate vicinity, since consumers were not willing to travel long distances to collect their bicycles directly. Additionally, distributors were only allowed to sell bicycles domestically and were not allowed to sell goods via online platforms…” After the “intervention” of the OCCP President, already at the stage of explanatory proceedings (which in Poland precedes the antimonopoly proceedings conducted against a specific party) Trek amended contracts by eliminating provisions that raised concerns of the competition authority. Even though the case concerned online-sale restrictions recognized in its previous decisions as object and hard-corre restrictions – no fine has been imposed on Trek, and no antimonopoly proceedings were initiated.

Therefore, the outcome of the Trek Case was closer to the ITC Case than to the Royal Canin Case. At that time, it could indicate that the liberal approach will be adopted in other online-sale restrictions cases in Poland. Interestingly, the practice of amending anticompetitive clauses due to intervention already at the explanatory proceedings stage (which seems to resemble a commitment decision) is from a formal perspective unknown to the Polish competition law provisions. One may also notice that in 2019 the French Competition Authority imposed a fine of € 250,000 on Trek Bicycle Corporation and its subsidiary Bikeurope B.V. for the fact that bicycles sold online had to be delivered to the authorized point of sale. The Autorité de la Concurrence took a very different position than the OCCP President and imposed a fine despite the voluntary removal of online sales restrictions by Trek in 2014[7].

It appears that the Merida Case, which ended up with a fine imposed on Merida concerned a very similar if not the same practice as described in the Trek Case. Nevertheless, the outcome of these proceedings was very different. The OCCP President has found that Merida Polska bounded distributors with provisions that did not allow them to enter online transactions with customers.  As described in the publicly available version of the Merida Case decision, in line with these provisions a customer had to go to a brick-and-mortar store to pick up the bicycle previously chosen online. Distributors were only allowed to display bicycles on their websites (provide photos and information about products), and customers were able to place orders online and subject to the decision of a specific distributor pay the price online. Next, each such order had to be finalized by picking up the bicycle in a brick-and-mortar store[8].

Although payments were allowed online, the OCCP President stated that “the sale lacked one of the most essential characteristics of such sales, which is the ability to deliver the ordered goods to the customer. Additionally, due to the pick-up requirement, distributors were banned from selling bicycles through auction platforms (like eBay)[9]. In the OCCP President’s opinion both practices together have led to a complete ban on online bicycle sales – and therefore constituted a market division[10]. Unlike in the Trek Case, in this regard, it seems that the OCCP President has somehow followed the approach taken in similar cases by Autorité de la concurrence as in the Merida Case the example of the Sthill case decided in 2018 by Autorité de la concurrence is indicated[11].

Interestingly, it seems that in the Merida Case, the OCCP President did not recognized the ban imposed on distributors concerning the shipment of bicycles to customers alone as contrary to competition law provisions. It has only stated that the combination of this practice, together with the ban on sale through auction platforms has banned the online sale of Merida Polska’s bicycles[12]. Moreover, it has indicated that an agreement leading to the complete elimination of the possibility of selling online falls into the category of market-sharing agreements, which are prohibited by the object (which is to limit competition between distributors)[13].

Despite indicating that the ban constituted a by-object restriction of competition law provisions, the OCCP President provided some economic background indicating that the ban has limited intra-brand competition by narrowing competition to distributors located in relatively short distances close to the consumer's residence. This could lead to higher prices due to the lack of price pressure[14]. The OCCP President has also indicated that the ban may not be exempted from the prohibition of anticompetitive agreements based upon the Polish vertical block exemption regulation – because complete internet sales restrictions cover passive sales[15].

It appears from the wording of the Merida decision that the main line of Merida Polska’s defense was based upon (a well-known from other cases decided by several national competition authorities) safety rules that required bicycles to be sold through brick-and-mortar stores. It was however (not surprisingly) unsuccessful as the OCCP President has not agreed that it may justify a complete ban of online sales[16]. Moreover, in this case, despite the outcomes of the ITC Case and Trek Case the OCCP President stated that object restrictions (as market allocation) should not be subject to commitments. What is particularly noteworthy from defense perspective, the publicly available content of the Merida Case decision indicates that during the proceedings Merida Polska has changed provisions requiring a pick-up in the brick-and-mortar store and next has applied for a commitment decision[17]. In the response the OCCP President has not only indicated that it may not issue a commitment decision in a case concerning the heavy’s violation of competition law provisions but also that as Merida Polska already abandoned the practice itself, a commitment decision would not be able to oblige Merida Polska to do so[18].

 

Strict approach – en route or already there?

Since only a press release about the Trek Case is available, it is difficult to fully compare this case with the Merida Case, to find out why the authorities came to different conclusions in (at least at first glance) very similar cases. One difference which is, however, immediately apparent is the strategic approach to public antitrust proceedings in Poland taken by both companies. In the Trek Case, the amendment of contracts raising concerns took place after consultations with the authority at a very early stage of proceedings (explanatory proceedings). On the other hand, Merida has abandoned the practice itself before agreeing upon it with the OCCP President, during the later stage of proceedings, and as a result, the authority stated that a commitment to abandon the practice may no longer be imposed in a final decision.

As mentioned above the Merida Case has been decided based upon the old Polish VBER provisions. The same case may be with the ongoing Scott Case – as the new VBER rules are applicable only since July 2023. One may, however, notice that the steps taken to apply a stricter approach to the online sales restrictions already in the Merida Case are closely related to the provisions of the “new” Polish VBER provisions and changes recently applied to Polish competition law. The “new” Polish VBER states the same as the new EU VBER i.e.: preventing the effective use of the Internet by a buyer or its customers to sell goods covered by a vertical agreement, if this limits the territory or customer group in which or to which the goods covered by that agreement may be sold – is a hard-core restriction[19]. This seems to define the final standard of approach to online sale restrictions in Poland. We may also notice that since 2019 the OCCP President has already initiated 5 proceedings in the market for the distribution of bicycles, which is a clear example of a spillover effect of antitrust proceedings in the same industry.