Contracts: How to restrict internet resale?

A total ban on internet resale is not permitted. But suppliers can limit it by imposing requirements on internet resale.

As a supplier you prefer to control the sales channels in order to protect the reputation of your products. The same applies to internet resale by your distributors. However, online sales via a personal website or internet platforms, such as eBay and Marktplaats.nl, cannot be restricted. Such a restriction of internet sales may restrict competition too much resulting in the risk of severe fines for breaches of competition law. Potential fines may even amount to 10% of the annual turnover.

The boundaries of internet sales

A total ban on internet sales (included in the General Terms & Conditions) is not permitted, but as a supplier you don’t have to just tolerate everything. You can impose certain requirements and thus retain (some) control of internet sales, including, for instance:

1. A minimum of one physical store: The distributor is required to have at least one or more physical stores before he is permitted to sell products on the internet as well.
2. Sales requirements: The supplier may request that the physical store generates a minimum sales volume. However, it is not allowed to specify that offline sales must be a certain percentage of the total sales.
3. Quality requirements: Just like in a physical store, the supplier may request certain quality requirements regarding the resale of his products, such as the products being presented in conformity with the good reputation of the brand. Such quality requirements may be modified later on.

How not to do it

A supplier restricted competition by prohibiting his distributors from selling cameras through internet platforms such as eBay and Amazon. The distributor only allowed camera sales via a personal website. Based on quality requirements, which also apply to physical shops, high-end brands can prohibit sales via an online platform.

Another supplier went too far when he only wanted to permit internet sales after he had given approval. According to the Mid-Netherlands District Court, this enabled him to exercise more influence on the distributors than necessary for a good reputation and the good name of the product.

Geoblocking

In a number of guidelines, the European Union has outlined the leverage for internet sales. For example, geo-blocking is not allowed, nor is it permitted to:

• Forward (potential) clients automatically to a website of another (exclusive) distributor when it becomes clear that the website visitor falls outside the territory of the respective distributor.
• Terminate a transaction when the payment details show that the client falls outside the territory of the distributor.
• Make a distributor charge higher prices for products sold online than for products sold offline.

Web shop and brand name

A seller is not allowed to simply start a web shop under the name of a brand he sells, even if he is an official dealer, agent or distributor. The brand owner can prohibit the reseller from using the brand if this use could lead to confusion among the average consumer. For this reason, a seller of painting supplies by Talens had to transfer the domain talensshop.nl to the Talens brand owner.

Action

• Do not include a total ban of internet sales in your contract with the distributor, but impose as a requirement that there have to be physical stores and determine the quality requirements for internet sales.
• Have an internet sales clause tested for compatibility with the legal requirements.

More information

Do you have any questions with respect to restricting internet sales by your distributors (in General Terms & Conditions) or other questions related to online sales? Would you like to have your General Terms & Conditions tested? Please contact: