The following Competition practice note Produced in partnership with Gibson, Dunn & Crutcher LLP provides comprehensive and up to date legal information covering:
Most manufacturers do not distribute their products themselves. Establishing a captive retail system is expensive and manufacturers normally outsource such activities to independent distributors, who know the markets, are familiar with retailers and understand how to target customers. Nonetheless, manufacturers are likely to be keenly interested in how their products are distributed and advertised, and the conditions under which they are sold.
One way to achieve both objectives is to establish a selective distribution system (SDS). In an SDS, products can only be sold by the manufacturer itself and by its appointed distributors. Because the manufacturer has an interest in determining who can sell its products, it will usually impose on its appointed distributors the obligation not to sell those products to non-approved distributors (known as cross-selling). An SDS therefore usually constitutes a closed system which is particularly apt to avoid price pressure from low-cost retailers or discounters. At the same time, it allows manufacturers to protect their brands, the creation of which will usually have required considerable investment. SDSs are therefore often used by manufacturers of branded products.
The European Commission’s Vertical Guidelines, which set out principles for the assessment of vertical agreements under Article 101 TFEU, describe an SDS as restricting both the number of authorised distributors and the possibilities or conditions of how products are resold. The restriction of distributors is thereby based
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