Internet Selling - Passive or Active Selling?

One of the distinctions, which has widespread significance in EU Competition Law, is whether particular selling activities constitutes either active selling or passive selling.

In many cases such as motor distributorship arrangements (EC 1475/95), exclusive distribution (EC 983/83) and franchise agreements it is acceptable for the supplier to insert restrictions preventing the distributor, dealer or franchisee from actively pursuing sales outside its own contract territory.

Because of the concept of the Single Market and the imperative not to hinder, restrict or prevent parallel trade, passive selling, i.e. responding to unsolicited approaches from outside the contract, territory is permitted and indeed required to be permitted under EU Competition Law.

The expression "grey reselling" or "grey market" is used to deal with such situations where products are sold outside the official contract territory frequently but not always by parties outside the official distribution chain.

What is the position, however, where the distributor or franchisee or dealer hosts a Web Site and sets up an Internet selling arm? Is this active selling or is this passive selling? This issue has been addressed in the new EU Commission Guidelines that came into force with effect from 1st June 2000. These Guidelines state that sales over the Internet will be regarded as passive rather than active selling.

The consequences of these Guidelines could be far reaching. Manufacturers and suppliers will have to consider the implications very carefully. Dealers, distributors and franchisees will also have to consider the position very carefully.

There may be very little benefit in having a specific contract territory if the product in question can be easily sold over the Internet.

On the other hand, it is not open to manufacturers or suppliers to prevent passive selling where this would have an adverse impact on parallel trade. The consequences have yet to be established but it would appear that traditional distribution and franchise arrangements may be significantly and adversely affected by Internet selling.

From the point of view of EU law and the European Commission, obviously Internet selling will facilitate cross border sales and is therefore to be encouraged.

It may still be open to manufacturers and suppliers to attempt contractually to restrict a distributor, dealer or franchisee from using certain trademarks on Web Sites or indeed from actually setting up a Web Site in the first place. However, there is concern over whether a restriction on setting up a Web Site would be compatible with EU Competition law.

If the purpose of restricting the establishment of a Web Site is to prevent passive selling and thereby adversely impacts on parallel trade, the restriction may be incompatible with EU law and, accordingly, unenforceable.

For further information or general enquiries contact: -
Patrick Ryan
Email: pryan@kilroys.ie
Telephone: +3531-439 5600
Fax: +3531-439 5601/439 5602

© Kilroys Solicitors May 2002