Trademark manufacturer may prohibit distribution via Amazon!

Is a trademark manufacturer permitted to prohibit its dealers under a distribution agreement from selling branded goods on internet sales platforms such as Amazon and from advertising them via price comparison portals? This was recently a matter for decision by the Higher Regional Court (OLG) Frankfurt a.M.

A manufacturer of branded rucksacks concluded a distribution agreement with a customer, whereby the customer was prohibited from selling the branded goods via the internet sales platform Amazon and from advertising them via price comparison portals or price search engines. The customer, a specialist sports retailer, challenged these restrictions in court.

The Regional Court (LG) Frankfurt a.M. held in first instance that the prohibition on distributing the branded goods via Amazon and the advertising ban via price comparison portals were unlawful under cartel law, as there was no justification for these restrictions on competition.

Court's Decision

The Cartel Division of the Higher Regional Court (OLG) Frankfurt a.M. ruled by judgment of 22.12.2015, Az. 11 U 84/14 (Kart) (Press Release), that the judgment of the Regional Court was only partially upheld.

The prohibition on advertising the branded rucksacks via price comparison portals is unlawful under cartel law. By contrast, the contractual prohibition on selling the branded goods via internet sales platforms such as Amazon is permissible under cartel law.

In its reasoning, the OLG stated that a manufacturer of branded goods may in principle decide under what conditions its branded products may be resold. In the case of the prohibition on distribution via the internet platform Amazon, the manufacturer's interest in high-quality advisory services and signalling high product quality of the brand outweighs the opposing interests. In contrast to price search engines, on Amazon the product offering appears in dealer shops as an offering of Amazon itself and not as an offering of the specialist retailer. The manufacturer is thus "saddled with" a dealer with whom the manufacturer has no contractual relationship and over whose business conduct it has no influence.
The manufacturer abuses its position, which exists due to the dealers' dependence on it, if it prohibits them from advertising the branded products via price search engines. This is not necessary for the maintenance of the brand image, since these search engines are not seen by consumers as serving direct sales purposes, but merely as a means of finding dealers who offer the product in question. The brand image is not adversely affected by the fact that the accumulation of identical product images and price information may create a monotonous impression of mass availability in the potential buyer's mind. This aspect is of no significance – at least as long as luxury goods are not being distributed.

The judgment is not final and may be challenged by way of revision before the Federal Court of Justice (BGH).

Conclusion

According to the judgment of the OLG Frankfurt a.M., a trademark manufacturer is permitted to control its distribution according to a so-called selective distribution system to protect the brand. However, the trademark manufacturer may as a rule not prohibit its customer from advertising its products via price search engines, since these do not serve direct sales purposes but merely enable the customer to be found by potential buyers.