In a first, Italian Competition Authority fines Morellato €25m for a combination of RPM and marketplace ban in its selective distribution system

1. The sanctioned conduct: Single infringement or distinct strands?

The AGCM found that Morellato and its distributors had implemented, at least from 20 July 2018, an agreement comprising two vertically restrictive conduct strands of an anticompetitive nature, in violation of Article 101 TFEU, which were restrictive of intra-brand competition as prejudicial to the buyers’ freedom to determine their own commercial distribution policies for mid-accessible jewellery and watches.

The investigative findings revealed: (i) the existence of an explicit contractual clause prohibiting distributors from using third-party websites and marketplaces, applied in a discriminatory manner (“marketplace ban”); and (ii) an RPM policy in place at least from 20 July 2018, comprising maximum discount instructions, a comprehensive monitoring system based on a specific software, and retaliatory measures against non-compliant distributors (“RPM policy”). The clause relating to the marketplace ban and the RPM policy were found to be intrinsically linked.

The AGCM concluded that, according to the evidentiary body, the discriminatory marketplace ban and the RPM policy were jointly aimed at controlling the commercial policies of distributors through continuous monitoring of individual buyers regarding the prices applied and their presence on marketplaces. The agreement between Morellato and its distributors was found to be restrictive of competition insofar as it had as its object the fixing of resale prices and the effects of limiting intra-brand competition by impeding the use of the marketplace channel in a discriminatory and disproportionate manner. The infringement was summarised as a single vertical agreement in violation of Article 101 TFEU through: (i) the restriction of the buyer’s ability to determine its resale price, with the imposition of predetermined maximum discount levels; and (ii) the discriminatory prohibition on the use of third-party websites and marketplaces.

Notwithstanding this overall characterisation as a single infringement, the two constituent strands were treated as independently sufficient to ground distinct competition law objections. The AGCM assessed RPM policy separately as a hardcore and by-object restriction, and assessed the marketplace ban separately on its individual merits once the block exemption had been lost. This distinction is legally significant, as discussed further below.

2. Theory of harm

The theory of harm is anchored to the reduction of intra-brand competition at the distribution level, with distinct but complementary mechanisms for each strand.

As regards the RPM policy, the AGCM recalled that the Court of Justice of the EU has affirmed — most recently in its Super Bock — that, in general, RPM constitutes a by-object restriction of competition under Article 101(1) TFEU, and that the Vertical Guidelines describe the direct harm caused by RPM as the elimination of intra-brand price competition, preventing some or all distributors from lowering their resale price for the brand in question, with consequent price increases for that brand. In the specific circumstances of the case, having regard to the objectives pursued by Morellato’s RPM conduct — namely, to orient the pricing policies of authorised distributors across all online channels under the threat of commercial retaliation — and to the economic significance of online channels as a showcase conditioning sales and prices in physical stores as well, the vertical restriction was found to present a sufficient degree of harm to intra-brand competition and was therefore deemed restrictive of competition by its very object.

As regards the marketplace ban, the AGCM found that the clause could determine restrictive effects on competition insofar as it discriminatorily deprived Morellato’s distributors of the possibility of accessing an important sales channel, thereby reducing intra-brand competitive pressure on prices in general, while also favoring Morellato’s direct sales. Morellato indeed reserved to itself the ability to make direct sales through those same sales channels prohibited to authorized distributors, which precluded a justification based on protection of brand image.

Further, the AGCM argues that the two strands reinforce each other in tightening control over the commercial policies of distributors and in reducing intra-brand competition: the marketplace ban was found to be intrinsically connected to the RPM conduct and functional to the objective of controlling distributors’ commercial policies. Crucial to this objective was also the continuous monitoring of individual buyers regarding prices and presence on marketplaces to counteract “uncontrolled Amazon discounts.”

3. Evidence relied upon by the AGCM

The AGCM’s evidential case rested on a combination of documentary, testimonial and statistical evidence, namely:

• contractual and corporate documents stating that “sales through shops and resellers on the web and third-party platforms (such as Amazon, eBay, etc.) are not permitted”.
• a specific monitoring software showcased in internal presentations of Morellato, documenting the objective of an articulated system to track non-compliance with agreed discount policies and record irregularities by customers and websites to implement blocking actions, and to manage the selective distribution contract.
• internal email communications evidencing intent and execution: noteworthy, The AGCM relied on an email exchange between the CEO and the head of legal of Morellato discussing the anticompetitive nature of its overall internet policy as equivalent to RPM and expressing disbelief that the marketplace ban could fall within the safe-harbor of the Coty ruling of the CJEU, on which Morellato sought to rely.
• retaliatory measures: the AGCOM found evidence that following monitoring outputs, the orders of numerous distributors were blocked and cease-and-desist letters were sent to many others.
• the distributors survey: the AGCM commissioned a survey addressed to a representative sample of 1,200 jewellers active in Italy, aimed at assessing their approach to the use of online sales channels, both via proprietary websites and via marketplaces. The survey found that 72.6% of respondents stated that not being able to be present on marketplaces would have had a penalising impact, with 38.2% considering such impact to be strongly or quite penalising; when filtered for distributors selling Morellato products specifically, 79.2% considered marketplace exclusion penalising, with 41.6% finding it strongly or quite penalising for their revenues.

4. The characterisation of the discriminatory marketplace ban by AGCM: Hardcore, by-object, or by-effect?

This is one of the most analytically significant points in the decision. The AGCM’s approach was deliberate in its gradualism.

As regards the RPM policy and related conduct, the AGCM was unequivocal: the conduct constitutes a hardcore restriction of competition within the meaning of the VBER and Article 101(1) TFEU.

As regards the marketplace ban, however, the AGCM noted that, irrespective of the characterisation of the restriction on marketplace use as a hardcore restriction, once the block exemption established by Regulation (EU) No 720/2022 does not apply to a vertical agreement, it is necessary to examine whether, in the individual case, the vertical agreement falls within the scope of Article 101(1) TFEU.

Importantly, the AGCM did not rule out that a marketplace ban can be charachterised as a hardcore or by object restrictions in certain circumstances, however it deliberately avoided to delve into this assessment and found that in any case it constituted a restriction of competition within the meaning of Article 101(1) TFEU insofar as it was capable of producing effects on intra-brand competition between Morellato and its distributors, and was neither justified, nor necessary, nor proportionate with regard to the objectives of protecting the products subject to selective distribution, being furthermore applied in a discriminatory manner by Morellato.

More specifically, the AGCM’s legal assessment of the marketplace ban vis-à-vis Article 101 TFEU proceeded in structured steps as follows.

Step 1: The Metro criteria are relevant in the first place to establish whether a selective distribution agreement and its individual requirements are restrictive under Article 101(1) TFEU. The AGCM recalled, citing the Metro judgment of the CJEU and the Commission Guidelines, that selective distribution agreements using purely qualitative criteria may fall outside Article 101(1) TFEU only where three cumulative conditions established by the CJEU are met: the nature of the products must make a selective distribution system necessary; resellers must be chosen on the basis of objective qualitative criteria applied uniformly and without discrimination to all potential resellers; and the criteria established must not go beyond what is necessary. The assessment of compliance with the Metro criteria requires, beyond a general evaluation of the selective distribution arrangements in question, a separate analysis of each potentially restrictive clause.

Step 2: The discriminatory application excludes compliance with Metro criteria and makes the overall agreement unlikely to fall outside the scope of Article 101(1). The AGCM cited § 338 of the Commission Vertical Guidelines (2022), according to which, where a supplier appoints the operator of an online marketplace as a member of its selective distribution system, limits the use of online marketplaces by some authorised distributors but not others, or limits the use of an online marketplace while itself using it to sell the goods or services in question, it is unlikely that the restrictions on the use of such online marketplaces will satisfy the requirements of adequacy and proportionality indicated by Union case law, and it is therefore unlikely that such agreements will escape the application of Article 101(1) TFEU.

Step 3: Exclusion of the overall agreement from the block exemption and need for individual assessment.  Pursuant to Article 4(a) of Regulation (EU) No 720/2022, the block exemption does not apply to vertical agreements containing certain hardcore restrictions, including to the buyer’s ability to determine its own resale price (RPM). Since the AGCM found an autonomous RPM conduct constituting a hardcore restriction, the entire agreement with each of its clauses lost the block exemption, including the marketplace ban, irrespective of the market shares of the parties.

Step 4: Individual assessment of the marketplace ban — Article 101(3) inapplicable. According to the Commission’s guidelines on individual assessment of vertical restrictions that do not fall within the general block exemption, where restrictions to the use of digital marketplaces are applied in a discriminatory manner, it is unlikely that they will satisfy the conditions of Article 101(3) TFEU to justify an individual exemption – and the investigation confirmed anti-competitive effects intra-brand whilst Morellato did not bring forward sufficient elements of countervailing pro-competitive effects.

Importantly, the AGCM cited the Metro, Pierre Fabre and Coty judgments collectively in the context of identifying the Metro criteria as the conditions under which qualitative selective distribution may fall outside Article 101(1) TFEU. The Pierre Fabre ruling was relevant for the proposition that an absolute prohibition on internet sales within a selective distribution system is liable to constitute a by-object restriction. The Coty ruling was relevant for the countervailing proposition that not every marketplace restriction within a selective distribution system constitutes such an absolute internet ban. However, the AGCM emphasized that internal evidence showed that Morellato itself had acknowledged Coty to be inapplicable to its situation, given that price control rather than brand prestige was the operative motive.

5. Commentary and takeaways

The Morellato decision raises several issues of broader significance for the application of EU competition law to vertical restraints in digital commerce, which are worth addressing in turn.

Nature of marketplace bans under Article 101 TFUE and the VBER and burden of proof. The central question — whether the discriminatory application of a marketplace ban in a selective distribution system may be deemed a hardcore restriction pursuant to Article of the VBER, or rather should be treated as a less serious restriction (either by-object or by-effect) that by default benefits of the block-exemption below the 30% market share thresholds — was not conclusively resolved by the AGCM. The AGCM adopted a structurally efficient approach: by first finding an RPM conduct as hardcore restriction under the VBER, it caused the entire agreement to lose the benefit of the block exemption without the need to characterise the marketplace ban as hardcore autonomously. Once the block exemption was unavailable, the marketplace ban was in any case due to be assessed individually, and its discriminatory application (combined with a quite light analysis of likely effects) was deemed sufficient to infringe Article 101(1) without being classified as hardcore or by-object restriction.

More specifically, the discriminatory application was treated as negating the proportionality and adequacy requirements under the Metro criteria, thus making the restriction fall within Article 101(1), and simultaneously excluding individual exemption under Article 101(3) because of its likely restrictive effects on intra-brand competition and no clear pro-competitive effects or objective justifications.

The AGCM substantiated this conclusion by relying on the Vertical Guidelines of the Commission (§338), as well as by empirical evidence (mainly statistics) emerged from the survey carried out with distributors during the investigation. This level of effects’ analysis of a (discriminatory) marketplace ban marks the standard of proof that may be relied on by AGCM going forward to establish that a similar ban is unlawful, thus effectively shifting the burden to the defendant to rebut the presumption.

The novelty of the marketplace ban finding and its broader implications. The AGCM itself acknowledged that this decision is among the first, even internationally, to establish the anticompetitive nature — under Article 101 TFEU — of a clause restricting the use of online marketplaces (as opposed to the whole internet) within a selective system. Precisely on account of this novelty, the AGCM decided to limit the fine calculation to the RPM conduct alone. This self-restraint in sanction-setting is consistent with the principle of legal certainty, but it also signals that future enforcement against marketplace bans — particularly if combined with tight monitoring of prices and other RPM conduct — may not benefit from equivalent mitigation.

Legal privilege and internal communications. One of the notable features of this decision is the evidentiary relevance given by the AGCM to Morellato’s own internal legal assessment of the marketplace ban included in communications between its CEO and the in-house head of legal, which was possibly decisive to rejecting Morellato’s defensive arguments and justifications under Coty. This landed amidst a lively debate at EU level on the need for a revised and uniform approach across the EU/EEA to the rules governing legal privilege, which in most EU countries do not cover internal communications between in-house counsels and owners, top managers or other employees. Differently from correspondence with external counsels, legal advice from in-house counsels can therefore be seized and used as evidence against the investigated company.

Practical implications for companies operating distribution systems. Suppliers operating selective distribution systems with price monitoring tools and marketplace restrictions should know that the combination of these two elements raises a significant enforcement risk, particularly if the restriction is applied discriminatorily. Where the supplier reserves to itself a restricted sales channel or does not apply the ban uniformly and transparently across its distributors, quality or brand-image justifications under the Coty safe-harbor would likely become implausible also for luxury products. The real novelty, however, is the close association found by AGCM between marketplace restrictions and RPM practices, as the former may be deemed strictly functional to an overall strategy of limiting intra-brand competition by controlling resale prices and commercial policies. In this set-up, the possibility of establishing that a marketplace ban is tantamount to a hardcore (or by-object) restriction is left open.