Clifford Chance

The French Competition Authority (the "FCA") has fined Rolex France (jointly and severally with Rolex Holding SA, the Hans Wilsdorf Foundation, and Rolex SA) for prohibiting its distributors from selling Rolex watches online for over ten years. The FCA deems this restriction on online sales as a vertical agreement limiting competition and rejects Rolex's argument that it was necessary to combat counterfeiting and parallel trade. The FCA imposed a fine of EUR 91.6 million on Rolex France and ordered Rolex to publish a summary of the decision on various digital and print channels, as well as to share it with authorised retailers. This fine is the highest imposed to date by the FCA in relation to online sales restrictions in vertical agreements.

Rolex's unlawful online sales ban

Rolex's selective distribution system in France involves exclusive agreements with independent authorized retailers. These agreements stipulate that the sale of Rolex products is exclusively reserved to end consumers in a physical outlet. Sales outside of any physical outlet or distance selling were specifically not allowed.

The FCA finds that the contractual clauses prohibiting online sales were inherently restrictive of competition. Rolex's justification, based on image protection and combating counterfeiting, were recognised by the authority as legitimate reasons. However, the FCA's view is that an absolute ban on online sales is not a proportionate measure. The FCA notes that competitors facing similar risks had implemented technology solutions to reconcile online sales and combat counterfeiting. In fact, Rolex itself put in place the "Rolex Certified Pre-owned" program with its distributor Bucherer, which allows consumers to buy online pre-owned watches, whose authenticity is guaranteed by Rolex.

The FCA refers to its past established decisional practice in relation to restrictions of online sales, including its 2012 Bang & Olufsen decision which fined the company EUR 900,000 for having prohibited de facto their distributors from selling the brand’s products online, its 2018 decision regarding practices implemented in the retail of outdoor power equipment by Stihl which was fined EUR 7 million for having prevented its authorised distributors from selling its products online, as well as its 2019 decision fining Bikeurope EUR 250,000 for having prohibited its authorised retailers from selling its bicycles online.

Notably, the FCA also refers to the new EU Vertical Block Exemption Regulation ("VBER") and the vertical guidelines ("Guidelines") which entered into force in June 2022. While the FCA notes that these new rules were not applicable in the present case, it finds that they serve as useful guidance as they illustrate the current European Commission practice on the treatment of distribution arrangements and vertical restrictions.

• The FCA cites the new Article 4(e) of the VBER which now explicitly specifies that a restriction that, directly or indirectly, prevents the effective use of the internet by the buyer to sell the goods to specific customers or into specific territories amounts to a hardcore restriction.
• The FCA also refers to the Guidelines which provide updated guidance to clarify and harmonise the applicable rules and guiding principles for the assessment of online restrictions, in particular from the Pierre Fabre and Coty case law.

No sufficient evidence suggesting that Rolex engaged in resale price maintenance

However, based on the evidence on file, the FCA finds that Rolex and its distributors did not engage in price fixing of the resale prices imposed on Rolex's retailers, whose pricing freedom had therefore not been restricted by Rolex. In fact, most of them were able to discount some Rolex branded products, sometimes at levels higher than the pricing scales developed and recommended by Rolex.

Towards more severe fines also for vertical restrictions

The FCA rejects Rolex's argument that the application of the FCA's new 2021 fining guidelines would violate the principle of non-retroactivity of more stringent laws to facts that preceded their entry into force and applies the new fining guidelines to this case. The new fining guidelines were intended to draw lessons from the FCA's decisional practice, the case law and doctrine to date on the determination of financial fines. They also followed the implementation into French law of the ECN+ Directive of the European Commission, which provides for a harmonisation of the criteria for determining the amount of financial penalties, as well as a strengthening of their role in deterring infringements. As such, it had been expected that these more stringent fining guidelines would lead to an increase in the amount of the fines imposed by the FCA.

In this case, the FCA deems Rolex's practices serious as they close a significant distribution channel to the detriment of distributors and consumers, especially considering the growing trend of online sales for luxury products, including watches. The fine imposed by the FCA reflects the seriousness of Rolex's practices and constitutes today the highest fine issued by the FCA in relation to online sales restrictions in vertical agreements.

Moreover, the decision is in line with the FCA's recent enforcement practice in relation to vertical restrictions, as it imposed earlier this month a EUR 4 million fine on the Mariage Frères group – a French leading producers of premium teas – for hindering the commercial freedom of its distributors for almost 15 years by forbidding them to sell its branded products online, on the one hand, and to resell its products to other retailers, on the other. More broadly, it reflects the renewed determination of European competition authorities to address non-compliance with distribution rules across all sectors.

Key takeaways for luxury brands

As the luxury industry navigates the digital age, this decision serves as a compliance reminder for luxury brands to adhere to the new EU distribution rules. It also highlights the importance of embracing practices that not only preserve brand integrity but also cater to the dynamic landscape of online commerce.

Rolex can appeal the decision to the Paris Court of Appeal.