How manufacturers can structure selective distribution systems, objective retailer criteria, quality requirements and online sales under competition law.
, Mag. Bernhard Brandauer, Rechtsanwalt
A manufacturer may organise the distribution of its products. A selective distribution system becomes a competition law risk where the selection criteria restrict sales without a factual reason, retailers are treated differently in competition or online sales are effectively excluded.
Section 1 of the Austrian Cartel Act covers agreements and concerted practices that prevent, restrict or distort competition by object or effect. It expressly includes restrictions or controls of sales and different conditions for equivalent services where trading partners are disadvantaged in competition.
Section 2 of the Austrian Cartel Act provides an exception where an agreement improves production or distribution, consumers receive an adequate share of the benefit and the restrictions are indispensable for that objective. In practice, criteria, quality requirements, retailer admission and online sales need a traceable connection to the distribution concept.
This short path separates preparation, a specific retailer decision and a challenge. You can then send the relevant records to the firm.
Selection criteria, retailer application, distribution rules and records determine the next review step.
This path provides initial orientation and does not replace an individual legal assessment.
Assemble the criteria catalogue, quality requirements, retailer agreement, online sales rules and internal approvals. Assign a specific purpose and planned application to each criterion.
Preserve the complete application, supporting records, decision, reasons and comparable approvals. Record which quality or distribution requirement was met or missed.
Keep the complete letter, the criteria in force at the time, retailer lists, online rules, agreements and review records. Add a chronology of approvals, rejections and changes.
In a selective distribution system, the supplier admits only retailers that meet defined requirements. Approved retailers receive access to the range or to specific products. The purpose is to protect distribution quality, so selection must be based on predetermined, objective criteria.
Competition law looks at the actual structure. Relevant elements include the criteria catalogue, the admission decision, restrictions on sales to unauthorised retailers and ongoing monitoring. A label such as “premium network” does not answer these questions.
The starting point is section 1 of the Austrian Cartel Act. A distribution rule can restrict sales or disadvantage trading partners in competition. For a possible exception under section 2, the manufacturer should be able to explain how selection improves distribution and why the specific design is needed for that purpose.
Criteria should relate to the distribution task. Depending on the product, relevant factors may include technical advice, trained staff, suitable storage, service capacity or safe presentation. Each requirement needs a concrete link to the product, customer expectations or fulfilment.
A criterion is easier to defend where it is recorded in advance, applies to all comparable applicants and is assessed through verifiable records. Vague wording such as “suitable retailer” leaves too much room for decisions made after the fact.
The manufacturer should link each criterion to a purpose, evidence and decision threshold. Changes belong in a new version. The article on pressure and influence in commercial practices concerns a different area of law, but can be a neighbouring path where economic pressure appears around the distribution relationship.
Quality requirements can improve distribution where they secure advice, installation, maintenance or presentation of the specific product. The manufacturer should therefore describe which quality problem the requirement solves and what customer benefit it provides.
The requirement must fit its purpose in scope and implementation. Training may be useful for a product that needs explanation. A blanket demand for expensive equipment from every retailer needs a particular justification where it is not needed for advice or service.
Section 2(1) of the Austrian Cartel Act requires restrictions to be indispensable for the objective and competition to remain open for a substantial part of the goods. A quality rule is therefore not supported merely because it improves the brand image. Its connection to distribution and adequate consumer participation must remain clear.
A selective system may organise the quality of an online offering. Possible requirements concern product information, availability of advice, returns, data security or the presentation of safety information. The requirements must be suitable for the online channel.
A complete exclusion of online sales is a far-reaching restriction of sales. Section 1(2)(2) of the Austrian Cartel Act expressly refers to restrictions or controls of sales. The manufacturer should therefore ask whether the quality objective can be reached through less restrictive digital standards.
Online and store-based sales do not have to be organised identically. Different requirements need an explanation based on the conditions of each channel. A rule that singles out particular retailers or makes a permitted retailer’s digital sales practically worthless increases the risk of competitive disadvantage under section 1(2)(4).
A retailer decision should identify the criteria assessed in the specific case. For a rejection, the application, supporting records, assessment and reasons belong in the same file. This creates a traceable link between the rules and the decision.
Comparable applicants should be assessed by the same standards. Differences can be justified by product groups, territories or service tasks. The reason should be recorded for the specific case and must not be invented only after a challenge.
Ongoing admission also needs clear rules. The manufacturer should specify when a review occurs, which missing records can be remedied and how improvement is possible. The article on standing and injunction claims covers the subsequent protection path separately.
Within its system, a manufacturer can define which distribution partners it supplies directly. Implementation should relate to the purpose of the selective system. The manufacturer must know which retailers are approved, which products are covered and which level of the supply chain is being reviewed.
Monitoring should test compliance with the objective system rules. Broad market surveillance with economic disadvantages for retailers that make their own decisions can change the nature of the selection rule. The agreement, communication and actual response should therefore be reviewed together.
Section 1 of the Austrian Cartel Act also covers direct or indirect fixing of selling conditions. The manufacturer should keep retailer selection separate from resale price instructions, economic pressure and other independent distribution restrictions. This article remains focused on admission and access to the distribution system.
Before launch, the distribution file should contain the criteria catalogue, the product rationale, quality requirements, online rules and approval status. Each rule should show which improvement in distribution is expected.
During operation, preserve retailer applications, approvals, rejections, reviews, complaints, agreements, portal rules and change records. Timestamps and versions show which rule applied when a decision was made.
After a challenge, businesses should secure the specific decision, the complete rules and comparable cases. A letter from a competitor or association should be kept with its enclosures and proof of service. The article on a UWG cease and desist letter explains the separate response to such a challenge.
Before approval, answer seven questions. Which specific distribution problem does selection solve? Which criteria apply to comparable retailers? Which records prove compliance? Which quality requirement relates to which product? How does online sales remain practically possible? Which rule restricts sales to unauthorised retailers? Who reviews changes and complaints?
Assign every restriction to its purpose. A rule needs careful explanation where it materially affects sales, online access or the competitive position of individual retailers. Section 2 of the Austrian Cartel Act also requires the restriction to remain indispensable for the objective and competition not to be eliminated for a substantial part of the goods.
If the product, range, portal, service duties or retailer structure changes, approval needs a new review. An earlier rationale does not automatically cover changed distribution practices.
A selective distribution system can have an objective justification. The manufacturer needs predetermined and verifiable criteria, must treat comparable retailers by the same standards and must link the restriction to a concrete quality or distribution objective.
Comparable retailers should be assessed by the same criteria. Different requirements may be justified by the product, territory or service task. The reason and the application should remain traceable in the retailer file.
A complete exclusion is a far-reaching restriction of sales. The review should ask whether the quality objective can be achieved through objective and less restrictive requirements for product presentation, advice or fulfilment. The specific rule requires a case-by-case assessment.
The risk increases where a requirement has no traceable connection to the product or distribution quality, singles out retailers without a factual reason or eliminates competition for a substantial part of the goods. Section 2 also requires the restriction to be indispensable for the objective.
Preserve the criteria catalogue, applications, records, approvals, rejections, reasons, agreements, online rules, review reports, complaints and change histories. Arrange the documents by product, retailer, version and period.
Assess economic pressure and specific responses around a distribution relationship.
Assess standing and injunctive relief under section 14 UWG separately.
Organise a challenge, enclosures, evidence and requested undertaking.
Assess evidence, repetition risk and possible urgent relief.
Review damage, causation and legal basis in a different cartel matter.
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