The popular German brand of backpacks has lost its case, at least for now, against a retailer who was not willing to sign the supplier's revised general terms and a special declaration with binding guidelines for selective distribution. Judicial authorities and other sources declined to disclose to us the name of the retailer, citing data protection guidelines.
In particular, Deuter has been trying to prevent retail customers from using web-based marketplaces such as Amazon and price search engines for nearly two years now. The retailer, who was no longer supplied after having refused to sign such restrictions, went to court and won his case. Deuter said it would appeal.
In Germany, Deuter is in good company with other brands that are leaders in their respective product categories such as Adidas and Asics. Unlike Deuter, neither of these two big sporting goods brands faces legal actions before courts, but there are investigations of their distribution practices before the Bundeskartellamt, the German anti-trust authority. In all three cases, it is about the critical question of whether a leading brand is allowed to impose rules on its retail partners and to (ab)use its market power to achieve its goals.
In the particular case of Deuter, the complaining party is a retailer who started as a pure web player in 2003 and opened a brick-and-mortar outlet in 2005 that now has a selling surface of 700 square meters. Since 2008, the company has been retailing through Amazon's marketplace and made 70 percent of its sales through that distribution tool in 2012. Its sales volume with Deuter gear alone until the end of 2012 was €27,000 compared with a purchase price at €21,000.
The quarrel between the retailer and the vendor began in 2012, when Deuter asked its retail clients to sign the altered general terms of its selective distribution guidelines. As the complainant refused to sign, the supplier did not deliver the pre-ordered merchandise for the spring 2013 season.
A Frankfurt court has now ruled in favor of the retailer and agreed that Deuter should have to pay for damages due to the cancelled deliveries. On top of that, the brand would be required to pay €250,000 in damages for every single case of non-delivery to the retailer.
The judges said that they were aware of the fact previous contradictory court verdicts in similar cases and referred to them as a basis for their own decision in this specific matter.
German jurisdiction has seen a wide range of trials on the crucial question of whether vendors can pick clients based on their behavior on the internet. Pricing has never been mentioned, though. It is the key question in most of the cases, but vendors are not allowed to criticize pricing because retailers enjoy the freedom to select the pricing of the products under German law. Therefore, suppliers usually seek other restrictions or try to build obstacles such as forbidding the use of online marketplaces or price search engines.
Referring to an earlier decision by another court in a case against eBay, the Frankfurt judges explained that they understood the vendors' point of view that the appearance of their collections may not be good for the brand image, as eBay and other similar sites may be seen as a kind of flea market by the customers. The court argued that this perception may be true to some extent, but this doesn't warrant dismissing such tools.
The fundamental question is whether important brands can get control over the competition in the market for their own products. The court agreed that in some special cases, a selective distribution concept is allowed when the “efficiency of the distribution” weighs more than free competition in the market. This is the case, for example, for products requiring an extremely high level of advice and after-sale service. The judges did not see this applying to Deuter's goods.
The verdict of the Germany anti-trust authority comments also on the “dominant” role of the brand, which is an important point in this kind of cases. Retailers that are banned by important brands often argue that they cannot run their businesses successfully without the leading sellers in the respective categories. The court saw that there was no point in debating Deuter's leading role as it has a share estimated at 45 percent in the German market for technical backpacks.
The Frankfurt verdict was warmly welcomed by the German federation of online retailers (BVOH) which has been shaping its image as a strong advocate of free and unrestricted online retailing in the country. The lobbying group praised the decision as another victory, but said there was still a long way to go to achieve complete freedom on the internet.
Martin Riebel, managing director of Deuter, said that the company is appealing the decision. It wants to have the verdict looked at by a higher level of jurisdiction, notably in regard to European directives that the Frankfurt court regarded as non-substantial in this particular case.