COMPETITION • FRENCH LAW • UNFAIR COMPETITION
The commercialization of products covered by a distribution network by a non-authorized reseller constitutes resale outside the network. According to established case law, selling products outside the distribution network does not in itself constitute an act of unfair competition, provided that the reseller has a regular supply. A non-network third party can therefore meet orders with products acquired on a regular basis, even aware of the exclusive arrangement enjoyed by the distributor or its approved distributor status.
Off-network sales, which often result in parallel imports which constitute a factor for the opening up of the market are favorably regarded by the competition authorities and the courts. They are not looked upon with favor, however, where they constitute free riding by non-network resellers taking advantage of investments made by the brand without having to bear the costs or provide a service to consumers. As they do not bear the same burden as members of the network, such resellers may sell the contract products at a lower price, which, in the long term, may lead to the elimination of the network. Thus, Article 1240 of the Civil Code will apply where a fault severable from the sale is established against the third-party reseller. This is the case of sales made in conditions that devalue the value of the products (sale of luxury goods in sheds, displayed in bulk or in simple displays, close to low-end items) or that damage the brand image of the products in question.
In addition to Article 1240 of the Civil Code, Article L. 442-6, I, 6º of the Commercial Code prohibits direct or indirect participation in the violation of a prohibition on resale outside the network, provided that the prohibition in question complies with competition law, which limits the applicability of the text to agreements whose legality is dependent on an exemption. Nevertheless, the rule on third-party complicity in violation of the network does not provide any additional certainty in relation to the case law that condemns non-network third parties for unfair competition or illegal use of trade marks.
